DESPITE UNCERTAINTY CONCERNING the legality of

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1 GAMING LAW REVIEW AND ECONOMICS Volume 14, Number 4, 2010 Mary Ann Liebert, Inc. DOI: /glre The Uneasy Nexus Between Internet Gaming and Tribal Gaming Linda J. Shorey and Marsha A. Sajer DESPITE UNCERTAINTY CONCERNING the legality of gaming for cash or other consideration on the Internet in the United States, millions of Americans wager online more than $100 billion annually. Just as with the federal government s attempt to prohibit alcohol consumption, before the repeal of prohibition, which resulted in regulation and taxation of the alcoholic beverage industry, it appears that government will ultimately conclude that it is better to regulate and tax online gaming. It has been estimated that nearly $41 billion for the U.S. Treasury could be generated by regulating and taxing the online gambling industry over a 10-year period. 1 LEGISLATIVE EFFORTS Linda J. Shorey, M.S., J.D., and Marsha A. Sajer, J.D., LL.M., are partners in the Harrisburg, Pa. office of K&L Gates LLP. In 2006, opponents of Internet wagering in Congress succeeded in their long-running efforts to block online gambling by shutting off the ability of players to fund their online wagering accounts and the ability of operators to make payments to players who won. 2 Then Majority Leader Frist (R-Tenn.) arranged for the Unlawful Internet Gambling Enforcement Act (UIGEA) to be tacked onto the Safe Ports bill just before its passage. On Oct. 13, 2006, then President Bush signed the Safe Ports bill, along with its UIGEA component, into law. UIGEA created a crime and provided for regulations. 3 As to the crime, UIGEA is violated if a person is engaged in the business of betting or wagering and knowingly accepts money in connection with another s participation in unlawful Internet gambling. Under UIGEA, unlawful Internet gambling means to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made. 4 In other words, UIGEA is not violated unless the underlying gambling activity violates some other law, such as the Wire Act or a relevant state criminal law. As to the regulations, UIGEA required the Secretary of the Treasury and the Board of Governors of the Federal Reserve System, in consultation with the Attorney General, to promulgate implementing regulations. 5 UIGEA mandated that the regulations require financial institutions, payments systems, and payment system participants to block transactions that may involve unlawful Internet gambling. The UIGEA regulations were issued in final form on Nov. 18, The regulations require designated payment systems, including credit card companies and other financial institutions, to adopt policies and procedures reasonably designed to block transactions related to unlawful Internet gambling. 6 1 See Oct. 23, 2009 Congressional Joint Committee on Taxation study estimating the effect of H.R. 2667, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, and H.R. 2268, the Internet Gambling Regulation and Tax Enforcement Act of 2009 on federal fiscal year budget receipts. 2 Opponents of Internet wagering in Congress tried for a decade to pass legislation clarifying that the Wire Act (see The Wire Act and DOJ below for discussion of the Wire Act) applied to online wagering of any sort; ultimately they took another route to stop online gambling through the Unlawful Internet Gambling Enforcement Act. 3 See 31 U.S.C U.S.C. 5362(10)(A) (emphasis added). 5 See 31 U.S.C. 5364(a). 6 See 73 F.R (Nov. 18, 2008). 239

2 240 SHOREY AND SAJER Compliance with the regulations was not required until Dec. 1, Rep. Barney Frank (D-Mass.), chair of the House Financial Services Committee, and many of his House colleagues sought to further postpone the compliance date. 7 They, representatives of the regulated entities, and entities associated with certain forms of Internet gambling asserted that the regulated entities would not be ready to implement the mandated policies and procedures by the Dec. 1, 2009 compliance date, noting the lack of clarity as to what constitutes unlawful Internet gambling as a reason for this. In November, a flurry of letters supporting delay were submitted by Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.), other members of Congress, and representatives of the financial industry. 8 On Nov. 27, 2009, it was announced that a joint rule would be issued on Dec. 1, 2009 delaying the compliance date for six months, i.e., until Jun. 1, As noted, under UIGEA unlawful Internet gambling means to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made. 10 The term unlawful Internet gambling does not include bets or wagers initiated and received or otherwise made exclusively within a single State, if authorized by the state law that includes age and location verification requirements and if appropriate standards exist to prevent access by persons whose age and presence in the state cannot be verified. 11 A similar exception exists to permit gambling transactions between the Indian lands of two or more tribes 12 and is discussed in more detail infra. Determining whether a transaction will involve an activity prohibited by federal, state, or tribal antigambling law is a challenge for banks, credit card companies, and other financial institutions. Such a determination would entail interpretation of ambiguous federal law, complicated by pronouncements of the Department of Justice, and a maze of inconsistent state laws. A problem the UIGEA regulations create for operators of Web sites that accept or process bets and wagers (both legal and illegal) concerns how those wishing to wager on a particular Web site can fund a wagering account and how the operator can make payments to the wagerers. Although UIGEA, by its terms, is directed to unlawful Internet gambling, in practical application it may impact even forms of Internet gambling which are generally considered legal. UIGEA required the federal agencies, in promulgating the regulations, to ensure that transactions in connection with any activity excluded from the definition of unlawful Internet gambling are not blocked or otherwise prevented or prohibited by the prescribed regulations. 13 Specifically excluded from the definitions of unlawful Internet gambling are, for example, off-track wagering conducted in compliance with the Interstate Horseracing Act (IHA), intrastate, and intertribal wagering. 14 The final regulations, however, permit (and some would say encourage) payment systems to choose to block all transactions involving wagering, whether the activity is legal or illegal. Two forms of online wagering are generally considered to be legal by just about everyone except the Department of Justice offtrack wagering conducted in compliance with the IHA and subscription services offered by a few state lotteries. A blanket blocking of all transactions 7 Some others asking for, or supporting, delay included, the Poker Players Alliance, the National Thoroughbred Racing Association, the American Greyhound Track Owners Association, the American Bankers Association, the National Association of Federal Credit Unions, and the Independent Community Bankers of America. See 74 Fed. Reg (Dec. 1, 2009). In addition, a bill introduced in May 2009 by Rep. Frank the Reasonable Prudence in Regulation Act (H.R. 2266) would further delay compliance until Dec. 1, It remains in the House Financial Services Committee. 8 The only letter opposing delay was from Senator John Kyle (R-Ariz.) and Rep. Spencer Bachus (R-Ala.). Available at htm. 9 See 74 F.R (Dec. 1, 2009) U.S.C. 5362(10)(A) U.S.C. 5362(10)(B). 12 See 31 U.S.C. 5362(10)(C) U.S.C. 5364(b)(4) U.S.C , intrastate and intertribal wagering. The IHA provides that [n]o person may accept an interstate off-track wager except as provided in this chapter. 15 U.S.C means a legal wager placed or accepted in one State with respect to the outcome of a horserace taking place in another State and includes pari-mutuel wagers, where lawful in each State involved, placed or transmitted by an individual in one State via telephone or other electronic media and accepted by an off-track betting system in the same or another State, as well as the combination of any pari-mutuel wagering pools. 15 U.S.C. 3002(3).

3 INTERNET AND TRIBAL GAMING 241 involving wagering has the potential to greatly impact such legal online wagering activities. The exception in the UIGEA s definition of unlawful Internet gambling for state-authorized intrastate Internet wagering, coupled with state fiscal concerns, has resulted in discussion and activity in a number of states concerning the authorization of Internet poker. 15 Examples are California and Florida, both of which held hearings in February 2009 related to how that might be done. These states have federally recognized tribes that conduct landbased gambling. Tribes in California have been particularly vocal about whether Internet poker should be authorized by the state. As the economy worsened and the Democrats assumed majority status in the U.S. House of Representatives and U.S. Senate, interest in regulation (versus prohibition) of Internet wagering gained traction in Congress. The regulation effort has been spearheaded by Rep. Barney Frank (D-Mass.). Currently pending in Congress ( session) are three bills that provide for regulation and licensure of online wagering operators. In May 2009, Rep. Frank (who had introduced similar legislation in the session) introduced a bill the Internet Gambling Regulation, Consumer Protection, and Enforcement Act (H.R. 2267) 16 that, if passed, would provide a regulatory and licensure system for all forms of online wagering except wagering on sports events. 17 In August 2009, Sen. Robert Menendez (D-N.J.) introduced a bill the Internet Poker and Game of Skill Regulation, Consumer Protection, and Enforcement Act of 2009 (S. 1597) that, if passed, would provide a regulatory, licensure, and tax system for online wagering on skill games, defined to include Internet poker. In February 2010, Sen. Ron Wyden (D-Or.) introduced a bill, co-sponsored by Sen. Judd Gregg (R- N.H.), to amend the Internal Revenue Code of 1986 (S. 3018). Section 425 of the bill (found in Title IV, Subtitle C ( Internet Gambling Taxation and Regulation )) is titled Federal Licensing Requirement for Internet Gambling Operators. The licensure provided by 425, like that in Rep. Frank s bill, would cover all forms of Internet wagering, except wagering on sporting events. 18 These bills would impact UIGEA by unambiguously expanding the activities that would constitute lawful Internet gambling by providing for licensure of the operators of Web sites offering various forms of Internet wagering. THE WIRE ACT AND DOJ The Wire Act makes it a crime for a person or entity engaged in the business of betting or wagering to use a wire communication facility to 15 There are differing opinions as to whether UIGEA s intrastate exception equates to an affirmative acknowledgment that stateauthorized Internet wagering, if it meets the UIGEA requirements, is legal Internet wagering. Illinois appears to have recognized this in its legislation authorizing a pilot program that would allow the purchase of lottery tickets over the Internet, but only if the Illinois Department of Revenue, which operates the state lottery, submits a request to the United States Department of Justice for review of the State s plan to implement a pilot program for the sale of lottery tickets on the Internet and its propriety under federal law. The Department shall implement the Internet pilot program only if the Department of Justice does not object to the implementation of the program within a reasonable period of time after its review. 20 ILL. COMP. STAT. 1605/ Rep. Frank s bill would provide a framework for licensing Internet gaming operators. Those operators who apply for and receive licensure will be able to accept wagers from individuals located in the U.S., with some exceptions. The bill requires licensed operators to have a number of significant consumer protections, including safeguards against compulsive and underage gambling, money laundering, fraud, and identity theft. The bill would also permit individual states and tribes to determine whether to allow Internet gambling activity for persons accessing the Internet within the state or tribal lands. 17 A companion bill that would address how licensees should be taxed was introduced by Rep. James McDermott (D-Wash.) the Internet Gambling Regulation and Tax Enforcement Act of 2009 (H.R. 2268). Rep. McDermott s bill would raise revenue for the U.S. Treasury by ensuring that applicable individual and corporate taxes and license fees on regulated Internet gambling activities are collected. On Mar. 25, 2010, Rep. McDermott introduced a second companion bill the Internet Gambling Regulation and Tax Enforcement Act of 2010 (H.R. 4976) that expands upon his first bill by, among other things, providing for a fee that would go to states and tribes that do not elect to be excluded (i.e., opt-out) from receipt of the fee that would be imposed. The fee (to be paid monthly) would be 6% of monthly deposits with a licensee for online wagers made by persons who reside in the jurisdiction of a state or tribe that has not opted-out. This monthly fee would be in addition to the federal fee (also to be paid monthly) to be imposed on each licensee equal to 2% of the monthly deposits by customers of the licensee into an account maintained for purposes of making online wagers that is provided for in both bills. H.R would also impose an excise tax on wagers 0.25% of the amount of wagers authorized under federal or the law of the state in which it was accepted and 2.0% of wagers not so authorized. 18 Both bills include a restriction that they are not to be interpreted so as to authorize an operator of an Internet wagering site to accept wagers on sporting events in violation of the Professional and Amateur Sports Protection Act, 28 U.S.C , a federal law, effective in 1992, that prohibits states from authorizing sports wagering.

4 242 transmit, in interstate or foreign commerce, bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest. 19 The Wire Act does not, on its face, apply to purely intrastate transmissions. While there is little dispute that receiving online wagers for sporting events implicates the Wire Act, 20 there is dispute regarding whether receiving online wagers in connection with other activities (e.g., casino games, card games (including poker), and skill games) implicates the Wire Act. The only federal appellate court to address the issue to date, in a civil case, concluded that online wagering does not implicate the Wire Act unless it involves wagering on a sporting event or contest. 21 In 2007, a federal district court concluded that 1084(a) is not completely confined to sports wagering, concluding that the transmission of information assisting in the placement of bets or wagers on wagering activities other than sports implicates the Wire Act. 22 The Department of Justice (DOJ) has long maintained that all forms of online wagering, including that permitted by the IHA, violates the Wire Act. 23 In so doing, the DOJ has also taken the position that any gambling involving the use of the Internet is, by definition, interstate because all communications across the Internet could (and arguably are likely to) cross state lines. 24 However, it has not, to date, admitted to any criminal investigation having been undertaken in conjunction with off-track wagering conducted under the IHA or with state lotteries accepting payment for subscriptions over the Internet. THE INTERNET AND TRIBAL GAMING Tribes in 28 states conduct land-based gaming operations and constitute a major gaming presence in the United States. Tribes are actively engaged in the debate over whether Internet wagering should be legalized, as evidenced by the tribal presence at the December 2009 hearing on the Frank bill and the February 2010 hearing by the California Senate Committee on Governmental Organization on Intrastate Internet Poker. Although there is far from a uniform position amongst all tribes, most tribes have generally not been supportive of the current efforts to license and regulate Internet gaming. 25 This is not surprising, given the unsettled nature of what the tribes are permitted to do in the online arena under the SHOREY AND SAJER Indian Gaming Regulatory Act (IGRA), 25 U.S.C It is also not surprising that tribes having a monopoly on casino gambling in the state where they are located would oppose a federal law that would allow the licensure of Internet casino gambling, in the belief, correct or not, that it will lure players away from tribal casinos. In addition, tribes have understandable concerns about poten U.S.C. 1084(a). 20 After the Cohen case, see United States v. Cohen, 260 F.3d 68 (2d Cir. 2001), and the multiple indictments and subsequent settlements in the BetonSports prosecution, see United States v. BetonSports and related cases at Docket No. 4:06-cr CEJ-MLM (E.D. Mo.), there can be no doubt that it is illegal under the federal Wire Act for Internet gaming operators to accept wagers on sporting events from individuals located in the United States, Internet sports wagering remains big business. One need only conduct an Internet search for sports wagering online, however, to find Web sites that offer U.S.-based persons the opportunity to place wagers on sporting events taking place around the world. 21 See In re Mastercard, 313 F.3d 257 (5th Cir. 2002). 22 See U.S. v. Lombardo, 639 F.Supp.2d 1271 (D. Utah 2007). 23 See, e.g., Letter from David M. Nissman, U.S. Attorney, DOJ, to Eileen R. Petersen, Chair, Virgin Islands Casino Control Commission (Jan. 2, 2001) ( the Department of Justice does not agree with the decision in the [sic] In re MasterCard, 313 F.3d 257 (5th Cir. 2002), that Section 1084 is not applicable to casino-style wagering ) (while the letter is dated 2001, it is believed that the actual year it was sent was 2004); letter from Laura H. Parsky, Deputy Assistant Attorney General, DOJ, to Wayne Stenehjem, Attorney General of North Dakota (March 7, 2005) ( the Department of Justice believes that federal law prohibits gambling over the Internet, including casino-style gambling.... [T]he main statutes are Sections 1084, 1952 and 1955 of Title 18, United States Code. ). 24 UIGEA specifically states that the intermediate routing of electronic data is irrelevant to the determination of whether a bet or wager is deemed to have crossed state lines. 31 U.S.C. 5362(10)(E). 25 See Dec. 3, 2009 testimony of Robert Martin, Tribal Chairman, Morongo Band of Mission Indians, before the House Committee of Financial Services regarding Rep. Frank s bills (available at ). In contrast, the California Tribal Business Alliance (CTBA), while opposed to state intrastate Internet gambling as violative of the exclusivity guaranteed under California-tribal gaming compacts, has expressed its intention to participate in the discussion of proposed federal legalization of Internet gaming. See Mar. 24, 2010 letter from Leslie Lohse, Chairwoman, Board of Directors, CTBA, to Rep. Barney Frank (available at ). The United South and Eastern Tribes, Inc., an organization of 25 tribes, has advocated the undertaking of a comprehensive study of Internet gaming and the potential benefits for, and competition with, tribal gaming operations, and proposes to actively engage the sponsors of House and Senate legislation to ensure that the interests of tribal governments and tribal gaming operations are protected. See USET Resolution No. 2009:065, Oct. 29, 2009 (available at ).

5 INTERNET AND TRIBAL GAMING 243 tial intrusion on their sovereignty that may arise from a determination that the tribes are without authority to engage in Internet gaming or have done so in violation of federal or state law. Tribes, or their tribal gaming authorities, may nonetheless explore Internet gaming to enhance revenues or to preclude gaming that may be offered by other nontribal entities, including Internet gaming providers, that the tribes believe might adversely affect their gaming revenue. IGRA governs gaming on Indian lands. 26 It was enacted in 1988 to address the tension between tribes and states as a result of an increase in the gaming offered by tribes on their lands. 27 IGRA recognizes the exclusive right of tribes, under the supervision of the federal National Indian Gaming Commission (NIGC), to provide and regulate on tribal lands certain forms of gaming, denoted Class II, if the gaming activity is not prohibited under federal law or by the state in which the tribe is located. 25 U.S.C. 2701(5), 2710(b)(1). Class II includes games such as bingo and non-banking card games. 25 U.S.C. 2703(7). All casino-type games are denoted as Class III. 28 A tribe can conduct Class III gaming on tribal lands in a state that permits such gaming, but only if the tribe enters into a gaming compact with the state. 25 U.S.C. 2710(d)(1). In some states, the compacts provide the tribes with exclusive gaming rights in the state or in a specified region of the state. How IGRA and UIGEA affect potential Internet gaming by tribes raises a host of unresolved issues, including whether a tribe may offer games online, the form such gaming might take, how online gaming would work with existing tribal-state compacts, and how and by whom it might be regulated. Whether IGRA itself authorizes tribes to engage in Internet gaming is unresolved. IGRA does not specifically address Internet tribal gaming. However, IGRA s legislative history contemplates that gaming could occur across multiple reservations and could take advantage of changing technology. The Committee specifically rejects any inference that tribes should restrict class II games to existing game sizes, levels of participation, or current technology. The Committee intends that tribes be given the opportunity to take advantage of modern methods of conducting class II games and the language regarding technology is designed to provide maximum flexibility. In this regard, the Committee recognizes that tribes may wish to join with other tribes to coordinate their class II operations and thereby enhance the potential of increasing revenues. For example, linking participant players at various reservations whether in the same or different States, by means of telephone, cable, television or satellite may be a reasonable approach for the tribes to take. Simultaneous games participation between and among reservations can be made practical by use of computers and telecommunications technology as long as the use of such technology does not change the fundamental characteristics of the bingo or lotto games.... In other words, such technology would merely broaden the potential participation levels and is readily distinguishable from the use of electronic facsimiles in which a single participant plays a game with or against a machine rather than with or against other players. 29 Although the legislative history expressly addresses only Class II gaming, it suggests two guiding principles: 1.) IGRA is not intended to restrict tribes to then-existing technology; and 2.) the use of newer technology should be used to promote participation among players, rather than creating methods by which a person can play against a machine. These principles are highly relevant to Internet poker proposals contemplated at the federal and state levels, especially as to online card games played against other players. 26 Indian lands are 1.) all lands within the boundaries of any Indian reservation and 2.) any lands a.) over which a tribe exercises governmental power, b.) title to which is either i.) held in trust by the United States for the benefit of any Indian tribe or individual or ii.) held by any Indian tribe or individual subject to restriction by the United States against alienation. 25 U.S.C. 2703(4); 25 C.F.R In California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987), the United States Supreme Court concluded that state gaming laws have no force on Indian lands if the type of gaming does not violate the state s public policy, i.e., the gaming at issue was regulated rather than prohibited. The court acknowledged the retained right of tribes as sovereign nations to engage in gaming without state interference as long as gaming of some form was legal in that state. 28 Class III includes all gaming that does not constitute Class I (social games for minimal prizes or traditional forms of gaming used in ceremonies) or Class II gaming. See 25 U.S.C. 2703(6),(8). 29 S. REP. NO , 100th Cong., 2d Sess., at 9.

6 244 No court has yet ruled whether a tribe may operate an Internet gaming site that allows players located off the reservation to participate. The few cases that have addressed tribal conduct of Internet gaming suggest it is the location of the bettor, rather than of the server, that determines if the gaming is taking place on Indian lands, but those cases did not resolve the ultimate issue. 30 DOJ takes the position that IGRA does not authorize off-reservation gaming and, thus, Internet gaming for consideration involving persons located off tribal lands is outside IGRA s safe harbor. 31 In an advisory opinion issued by NIGC s Office of General Counsel on whether a proposed game was Class II or Class III, NIGC advised that the use of the Internet, even though the computer server may be located on Indian lands, would constitute off-reservation gaming to the extent any of the players were located off of Indian SHOREY AND SAJER lands. 32 NIGC, in that opinion, did not provide a legal analysis of the use of the Internet for gaming under the IGRA but relied instead upon the position adopted by the DOJ in litigation over the Coeur D Alene s Tribe s National Indian Lottery. 33 More recently, NIGC has indicated that it is considering whether the use of the Internet for inter-tribal gaming under IGRA is permissible under UIGEA. 34 If a tribe should desire to offer Internet gaming under the IGRA, among the first issues that will need to be resolved is whether a tribal-state compact would be necessary to permit such gaming. The resolution of that issue will turn, in part, on how Internet gaming (or an individual Internet game) is classified under IGRA. Under IGRA, tribes themselves regulate Class II gaming. In contrast, a tribe can offer Class III gaming, including banking card games, slot machines, 30 See AT&T Corporation v. Coeur D Alene Tribe, 295 F.3d 899 (9th Cir. 2002); Missouri v. Coeur D Alene Tribe, 164 F.3d 1102 (8th Cir. 1999). The Coeur D Alene cases arose from the tribe s conduct of a National Indian Lottery pursuant to its compact with the state of Idaho. Administration of the lottery occurred entirely on the reservation, but participants outside the reservation could participate via telephone or the Internet. After the tribe contracted with AT&T to establish toll-free telephone service for its lottery, several state Attorneys General warned AT&T that such telephone services would be illegal. As a result of these warnings, A&T declined to provide the service to the tribe. Two suits arose. In one, which addressed AT&T s obligation to the tribe, the federal district court opined that the tribe s lottery was not governed by IGRA because the tickets were not purchased on the reservation. On appeal, the Court of Appeals for the Ninth Circuit noted that the NIGC had approved the management contract for the telephone services knowing that calls would be placed from other states and, thus, that the telephone services were not prohibited by IGRA, but vacated the district court s decision for lack of a proper party. 295 F.3d at In the second, the Attorney General of Missouri filed suit in state court to enjoin the operation of the lottery with Missouri residents. The tribe removed the case to the federal district court, which dismissed the case, concluding that the IGRA completely preempted the field of Indian gaming regardless of where gaming occurs. On appeal, the Eighth Circuit found that the district court erred in failing to decide whether the tribe s Internet lottery was conducted on Indian lands. The Eighth Circuit remanded for the district court to determine whether a lottery is conducted on Indian lands when a participant plays from a computer located in a different state with instructions that if the lottery is conducted on the tribe s lands, IGRA completely preempts the state s attempt to regulate or prohibit it, but if the lottery is conducted off the tribe s Indian lands, IGRA will not preempt the state law claims. 164 F.3d at The court observed that [o]nce a tribe leaves its own lands and conducts gambling activities on state lands, nothing in the IGRA suggests that Congress intended to preempt the State s historic right to regulate this controversial class of economic activities. Id. at The case was discontinued before the district court took further action. 31 In testimony before the Senate Committee on Indian Affairs in 1999, the Deputy Assistant Attorney General, while noting IGRA s allowance of some electronic coordination between gaming facilities conducted entirely on Indian lands, stated that to the extent that Indian Tribes seek to offer gaming to citizens of various states, where such gaming does not take place solely on Indian lands and is not authorized under state law, there is no compelling reason to exempt Indian Tribes from the otherwise generally applicable provisions of the legislation for such off-reservation gambling. Testimony of Kevin V. DiGregory, Deputy Assistant Attorney General, DOJ, Addressing Internet Gambling and Indian Gaming Before the Senate Committee on Indian Affairs, Jun. 9, See, e.g., Mar. 13, 2001 letter from Kevin K. Washburn, General Counsel, NIGC, to Joseph M. Speck, Nic-A-Bob Productions, enclosing Jun. 22, 1999 letter from Montie R. Deer, Chairman, NIGC, to Ernest L. Stensgar, Chairman, Coeur d Alene Tribe, re: National Indian Lottery. 33 See id. and note 16, supra. In another advisory opinion regarding proposed Internet bingo, the NIGC Office of General Counsel opined that because not all of the activity would occur on Indian lands, it would not constitute Class II or III gaming under IGRA. See Oct. 26, 2000 letter from Kevin K. Washburn, General Counsel, to Robert A. Rosette, Esq., re: Lac Vieux Desert Internet Bingo Operation. That advisory opinion relied upon the federal district court s opinion in the Coeur D Alene litigation that was subsequently vacated on appeal. 34 See Development of Internet Gambling Regulations Conference Call with the National Indian Gaming Commission (NIGC), Feb. 5, 2008 (available at gov/secrs/2008/april/ /r-1298/r-1298_226_1. pdf ).

7 INTERNET AND TRIBAL GAMING 245 and other casino-type games only in accordance with a gaming compact with the state. If games conducted on the Internet are deemed to be Class II, they would not have to be covered by a tribal-state compact and would be regulated by the tribes subject to NIGC oversight. Landbased games that fall in Class II may not, however, be Class II games if offered over the Internet. Under IGRA, games that electronically duplicate live Class II games are not treated as Class II gaming. Instead, electronic or electromechanical facsimiles of any game of chance are specifically excluded from Class II gaming and treated as Class III gaming. 35 A Class II game can thus be transformed into a Class III game if NIGC (or a court) deems the electronic copy of that game to be an electronic or electromechanical facsimile. 36 Neither NIGC nor a court has yet addressed whether Internet gaming or any individual Internet game constitutes an electronic or electromechanical facsimile that would require the game to be treated as Class III gaming and made subject to a tribal-state gaming compact. A related issue is whether a particular type of Internet game is a game of chance or of skill, as only electronic or electromechanical facsimiles of any game of chance are excluded from Class II. 37 If Internet games are deemed Class III, they will be governed by a tribal-state gaming compact, if permitted or not excluded under any such existing gaming compact. Some gaming compacts expressly limit or condition Internet gaming on the previous grant of authority by the state to nontribal gaming entities. 38 Many other existing compacts do not address (or are ambiguous with respect to) Internet gaming. Standard compact terms, e.g., gaming device, may or may not be interpreted to include Internet gaming. Many gaming compacts provide tribes with exclusive gaming rights within a state or a defined geographic region of the state, but are ambiguous as to whether the exclusivity provisions would bar individuals within the covered geographic areas from playing Internet games offered by non-tribal operators. They are similarly ambiguous as to how a tribe, were it to offer Internet gaming, can seek to enforce its monopoly. Multiple tribal-state compacts of each state would likely come into play, if tribes located in different states were to operate intertribal Internet gaming. Finally, the effect of UIGEA would need to be considered. While UIGEA purports not to alter tribal gaming under the IGRA, the UIGEA provision excluding tribal gaming from the definition of unlawful Internet gambling might be interpreted in such a way as to limit gaming potentially authorized by the IGRA. 39 UIGEA defines unlawful Internet gambling to exclude a bet or wager... initiated and received or otherwise made exclusively within the Indian lands of a single Indian tribe or between the Indian lands of two or more Indian tribes. 40 This language appears not to encompass the initiation of wagers by persons located off Indian lands. UIGEA s definition will likely come into play should a tribe offer Internet gaming U.S.C. 2703(7)(B)(ii). 36 Under IGRA, an electronic or electromechanical facsimile is a game played in an electronic or electromechanical format that replicates a game of chance by incorporating all of the characteristics of the game. 25 C.F.R An exception exists for bingo, lotto, and other games similar to bingo. Those games remain Class II gaming if the electronic or electromechanical format broadens participation by allowing multiple players to play with or against each other rather than with or against a machine. Id. See also S. REP. NO , 100th Cong., 2d Sess., at 9 (distinguishing between technology that merely broadens the potential participation levels and electronic facsimiles in which a single participant plays a game with or against a machine rather than with or against other players). 37 See 25 U.S.C. 2703(7)(B)(ii). NIGC regulations do not define game of chance. The issue may arise in connection with Internet poker, which is the form of Internet gaming for consideration that is receiving a great deal of attention in relation to state authorization of Internet wagering. Courts that have considered whether non-internet poker is primarily a game of chance or skill have reached opposite opinions. See, e.g., Joker Club, L.L.C. v. Hardin, 643 S.E.2d 626, (N.C. Ct. App. 2007) (concluding that because chance predominates over skill in the game of poker, poker is a game of chance); See Chimento v. Town of Mount Pleasant, Case No CP (Charleston Co. C.C.P., Oct. 1, 2009), Slip Op.at 11 ( For the reasons set forth above, this Court has concluded that Texas Hold em is not gaming within the meaning of South Carolina law because skill predominates over chance. ); Commonwealth v. Dent, Dkt. Nos. 733 and 746, 2009 Pa. Dist. & Cnty. Dec. LEXIS 146, *18 (Columbia Co. Pa. C.C.P., Jan. 14, 2009) (concluding that Texas Hold em poker is a game where skill predominates over chance ), reversed, 2010 Pa. Super. LEXIS 76, Mar. 25, 2010). 38 For example, the standard Indian Community-State of Arizona Gaming Compact, provides: The Tribe shall not be permitted to conduct gaming on the Internet unless Persons other than Indian tribes within the State or the State are authorized by State law to conduct gaming on the Internet. Available at 39 See 31 U.S.C. 5361(b) ( No provision of [UIGEA] shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States. ) U.S.C. 5362(10)(C).

8 246 Because of the monetary value of gaming to the tribes (and, through revenue-sharing agreements, to the states), a state considering whether to authorize and regulate Internet gaming will need to consider the effect on any tribal gaming that takes place in the state. Where a tribe has negotiated a compact with the state for exclusive gaming rights within a certain geographical region, the state s licensure of Internet gaming operators that offer gaming to persons within the region may trigger legal challenge by a tribe that views such non-tribal gaming as a breach of its exclusive rights. In such circumstances, there also is a potential loss of the revenues pledged to the state in exchange for tribal exclusivity. For example, California tribal-state gaming compacts permit a tribe to terminate the compact, cease its payment of the revenue share to the state, or attempt to enjoin gaming by the competing entity if a person other than a tribe is lawfully permitted to operate gaming devices. 41 In addition, upon such an occurrence, a California tribe may cease to make payment into the revenue sharing trust fund designed to provide a share of gaming revenues to federally recognized, non-gaming tribes in California for education, economic development, and other SHOREY AND SAJER tribal purposes. 42 The gaming compact between the Seminole Tribe of Florida and the State of Florida that was authorized by the Florida Legislature in April 2010 specifically provides that if the State authorizes Internet gambling and there is a 5% drop in the tribe s gaming revenue from the previous twelve month revenue level, the tribe is excused from making its guaranteed revenue share payment to the State. 43 No state has yet authorized Internet gaming. But as states work to fill holes in their budgets without raising taxes, online gambling will continue to be a point of discussion. States have added or expanded land-based casino gaming, but experts anticipate that the market for such gaming will soon become saturated and that online gambling will provide access to a population different from land-based gaming participants. Thus, intrastate Internet poker proposals such as those considered in California and Florida, if enacted, may establish a legal framework for intrastate gaming and protocol for addressing tribal-state issues. Hearings on the Internet poker proposal in California show that the California tribes do not speak with a single voice as to the effect on tribal-state compacts See and CAL. GOV T CODE (model tribal-state compact); individual tribal-state compacts are available at compacts.asp. Preamble E of the standard California tribalstate compact provides exclusive rights to the tribes to conduct Class III gaming: The exclusive rights that Indian tribes in California, including the Tribe, will enjoy under this Compact create a unique opportunity for the Tribe to operate its Gaming Facility in an economic environment free of competition from the Class III gaming referred to in Section 4.0 of this Compact on non-indian lands in California. The parties are mindful that this unique environment is of great economic value to the Tribe and the fact that income from Gaming Devices represents a substantial portion of the tribes gaming revenues. In consideration for the exclusive rights enjoyed by the tribes, and in further consideration for the State s willingness to enter into this Compact, the tribes have agreed to provide to the State, on a sovereign-to-sovereign basis, a portion of its revenues from Gaming Devices. 42 See CAL. GOV T CODE (model tribal-state compact), 5.0, Gaming Compact Between the Seminole Tribe of Florida and the State of Florida at XI.B.3. (copy available at myfloridahouse.gov/sections/committees/committeesdetail.as px?committeeid 2527 ). The revenue share payment obligation would be reinstated if revenue rises above that of the 12- month period. In addition, the provision would not apply if revenue decline is occasioned by an act of God or certain other non-gaming related events or if the tribe offers Internet gaming as authorized by law. Id. 44 The Morongo Band of Mission Indians, which proposes to work with existing California non-tribal card rooms to offer Internet poker, has taken the position that Internet poker does not implicate the exclusivity provisions of the existing California tribal-state gaming compacts. See Feb. 9, 2010 testimony of Robert Martin, Chairman, Morongo Band of Mission Indians, before the California Senate Committee on Governmental Organization on Intrastate Internet Poker (available at calchannel.com/channel/videos/ ). Other tribes and tribal entities view the Internet poker proposal as in direct conflict with the plain language of the exclusivity provisions of the tribal-state compacts and the spirit of the agreement between the tribes. See Feb. 9, 2010 testimony of Mark Macarro, Chairman, Pechanga Band of Luiseño Indians, and Leslie Lohse, California Tribal Business Alliance, before the California Senate Committee on Governmental Organization on Intrastate Internet Poker. Although the non-gaming tribes have not taken a position regarding a proposal to license operators to offer intrastate Internet poker, they emphasize that any such proposal should take into account the public policy mandate of the amendment to the California Constitution that authorized tribal gaming i.e., to support the economic development of all tribes, including the non-gaming tribes entitled to a share of gaming revenues. See Feb. 9, 2010 testimony of Gerald Clark, Jr., California Association of Tribal Governments, before the California Senate Committee on Governmental Organization on Intrastate Internet Poker.

9 INTERNET AND TRIBAL GAMING 247 CONCLUSION It is beyond dispute that many persons in the United States currently engage in unregulated Internet wagering, and that the revenues from such activity are flowing to the operators of unlicensed operators of Internet gambling Web sites. Understandably, tribes are concerned about the impact of federal or state licensure, regulation, and taxation of Internet wagering on their IGRAestablished gaming rights. However, the need for new revenue by governments suggests that regulation and taxation of Internet gambling will eventually happen in the United States. When, how, and where accommodation or compromise of these concerns will be achieved cannot be predicted, but tribal concerns are not likely to be disregarded.