By Bill McAllister
Washington Post Staff Writer
Monday, November 17, 1997; Page A21

It wasn't long after members of the Coeur d'Alene tribe opened their bingo hall and casino 50 miles south of I-90 in Northern Idaho that tribal leaders decided they needed a better highway to lure more gamblers.

Ten months ago, they say, they found that new highway: "the electronic highway" known as the Internet. The tribe established the first Native American gambling site on the Internet, joining a growing number of mostly foreign concerns offering various forms of wagering only a few mouse clicks away from individuals in states where gambling is prohibited.

Coeur d'Alene leaders insist their operation, known as the U.S. Lottery and the National Indian Lottery, is perfectly legal. Their four games of chance -- Lotto 6/49, Super Lotto, Bingo and Lucky 21 -- have a higher payoff rate than most state lotteries, tribal leaders say.

"We in Indian Country have to be innovative . . . to reach out and grab any new tool we can," tribal Chairman Ernie Stensgar declared last week. "So when gaming came along, our governing body took a look at it and said, `Here's a tool we can use.' "

But a number of state law enforcement officials are not so certain that Native Americans have the right to use that tool on the Internet. Thirty-five state attorneys general argue that the Internet gaming sponsored by the tribe is illegal. And the National Association of Attorneys General told the U.S. National Indian Gaming Commission that it is the only federal body empowered to restrict such Internet gaming.

On Friday, Coeur d'Alene representatives laid their case before the commission, a tiny federal agency charged with policing Indian gambling operations.

The three-member gaming commission, an agency so small that it almost went out of business last year for lack of funds and has had trouble monitoring the existing gambling operations on Indian lands, gave no hint of what it might do.

The commission's hearing Friday was an exploratory session, "very much a maiden voyage," said Associate Commissioner Phillip N. Hogen, into an emerging, but fast-growing form of gaming that few people understand.

Even so, the low-key hearing, held at the Interior Department, made clear that opinions about the legality of Internet gambling and the propriety of Native Americans operating it are sharply divided.

Two states, Wisconsin and Missouri, have sued the Coeur d'Alene, contending that the "U.S. Lottery" site violates their state laws against gambling. The tribe dismisses the charges as another example of jealousy and hypocrisy from state governments, eager to keep Indians from cutting into the profits of state-run lotteries and other forms of gaming.

"You know the struggle we have had in Indian Country to meet the needs of our people," Stensgar told the gaming commission, recounting bitterly how his tribe was "constantly threatened and harassed" by state officials. "Why is it every time we try to take a step forward, you try to close the gate?"

Alan Kesner, an assistant state attorney general of Wisconsin who chairs the state attorneys general Internet gambling subcommittee, said the real problem is the federal law that allows tribes to run gaming operations requires that those operations be conducted "on Indian lands." That means the gambler must be physically present on the reservation when he or she gambles -- not sitting in front of his "home computer on the shores of Lake Michigan," Kesner said.

Coeur d'Alene leaders argued that their Internet games are, in fact, conducted on their reservation because a computer "server" that operates the U.S. Lottery site is located there. The Internet games, they said, are open to anyone who is at least 18 years old, has a valid credit card and is a resident of one of the 33 states where lotteries are legal.

The Web site -- www.uslottery. com -- is managed for the tribe by Unistar Entertainment Inc., a subsidiary of Executone Information Systems Inc. of Milford, Conn., a publicly owned communications systems firm.

Thus far, the site has yet to turn a profit, Dave Matheson, a tribe member, told the commission. When it does, Matheson said, the tribe, which has 1,490 members, plans to share its bounty with other Native Americans.

Competition for the tribe promises to be extensive, according to Sue Schneider, president of RGT Online Inc., a Missouri firm that runs a Web site on Internet gambling. She estimated that between 75 and 80 sites now offer gambling and predicted there should be 100 by January.

"The growth is pretty phenomenal," Schneider said, noting that in January there were "a mere 15" gambling sites. Most of the gaming operations are offshore, mostly in the Caribbean and in Europe, she said.

Neither Schneider nor the other speakers at the hearing could offer any firm statistics on the dollar value of Internet gambling. Several suggested that it is in its infancy and may not take a larger share of the gambling market until some form of government regulation gives gamblers more assurance that the operations are legitimate.

"If the National Indian Gaming Commission or some other federal agency does not regulate gaming in the United States, the worldwide cyberspace gaming market will migrate to some other country that does set up effective government regulation," said Gordon Graves, chairman of Multimedia Games Inc., a Missouri firm that produces gambling games.

Congress has considered, but has not passed, legislation that would ban Internet gambling. That did not seem to bother the Coeur d'Alene tribe, which contends it has the authority to conduct gaming on the Internet.

"We acknowledge that the law is behind technology," said Matheson. "That is as it should be -- and always will be."