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A daily podcast delving into the biggest stories of the day throughout the sports betting and igaming sector.
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In the United States, the relationship between tribal communities and the commercial gaming sector has been frosty for a while, and often cases have ended up in state and in some cases, federal courts. In a recent ruling, a judge in Colorado has ruled that an online bet takes place in the place that the bettor is physically located, rather than where the servers are, known as a hub and spoke argument. It's an issue that's come up several times in states where there are commercial gaming markets in states that also contain tribal compacts. So what happened in Colorado? What does this ruling mean? And where does it leave tribal gaming in the United States? Welcome back to iGaming Daily, supported by Optimove, the creator of Positionless Marketing and the number one player engagement platform. Today, I'm joined by our managing editor, Jessica Wellman. And Jess, we always say that We aren't lawyers on the US edition of the show. So we thought that today we'd best get a lawyer on because this is quite complex. So we'd like to welcome to the show Sean McGinnis, is a partner at Butler Snow LLP in Denver, Colorado. And his practice focuses primarily in the areas of gaming, tribal affairs, administrative and corporate law. And Sean is also a member of IMGL. Sean, I've just read out your brief introduction there. don't think we could have had anyone more appropriate for this one. Thanks for coming onto the show. Thanks for having me. Great. Well, first of all, I think it's important that we get the context behind this case and we could spend an hour just talking about this. But Jess, first of all, could you just outline what it is that we're talking about here and maybe a little bit of the history? Sure. So when I opened up and read this ruling, I was kind of the person that said, I would love to hear from a lawyer a little more about this because, so the whole hub and spoke argument that you mentioned in the introduction, that to my knowledge came about when New Jersey, independent of tribes, commercially legalized online casinos. In New Jersey, the law says that all of the gambling has to take place in Atlantic city. So they're like, okay, how can we create a version of this that works? And they said, all right, if the servers are located in the casinos in Atlantic City, then we're going to say the server is where the bet is taking place. As we talked ad nauseum on iGaming Daily over the past couple of years, that whole Florida case, that compact embrace the hub and spoke argument as well, ah which was challenged in court for a lot of reasons, kind of independent of the hub and spoke thing. But than this one in which it wasn't really explicitly stated. The judge was like, no, it's where the better is, which to be fair is a reasonable conclusion. So I would love to hear, you know, I think it's great that we have Sean here to kind of talk about how does this kind of compare? Because I know we immediately go to Florida and New Jersey, but I believe there are other rulings that have kind of shown this decisions kind of all over the map on where a bet takes place. Well, I think what makes sense is to sort of really take a step back and get the broader viewpoint of US gaming law. Most people think the United States as, you know, it's one country and so therefore there's one set of laws. like, it's not like Great Britain that has the UK gambling commission, for example, that does everything. In the US, it's federal law. There is no federal gambling law. Gambling has historically been something that's been reserved to each individual state. to determine what it is that they do and what the legality is. And so you end up with a real hodgepodge of rulings and a lot of interesting aspects of how this works. Now, there also is a, when we get into the tribal piece, there's the Indian Gaming Regulatory Act, which is a piece of federal legislation. But what it does is it basically says that if a state does allow some gambling in its orders, then a tribe has the right as a sovereign nation to negotiate a compact with the state to allow the tribe to engage in the same type of gambling that the state allows and authorizes. That's sort of the basis of how the tribal aspects come in. you negotiate a sovereign to sovereign compact, it gets approved by the Department of Interior, et cetera, and you go. So that's another. wrinkle and you know, the Indian Regulatory Act really got going in the early 90s. And then another layer on this and this goes to what Jess was talking about with New Jersey and the hub and smoke model there is that when the Supreme US Supreme Court overturned PASPA, which was a federal law that that that purported or it did uh prevent states from having legalized sports betting. authorized. uh Some states, Nevada always had it and there were some other exceptions. When that fell and other states started engage authorizing sports betting, Colorado was one of them, have Iowa, have a bunch of other states that have done it. What they did with that is as those models got set up, it modeled itself after what Jeff described happened in Atlantic City when they did the online. So what they did is they basically said, we're going to have sports betting in our state and the server needs to be located in our state and we're going to have geo location uh providers confirm that nobody outside of the state can make wagers and therefore all the wagers are taking place in our state. And so for example, Colorado did that. They, they, they collide sports betting and they teed it up where the server is all up being Colorado, their geo location, et cetera. And it's regulated by the Colorado division of gaming, which is also the which has the Colorado Limited Gaming Control Commission, uh is the body that, that part-time body that acts on licenses, et cetera. Interestingly enough, and this sort of comes into the, this decision in Colorado that I'm getting back to it. uh There was a online sports betting company that is no longer in business in Colorado that had inadvertently turned off its geolocation providing software and they for a couple of weeks allowed a patron from Virginia to make wagers on the Colorado server. Now the Carlsbysia and the gaming control commission find that operator for inappropriately allowing wagers to be placed in Colorado. So that's very interesting that they took that position with their licensee. But meanwhile, with the southern Ute tribe, which is a tribe in the Four Corners region. They have a compact. They have a tribal state compact with the state of Colorado. And in that compact, it does provide that if the state of Colorado authorizes some form of wagering, then they can offer the same type of wagering. Now, when that compact was negotiated, that would have been before there would have been any online sports betting. So the compact doesn't address statewide mobile. sports betting or anything. just basically says if it's a game that's legalized in Colorado, the tribe can go ahead and do it. The question then becomes, you know, they made the visit, took the position of we're going to have the servers on the reservation and therefore we're going to offer statewide mobile to Colorado. They approached the state and the state through the governor, governor Polis and through the director at the time of the Colorado division of gaming came back and said, no, we don't believe a tribe can do statewide mobile, uh, sports betting. with a server based on its reservation. You can do mobile sports betting through the reservation's boundaries, but you can't expand it further with that. And that's what started this lawsuit. The tribe was like, no, we want to challenge this. We should have the right to do this for the whole state of Colorado. Didn't they also say, too, if you want to participate, you would have to do it like, say, Michigan does it? where you're welcome and open to apply for a license and pay taxes and do whatever, but you can't just like go on your own and do it. Exactly. That was part of it. And there's also precedent in Arizona as well. The way Arizona legalized statewide, re-legalized sports betting, they had the component for the sports leagues to have online sports betting sites, but they also allowed the tribes to do that as well. And it's interesting the way that they did it and it does kind of match up with how Colorado's approach was because it is similar to what Jess said for Michigan is like they needed to say, we're going to be subject to the jurisdiction of Arizona Department Gaming and the state and the state rules for sports betting that takes place outside of our reservation land, outside of tribal land. The tribal land, they still had the authority to do that, but it kind of got bifurcated out that way. where a tribe that, and a player might not really realize it, because it's probably seamless. If you're driving into the Navajo Nation for a while, you're just accessing an app and you can place a wager in the Navajo lands, or you could place a wager in the rest of the state of Arizona. It just depends on where the taxation goes. But again, it's the same thing, that was along the lines of what Colorado was saying, that you couldn't do that. But the hub and spoke model in a way is exactly what how sports betting has been structured and set up here uh in the state as is expanded throughout. And it is what the New Jersey model was. And you reference the Seminole case in Florida, which is a little bit unique because that had the Florida legislature and Governor DeSantis approving a compact with the Seminole tribe where they conferred to the tribe the ability to do statewide mobile. And they acknowledge that the servers would be on tribal land, seminal land. And then that got challenged for a number of reasons. Some of it was not necessarily about that. It was about other things. And it weaved its way through the court. And then the Biden DOJ, you know, essentially approved the compact when the Supreme, when the US Supreme Court refused to hear it, it basically was a victory for the hub and spoke model in Florida. So this This case is interesting in Colorado, the ruling, because the judge is basically saying, well, you can't have a wager if you don't have a patron trying to trying to wager. So where the better is located, that is the main test. But conversely, the argument would be if there's no server for the better to connect to, there would be no wager at all and there'd be no way to process it. So I would expect, well, the tribe has indicated they're going to appeal it. I would expect it's going to get an appeal to go up to the Court of Appeals and they're going to be revisiting this in more fulsome briefing, I would think. Yeah, absolutely. let's just, Sean, we'll take a quick break and then we'll come back and we'll talk about any potential appeals that might be on the way. Welcome back to iGaming Daily. We're talking all about this ruling in Colorado. Sean, you mentioned just before we broke up for the break that you expect that there will be an appeal. What do you think the central arguments of that appeal is going to be and how do you assess the chances of any appeal being successful? Well, I think the central argument of the appeal is going to be based on that you can't have, like I was stating before the break, you can't have a wager but for the server because with no server there's no There's nothing that has odds that you can connect up to. There's nothing that could process your wager. There's nothing that could then pay you out. You have to, and connecting with the server includes creating an account, creating a customer verification, know, proper age, your identity is who, what your identity is. You're using a proper payment processing aspect. You're using proper funds. So there are lots of aspects in the server piece that are that they're going to argue stack up against just the fact that it's a better in Colorado Springs accessing a tribal site, that there's really more going on with the server and all of that. they probably, and again, it's just, probably also do the correlation that that is exactly how the model for sports betting and statewide regulation of sports betting is as well. It's all based on where the server is. That's the predicate. But on the other hand, the state's going to stick to their guns, I'm sure, and they're gonna basically come back out and they're gonna also say, if I were them, I would cite the Arizona precedent, I would cite the Michigan precedent, say, well, certainly, tribes are able to access statewide mobile, they just need to participate in the commercial regimen under our jurisdiction. So that's the response from the state, is that they're not trying to prevent them from accessing the state, but they want them to access the state market appropriately. And in their viewpoint, that would be to do it along the lines of what Michigan or Arizona have allowed. And the way that would probably work is every, there's like, there's, I think it's 33 casinos at the time. There's 33 casinos in Colorado. Each of those casinos have what's called a retail license, which is the commercial bricks and mortar license. Then they're all eligible to also receive what's called a master license, which is the sports betting license. that allows uh them to conduct either in-person or online statewide sports betting. They can either do that on their own or they can contract with another party to do that, to provide that services. Most of them contract with another party to do that. So all the tribe would need to do is find one of these retail casinos in Colorado with a master license and partner up with them and then determine how to come forward in the licensing. aspect to basically offer a statewide product. I will add, this is interesting, Hard Rock Digital has entered the Colorado market and they were actually licensed earlier this year by the Colorado Limited Gaming Control Commission and that is the vehicle of the Seminole Tribe of Florida. So it is a tribal owned operation. So there is precedent in Colorado for that already. Were you surprised at the judges kind of ruling and rationale at all? Just looking at the the. That he is ruling, it seems like a lot of the case law he was referencing was like very brick and mortar and not so much like the case law related to online gambling. So I'm curious your thoughts on that. And if I'm way off base to be a little surprised that that's kind of the line of thought he went in. No, it was a little bit surprising. But in a way, this is the challenge of trying to do trying to practice in this area. Like, for example, all the sports betting operations need to get a legal opinion about their operations being legal in order in order for the payment processors to authorize payments under under the federal statute, you we get. So in the context of that, you do a legal review and you go over what is allowed and in a state, whether in this instance, it would be Colorado, but it could be a lot of other states. But the issue is most of the gaming laws predate the idea of a smartphone being able to access something 24 seven. It is all land based, organized or structured. So you have to extrapolate from that. it's not a surprise that there's case law that he was that he cites with it because if you do the legal analysis about what is, for example, a game of skill versus a game of chance, sometimes the case law on that goes back to fairs from the 1890s in different states. It can be, so it's not surprising from that perspective. The part that surprised me about it, and I first kind of shocked it up a little bit too, like we all followed the Seminole case that went up with their hub and spoke model. under the compact and it seemed like there was such a, you know, we kind of get in our little echo chamber of what we do with the gaming industry and it's like, oh, of course, this is just how this works and this ratifies the hub and spoke model and all that. And we're all aware about how New Jersey handles it with Atlantic City and how these online sites all connect back to servers and the servers have to be based in Atlantic City. If you're really in the weeds on this, kind of have this, well, of course that's how that works. But, you know, there's a wide body of law out there. And again, it's also disparate. can, it can see where he could, he could cite that. But I don't know if that will ultimately prevail, but I mean, it's it's, it's very interesting. we've, we've referenced so many different states, so many different cases. We're even going back to the 1890s in fairs. I think we can understand why this is so complex, but is this an issue that we can ever see being legally universal? Is this something that we can iron out and get an opinion on which can be relied upon for the years to come and something that we can get a bit more clarity on moving forward? Maybe Jess, do you have any thoughts on this? Then we'll go to Sean as well. I mean, that's kind of one of my questions. know originally, I believe the Department of the Interior was like relatively agnostic on if this Florida Hub and Spoke Compact was, you know, kosher or not. um We really get into the weeds on the whole debate there. I believe that in the wake of that, uh Sean mentioned that the Biden administration, that version of Interior did say, this is a perfectly acceptable way to structure your compact. Again, in Colorado, it was not explicitly said that it was Huff and Spoke. So, I mean, we did get at least some guidance there, but yeah, is there ever gonna be some definitive case that becomes, you know, Murphy versus NCAA on where a bet takes place? Right. And it is a little bit, the thing with the seminal case and the compact is at least that did go from the Federal District Court, which originally ruled that the oven spoke was not appropriate. And it went to the Court of Appeals, and the Court of Appeals ruled that it was appropriate. Meanwhile, at the same time, the Biden Department of Interior amended some of the regs, and the Biden DOJ looked at it, and they pretty much created a federal rulemaking that made that consistent with what would be acceptable. And then the US Supreme Court denied cert and said they're not gonna hear it. So that made the circuit court ruling final. The issue with the states is that there's a number of circuit courts of appeal. you could, you, the cases go to a, the cases like this go to a federal court, then it goes to a regional court of appeals, and then you're not gonna get a nationwide guidance unless that gets sent up to the US Supreme Court, and the US Supreme Court takes the case, and then they actually make a ruling. If they don't take the cases, you can get different circuits having different answers and that could be something uh that you would have to sort of navigate. And there's historical precedent with this and this is another end of the week. When Bobby Kennedy was the Attorney General under JFK, when JFK was president, that's when the Federal Wire Act got passed. And the Federal Wire Act was meant to stop people calling people on the phone and placing wagers in a way. act wasn't about the Internet, Sean. No, no, it was not about the Internet. But but what what happened and actually, if you if you look at the language of the wire act, there's a question there was a question about whether it applied to all types of gambling or whether it just applied to sports betting. And there was. For a time, competing and then there ended up being DOJ memos. But before the DOJ memos got placed, There were circuits that said the Wire Act only prohibits sports wagering. And then there were others that said the Wire Act prohibits all gambling. And the Trump DOJ said otherwise. Exactly. then it bounced. Well, there was the Obama DOJ had had the determination that it was really just sports betting. Then Trump came back and then then that got overturned as well. So it's a bit of a challenge to navigate. But it certainly is. Interesting times. Isn't that the old old Chinese curse may live in interesting times or something? Well, speaking of interesting times, I'm going to throw one at you that's a little bit different than the Colorado case, but just something to end on because I know it has certainly been a big topic of discussion this week. Going back to the Florida compact, the wording of that compact notes that past or current sports wagers are acceptable and we're seeing essentially historical sports betting powered slots games now rolled out in Florida and beta testing. Do you think this will be another potential legal challenge to the Florida Compact? Or is the wording kind of airtight on that one? Well, there can always be another challenge that you know, that that's kind of the issue there always can be when you get into this. And if you have you have competing interests that want to just, you know, throw roadblocks up and try to have, you know, further discussions that would not surprise me that that would be something that could happen. You know, you have the historic horse racing machines, you know, that are in a lot of different states and, and depending on which state that you're in and how that's that structured, that has created a lot of uncertainty and a lot of competition and people saying, well, this isn't appropriate. This is appropriate. This is not gam, this is not historic horse racing. This looks like a flop machine. But, and then you have somewhere they require you to play the historic horse race in the corner of the machine and you have to be able to have some element to modify your bet based upon a skill component. It's there, there's a lot of, a lot of components there that are interesting. the, question made me think of that as well. Yeah. As a Kentuckian. HHR is always kind of top of mind. It's why I follow the Michigan Churchill case so much, because a little voice in my head is like, we could have nationwide HHR on apps, maybe if this goes a certain way. But that's a whole other podcast for a whole other time. yeah. The Churchill case is interesting because that gets into the Interstate Horse Racing Act, which is one of the few federal pieces of litigation that do allow things, but it's more in a racing setting, gambling or sports betting. There's so many different branches that we could take this conversation down. And if I know anything about doing this podcast and reporting on the United States, is that there is always another challenge somewhere later down the road. But we are going to have to bring things to a close for now. But thank you very much, Sean McGinnis, partner at Butler Snow LLP in Denver, Colorado. And Jess, thanks for taking the time as well. Much appreciated. And to the listeners, thank you very much for tuning into iGaming Daily. If you'd like to read about the story that we've talked about in today's show, we'll leave a link in the show notes. But for now, thank you very much for listening and tuning tomorrow to another episode of iGaming Daily for all your latest global gambling news.