Is online intertribal player liquidity the next game changer ?

Tribal gaming has a long and rich history, with origins differing from tribe to tribe. Board games similar to checkers were played by natives in what is the US Southwest, while other bands wagered on games of skill.

These days large-market Indian casinos dominate tribal gaming in the US. This is borne out by revenue reports maintained by the National Indian Gaming Commission (NIGC) regulator.

As of fiscal year ending 2015, 6.5% of Indian gaming establishments generate 45% of Indian gaming revenues. Examples of these operations are the Foxwoods Casino in Connecticut operated by the Mashantucket Pequot Indian Tribe, the San Manuel Indian Bingo & Casino about 70 miles east of Los Angeles, and Pechanga Resort and Casino near San Diego.

These operations benefit from vast customer bases: Foxwoods pulls from what is commonly called the Northeast Megalopolis, with a population of well over 50 million, while San Manuel and Pechanga benefit from their central locations in Southern California, surrounded by over 20 million people. These operations represent some of the largest casinos in the US.

Player liquidity problems
While large-market tribal gaming operations like Foxwoods garner most of the headlines, the vast majority of tribal gaming in the States occurs in what must be described as ‘small-market’. For example, the Ute Mountain Ute Indian Tribe, located in Southwestern Colorado, services an area where the closest town, Cortez, has a population of just 9,000.

During my tenure as general counsel for Ute Mountain, I personally saw the impacts on our casino resulting from an extremely limited customer base – both in terms of revenue and employment. Importantly, like many other tribal casinos, Ute Mountain – and its sister tribe 60 miles east, the Southern Ute Indian Tribe – are limited by Colorado law to ‘limited stakes’ gaming, restricting their guests to a maximum bet of $5 across the board for all forms of Class III games (eg. poker, blackjack and slot machines).

Marketing and incentive efforts to bring destination tourists to Ute Mountain have been and continue to be made, but the old adage concerning real property values applies here as well: Location, location, location.

Inter-tribal liquidity
As many in the egaming sector know, some games are fundamentally reliant on a minimum player pool for their success. These games include online poker, progressive slot games, bingo, fantasy sports and games in the development pipeline yet to reach the market. Without a critical mass of players engaged in these game ecosystems, reliable 24-hour game play is difficult to achieve and so is a meaningful pot or prize pool.

Inter-tribal online gaming is an enticing opportunity for both the egaming industry and Indian gaming casinos. By partnering with other tribal gaming operations and private enterprise, tribes can network into shared platforms, improving the product offering for existing clientele and attracting new players with bigger jackpots and a greater number of game options (for example: a wider variety of poker and DFS games, and wider variety of stakes and buy-in options and prize pools). Tribes can then leverage a greater customer base – as if they are closer to a larger population center.

Making it work
Under the Indian Gaming Regulatory Act, Indian tribes with existing tribal-state compacts have the right (subject to the compact terms and conditions) to operate gaming and betting activities from within its sovereign territory or reservation.

This extends to online gaming and betting activities hosted on the reservation and made available to players located on-reservation. Theoretically, tribes can sign inter-tribal compacts allowing respective on-reservation players to sit at a poker table, join a bingo game or DFS pool, or play a progressive slot with players located on another reservation. All gaming activity on this ‘Indian Gaming Network’ would take place on reservation.

By networking millions of players visiting Indian casinos, the increase in player liquidity could be a game changer for tribes and egaming technology providers. By utilizing such an Indian Gaming Network, one would be able to access population centers exceeding tens of millions of people who live near Indian casinos and could be potential players on the network when visiting those Indian properties. As set out above, just three Tribal gaming operations have access to population centers comprising about 70 million people.

As discussed above, on-reservation gaming and betting activities conducted pursuant to state compacts may not always be subject to state gaming and betting laws or regulations. The premise follows that such activities may not be subject to state regulatory or taxation policy. With the increasing number of states rolling out DFS regulatory and taxation regimes (25 bills currently before legislatures), this may present an interesting opportunity for egaming companies to partner with their Indian gaming partners and access a large US player base – all with lower barriers to entry and possibly higher operating margins.

Of possibly greater interest is extending the opportunity to online games that are unlawful in some states, but may otherwise be conducted at tribal gaming facilities – or operated on servers located at such facilities; games like poker, slots and bingo for example. Certainly, my old friends at Ute Mountain in Colorado would be well-served by an opportunity to expand their revenue base beyond the brick and mortar casino into an Indian Gaming Network offering online poker, progressive slots, bingo and DFS.

The Indian Gaming Network’s potential
The technology required to build an Indian Gaming Network has existed for years and is no different than that which allows an online poker player in England to ‘sit’ at a poker table next to a player from China.

The challenge may be negotiating inter-tribal compacts, and ensuring each tribe’s unique needs are addressed in such agreements. Issues that would need to be considered by operators and their legal advisors include cost sharing, how gaming taxes (if any) would be handled, ownership of data and other IP, standard KYC, AML, responsible gambling standards, and other details. Smaller tribes located in sparsely populated rural areas would likely come to the table more quickly, in a bid to access online games with greater table, pool and prize varieties. At the same time, larger tribal gaming operations may also be interested in remaining competitive against private enterprise casinos which are increasingly opening in their back yards, state lotteries rolling out online offerings, and DFS companies newly authorized under state law.

An added benefit for tribes is increased opportunities for tribal economic development and employment. Indian tribes can be in the driver’s seat with respect to construction and occupancy of server and other ancillary facilities, commercial leasing, technology and security servicing and tech support – enhancing opportunities for tribal members to obtain good jobs. For those tribes not located on the I-5, I-55, or I-95, the potential is real, and needed.

For all tribes and for the egaming industry, an Indian Gaming Network is a possible game changer and opportunity that won’t be ignored for long.

Eric Stein