How Sports Betting Upended the Economies of Native American Tribes
A Risky Wager
How Sports Betting Upended the Economies of Native American Tribes
Johnny Lehi Jr., president of the San Juan Southern Paiutes, has had to consider how to provide for the tribe’s residents after it lost a slot machine deal worth up to $7 million yearly. Credit…Amir Hamja for The New York Times
Hard-fought deals for casinos gave many tribes a critical economic lifeline. When the doors opened to widespread sports betting, others wanted in on the gambling business.
By David W. Chen, Mark Walker and Kenneth P. Vogel
David W. Chen, Mark Walker and Kenneth P. Vogel visited tribal leaders, reviewed court cases and spoke with numerous casino executives and lobbyists to see how the rapid expansion of sports betting was affecting Native American tribes.
Feb. 10, 2023
For decades, gambling has been the most important source of income for hundreds of Native American tribes. Now, in many parts of the country, the rapid spread of sports betting and online wagering is threatening to crimp that economic lifeline.
In Florida, the powerful Seminole tribe forged a lucrative deal to exclusively offer sports betting in the state, only to have the deal blocked by a lawsuit from casino companies.
In the Upper Peninsula of Michigan, one tribe saw its gambling revenue decline sharply last year because of chaos in the online betting business.
And in Arizona, traditional casinos and sports teams gobbled up 95 percent of the nascent sports-betting market, which will be on vivid display at Sunday’s Super Bowl in Glendale, where fans in attendance can bet on the game for the first time. Tribes that had relied on gambling are now scrounging for scraps; the leader of one tribe said he might have to ration food and water for its impoverished residents.
Tribal gambling took root in the early 1980s after Florida’s Seminole tribe opened a bingo hall, helping to make up for steep Reagan-era federal budget cuts to Native American tribes. In 1987, the Supreme Court ruled that tribes could conduct gambling on their own lands.
Since then, casino gambling has blossomed into a $39 billion industry for 243 federally recognized tribes in 29 states.
But in 2018, the Supreme Court struck down a federal law banning most sports betting outside Nevada. That prompted three dozen states to authorize sports wagering, including 22 states that have tribal gambling.
The field has been crowded by a combination of fast-growing online platforms like DraftKings and FanDuel and by old-school casino companies like Caesars Entertainment and MGM Resorts International. Companies have deployed armies of lobbyists, lavished lawmakers with gifts and campaign cash and at times trotted out questionable data to extract favorable deals in state capitals.
Some tribes are seeing revenue evaporate as giant gambling companies enter the fray. In other situations, tribes are losing their prime position to capitalize on an expected explosion of all kinds of online gambling.
“The private sector has always wanted what the tribes have,” said W. Ron Allen, president of the Washington Indian Gaming Association, and a past president of the National Congress of American Indians. “So they’re looking at ways to try to squeeze the tribes out.”
‘We Had Our Prom Dress On’
In 1988, Congress passed the Indian Gaming Regulatory Act and established the National Indian Gaming Commission. Tribes were required to strike deals with states — called compacts — and often had to pay a share of revenue to offer certain types of gambling on their lands.
In 1993, Michigan cut a deal that granted the Hannahville Indian Community and six other tribes “the exclusive right to operate electronic games of chance.”
Casino revenues helped the Hannahville tribe and its 543 members become less dependent on government grants. Today’s median household income of $40,000, which is a little more than half the national average, is higher than for many Michigan tribes, according to census data.
Gambling in Michigan expanded twice over the objections of tribes, once in 1996 to allow commercial casinos in Detroit and again in 2003 for betting in bars and restaurants.
Then in 2019, with the backing of industry giants, state officials authorized online betting for sports and for other casino games, including slots and blackjack. The tribes could take part in the new offerings, but the agreement fell outside of the Indian Gaming Regulatory Act so the tribes were treated like nontribal gambling companies.
“If you’re a remote tribe that doesn’t have a large populace, and your competitive advantage was, ‘We have slot machines,’ well, that’s taken a hit now,” said Scott Herioux, Hannahville’s chief financial officer, in an interview at the tribe’s Island Resort and Casino, which is about 100 miles north of Green Bay, Wis.
Hannahville and other Michigan tribes had a choice when widespread sports betting was legalized. They could build up a sports betting business on their own. Many instead arranged partnerships with outside companies that already had expertise in marketing, software and booking sports wagers — and the will to assume much of the risk.
The handful of tribes that teamed up with the biggest operators — like the Bay Mills Indian Community did with DraftKings — have done well.
The Hannahville tribe partnered with TwinSpires, an arm of Churchill Downs, which hosts the Kentucky Derby. But last February, TwinSpires cut off the deal and abandoned its online gambling ventures beyond horse racing. Corporate officials said they did not see a path to profitability in a “highly competitive” market.
“We were kind of shocked,” said Tony Mancilla, Island Resort’s general manager. “We had our prom dress on, and we didn’t have a date.”
Hannahville’s online betting operations ground to a halt.
The tribe eventually found new partners — the Israeli company 888 and Sports Illustrated. Online sports betting resumed, but other forms of internet betting have not.
As a result, Hannahville’s internet gambling revenues plummeted to $5.8 million in 2022 from $16.7 million in 2021, state records show. The result was that the tribe’s overall gambling revenue fell by more than 12 percent last year.
With the long-term viability of betting in doubt, the tribe is investing in its golf courses and real estate.
Its gambling, said Kenneth Meshigaud, the longtime tribal chairperson, is “not going to be able to sustain itself forever.”
For years, gambling in North Dakota was limited to slot machines and some table games at 11 tribal casinos, which generated about $250 million in revenue annually for five tribes. The state did not want gambling to be as prevalent there as in other states, like Nevada.
Then came a new offering.
Bars, gas stations and other local businesses starting in 2017 were allowed to offer betting through electronic pull tab machines, which look and play like slots.
The machines generated $182 million in total revenue in the fiscal year that ended in June 2022, and there are now more electronic pull tab machines in nontribal businesses than slot machines at tribal casinos.
The impact for the Mandan, Hidatsa and Arikara Nation has been devastating: a loss of up to 70 percent of the tribe’s revenues and 70 percent of its jobs.
“We were beaten down so hard, it wasn’t even funny,” Mark Fox, the tribe’s chairman, said in an interview in Bismarck, the state capital.
Then the Supreme Court opened the door to sports betting. The North Dakota tribes saw a potential lifesaver. If they could secure exclusive rights, they could potentially make up for their decimated slot machine business.
State officials balked. The tribal compact was set to expire, and tribes needed a new agreement to keep their casinos. With that leverage, Gov. Doug Burgum, a Republican, pushed a compromise that was unpleasant for the tribes. They would be permitted to offer sports betting and online gambling, but only on tribal lands.
Meanwhile, state lawmakers introduced legislation that would let commercial companies offer sports betting across North Dakota if voters approve, arguing that tribes had plenty of other ways to generate revenue.
“They have the big casinos where people can go stay overnight, have dinner and drinks,” said State Representative James M. Kasper, a Fargo Republican. “They are the only entities with those brick-and-mortar buildings.”
If the legislation is approved, the tribes’ share of the state’s gambling market is likely to shrink even further.
Rationing Food and Water
In Arizona, gambling used to be limited to 22 tribes under a 2003 compact. A few years ago, Doug Ducey, the state’s Republican governor at the time, backed by longtime allies from the state’s professional sports teams, pushed for a new agreement that would give teams and commercial casinos the right to open sports books and take mobile wagers.
The biggest tribes were also on board, in part because they could take sports bets and offer a wider menu of casino games like baccarat, craps and roulette. They were also allowed to build more casinos, which they wanted to attract tourism.
Among those who helped design the legislative deal in Arizona was Jeremy Kudon, a lobbyist at the international law firm Orrick who spearheaded a national push on behalf of some of the largest sports betting platforms and professional sports leagues. A key part of his strategy was trying to broker compromise deals.
Mr. Ducey hosted a signing ceremony in April 2021 at the Heard Museum in Phoenix, which is dedicated to American Indian art. Five months later, Arizona went live with sports betting in time for the 2021 N.F.L. season.
The major professional sports teams were guaranteed licenses. They got a head start and spent heavily on attracting customers while partnering with top national commercial casinos.
Conversely, 16 tribes jockeyed for 10 licenses, and therefore had to make proposals, pay a nonrefundable $100,000 application fee and vet partners before they could even begin trying to attract bettors.
“Quite frankly, we were left behind,” Charlene D. Jackson, a longtime lawyer for several of the tribes, said before becoming a judge in November.
To date, the five biggest sports betting companies — FanDuel, DraftKings, BetMGM, Caesars and Penn Entertainment (Barstool) — have dominated the market in Arizona.
On Sunday in Glendale, visitors to the Super Bowl will be able to place bets at a BetMGM sports book that opened next door to State Farm Stadium in September.
Since the deal, bigger tribes with casinos have reported increases in foot traffic thanks to the additional wagers offered. But tax revenues have fallen far short of the state’s expectations and some tribes have lost ground.
For years, the only steady source of income for the San Juan Southern Paiutes has been its rights to 613 slot machines, which it has leased to other tribes with casinos. The Paiutes have tried to develop other forms of income, but have been unsuccessfulwhile locked in a land dispute with their Navajo neighbors.
Arizona’s scramble helped prompt another tribe to end the slots deal that had generated up to $7 million a year for the Paiutes. Eventually, the Paiutes found a different partner to offer sports betting — the Britain-based company Betway — but the terms won’t generate as much money initially. (The Paiutes said they could not discuss the lost deal for legal reasons.)
The abrupt change has prompted Johnny Lehi Jr., the tribal council president, to discuss rationing packaged foods and water for the tribe’s 300 members, many of whom lack running water and electricity.
“The tribe feels abandoned,” said Julia Kolsrud, the Paiute’s general counsel.
Playing Both Sides
The Seminole Nation has come a long way from its bingo hall.
With its distinctive Guitar Hotel at its flagship Seminole Hard Rock Hotel & Casino Hollywood outside Miami, the Seminoles are described by the federal government as a “thriving self-governing community.” Each tribal member reportedly receives annual dividend payments of $128,000.
So when the Seminoles made a play for sports betting, it seemed like the making of a crowning moment for all Native Americans.
In April 2021, they joined Gov. Ron DeSantis, a Republican, to announce a deal for a new 30-year compact giving them the exclusive right to offer online betting throughout Florida on sports and other games, among other new gambling offerings. In exchange, they would pay the state a minimum of $2.5 billion over the first five years of the compact.
The arrangement would have prevented DraftKings, FanDuel and other commercial gambling companies from launching their own sports-betting platforms in Florida. But the state legislature and the federal government had to sign off, and a heated lobbying battle ensued.
Lobbyists for DraftKings, under the direction of Mr. Kudon, mobilized against the online gambling portions of the compact.
They claimed that allowing the tribe to offer online betting throughout the state would violate the 1988 federal law governing tribal gambling, which required that betting covered under the law needed to take place on Native American land. At issue was whether that requirement could be satisfied by locating the computer servers that processed the bets on tribal land, even if the bets were being placed by people all over the state.
The position that DraftKings and Mr. Kudon took in Florida — that the location of the servers was not sufficient — seemed logically inconsistent with an argument that they had used to push for the legalization of online sports betting in New York. To meet a provision in the state constitution requiring gambling to occur at state-authorized casinos, Mr. Kudon’s team argued that, as long as the servers accepting the bets were located at the casinos, that’s where the bets should be deemed to have taken place, regardless of the location of the bettors.
But Mr. Kudon and his team argued to lawmakers in Florida, some of whom were skeptical, that the rationale they advanced in New York was not applicable for the Seminoles because the tribe’s compact had to comply with the federal Indian Gaming Regulatory Act, rather than New York state laws.
“We are talking about two very different and distinct bodies of law,” Mr. Kudon said in a statement. “One involves the interpretation of a state constitution, while the other involves the breadth of a federal law.”
Lawmakers in Florida eventually approved a less ambitious compact, which allowed the Seminoles to exclusively offer in-person and online sports betting but not a full suite of online casino games.
The Seminoles launched online sports betting in November 2021, but the server argument resurfaced.
A pair of well-connected smaller casinos filed a lawsuit, echoing the argument that DraftKings and Mr. Kudon had made in Florida. The Seminoles tried a similar rationale to the one that worked in New York — that the location of the servers trumped the location of the bettors — but they were rebuffed.
A judge dismissed the reasoning as “fiction” and nullified the compact. The Seminoles’ promising foray into online sports betting had lasted exactly three weeks. (The tribe has appealed; the New York law has not been challenged in court.)
The federal Bureau of Indian Affairs is considering amending its rules to make clear that tribes “should have the opportunity” to negotiate compacts allowing them to offer online gambling outside of their lands. But, if the decision negating the Seminoles’ compact is upheld, it is unclear whether any resulting rule changes would help the tribe, or other tribes seeking to avoid a similar outcome.
Other litigation looms elsewhere. In Washington State, where tribes have the exclusive right to retail sports betting on Indian lands, a company that operates card rooms in the state is arguing that the tribes have illegally established a monopoly.
Although its current focus is on sports betting, the gambling industry sees online betting on casino games like slots, blackjack and baccarat as a much bigger prize, because they are far more popular and profitable.
Six states have already done this — including Michigan, New Jersey and Pennsylvania — and more seem likely to expand gambling offerings soon.
“If the tribes can’t have mobile — which will eventually mean they won’t have online casinos — then you are effectively writing an expiration date on tribal gaming,” said John T. Holden, a law and business professor at Oklahoma State University. “Maybe it’s 20 years, maybe it’s 30 years, but everyone else is moving online.”
David W. Chen reported from Phoenix and Harris, Mich., Mark Walker from Anchorage and Bismarck, N.D., and Kenneth P. Vogel from Washington and Anaheim, Calif. Eric Lipton contributed reporting from Washington.