How small tribes could get in on the Internet gambling bonanza

November 18, 2013

Lac du Flambeau Lake Superior Band of Chippewa Indians' gaming site, ready to go.

On Sunday, the Washington Post reported on casino billionaire Sheldon Adelson's campaign to stave off the fast-moving legalization of online gambling. For him, it's an all-out effort to stifle competition for the Las Vegas Sands, one of the biggest brick-and-mortar gambling operations in the country.

Some of the smallest outfits, however, see the Internet as a huge opportunity. Last week, hundreds of native leaders were in town for the White House's annual summit on tribal issues. Later that evening, a few from the smaller tribes in the northern Midwest gathered in a private dining room at D.C.'s Washington Plaza hotel to discuss a business proposition: A treaty for pooling their resources into an online gambling operation that could rival the industry's titans.

"Nobody knows how big it's going to be," says Jeffrey Nelson, the Washington, D.C.-based lawyer who's orchestrating the effort. "But everyone has stars in their eyes, because it's large."

The effort is a response to a problem in Indian Country: Tribes close to urban centers have raked in most of the casino revenues, while those in more remote locations have few ways to monetize their sovereign status. The Internet could help compensate  for their geographical handicaps, but it's not that easy to set up a gambling Web site with the kind of user base and "liquidity" -- capital to pay up if someone scores big against the virtual house -- necessary to create a stable operation. The big tribal casinos already have the deep coffers and sterling brands they need to hit the ground running, which could exacerbate the inequality between rich Indians and poor ones.

So far, the only question has been what will happen on a federal level. Last year, it appeared that Senate Majority Leader Harry Reid (D-Nev.) was pushing for legislation that would legalize online poker, but it foundered, and successive attempts don't seem any closer to success. "Now, nobody thinks anything's going to happen for the foreseeable future," Nelson said.

Most tribes, however, don't need federal or state approval to start offering "Class II" games -- mostly bingo and poker -- as long as the players are located within their reservations, with a perfunctory sign-off from the National Indian Gaming Commission. Even without the high-dollar, low-skill games like blackjack and roulette, Class II gaming can be quite profitable, and an online offering would serve as an additional selling point for a small casino or other tourist attraction.

So Nelson came up with an idea: If enough small tribes could bind together to set up a common platform, they could achieve the scale necessary to attract a critical mass of gamers, and a commission with representatives from each tribe would divvy up the profits while pushing for broader legalization. A few months ago, he presented the idea to Wisconsin's Lac du Flambeau Lake Superior Band of Chippewa Indians, who were already developing their own gaming site.

"Some of the older guys on the council, they see the word treaty, and they're a little hesitant," said Jerome "Brooks" Big John, a member of the tribal council. But Nelson explained that it wouldn't confine their business operations, and that acting as a unit would just help them advocate for expansion of off-reservation gaming in the rest of the state. It worked: The tribe ratified the treaty on Oct. 17. "I think that knocking on doors together, we'll be able to accomplish more," Big John said.

It's more than just solidarity, though. Lac Du Flambeau's free-play site has been up and running since September. Even though its 3,500 members don't pay anything, the tribe can use it to run promotions for its terrestrial casino, until it decides to "flip the switch" and allow real money to be exchanged. If other tribes sign the treaty, they could share data on gamblers who've come through their systems, which dramatically expands their reach.

Nelson is still recruiting tribes, and says about 40 have expressed interest, while declining to name them. He may have competition. Earlier in the spring, another group called the Intertribal Online Gaming Alliance said it would be attempting something similar, but with a more aggressive business plan: Marrying tribal payday lending operations with online gaming, allowing loans to be placed as bets. It's a risky strategy; payday lending has attracted opposition from state and federal regulators who claim the tribes are helping private companies make an end run around the law. (Representatives of ITOGA did not return requests for comment.) [UPDATE: An ITOGA representative said the organization decided against the combination payday loan-gambling plan.]

Lac du Flambeau also has a payday lending operation, and is building a call center to support it. Wisconsin regulators took a look at the operation, but Big John says their lobbyists were able to "calm the waters."

"It's just another economic development avenue," Big John says. "It's not that we're renting our sovereignty. But because we are a sovereign nation, there are ways we can make money."

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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