The Seminole Tribe of Florida’s “hub-and-spoke” model for mobile gaming – opportunities and unresolved questions

Overview

For many Native American Tribes, gaming revenue has long been a key resource for government services, economic development, and community investment. With the gaming industry’s inexorable shift to the internet, Tribes must find ways to remain competitive by participating in online markets. The uniquely complex legal and regulatory landscape governing Indian gaming demands creative solutions to achieve this. The Seminole Tribe of Florida has developed just such a solution, which is attracting interest from Tribes around the country.

In June 2024, the U.S. Supreme Court removed any remaining legal uncertainty about the approach to state-wide mobile gaming advanced by the Seminole Tribe of Florida and the State of Florida in their landmark 2021 Class III Gaming Compact. The Court declined to take up a commercial operators’ challenge to the D.C. Circuit’s decision in West Flagler Associates, Ltd. v. Haaland, which upheld the validity of the Department of the Interior’s decision to allow the agreement to take effect. The approach involves a combination of state law and federal law pursuant to the Indian Gaming Regulatory Act (IGRA), and can now provide a potential blueprint for Tribes in other states to follow a “hub-and-spoke” model in which online sports betting wagers placed anywhere within a state are received and processed at servers on a Tribe’s Indian lands. But key questions remain about how to adapt this approach to fit the varied political and legal realities faced by Tribes in states other than Florida.

Introduction: IGRA, the promise of Tribal economic development

Nearly 40 years ago, the U.S. Supreme Court recognized the right of federally recognized Tribes to conduct gaming on their own lands. Some states strongly opposed this outcome, desiring complete regulatory control over gaming within their borders. In 1988, Congress enacted the Indian Gaming Regulatory Act (IGRA) as a sort of compromise that both codified Tribes’ right to engage in gaming while also returning some regulatory control to the states. IGRA only governs gaming that takes place on Indian lands, and Tribes may only engage in Class III, or casino-style, gaming (including sports betting) by negotiating compacts with states. An IGRA compact must also be approved by the U.S. Department of the Interior (Interior) before taking effect.

To ensure IGRA could fulfill its purpose of “promoting Tribal economic development, self-sufficiency, and strong Tribal governments,” Congress mandated that states negotiate compacts with Tribes in good faith. IGRA further requires that Tribes are the primary beneficiaries of their gaming operations. Additionally, IGRA prohibits states from imposing taxes or fees on Tribal gaming, though courts have upheld revenue-sharing payments to states under IGRA compacts as long as the state offers something of significant value in return, such as a negotiated, exclusive right of the Tribe to conduct a particular type of gaming.

IGRA compacts can authorize Tribes to engage in any type of Class III gaming that is permitted, in some form, under state law. While IGRA limits t he s cope o f compact terms to certain topics, there is still great flexibility, including the ability of Tribes and states to allocate regulatory jurisdiction over gaming between their respective authorities, and to address any other matters that are “directly related to” gaming (sometimes referred to as IGRA’s “catchall” provision).

The Seminole Tribe of Florida – leaders in Tribal gaming

The Seminole Tribe of Florida (the Tribe or Seminole) has long been on the cutting edge of Indian gaming, from its bingo operations in the 1970s to online sports betting today. While the Tribe and the State of Florida (the State) now have a groundbreaking IGRA compact in place, this relationship took many decades to build. The first attempt at negotiating a compact led to a 1991 lawsuit over the State’s refusal to negotiate in good faith, as required by IGRA. However, the U.S. Supreme Court held that Congress lacked the authority to abrogate state Eleventh Amendment immunity, rendering IGRA’s good-faith mandate unenforceable against the State.

Years of further litigation and negotiations ensued, all under the direction of Jim Shore, the Tribe’s General Counsel, until the Tribe and State at last agreed to a compact in 2010. Among other things, this agreement authorized the Tribe’s exclusive right to conduct banked card games, such as blackjack, in exchange for an unprecedented US$1 billion in shared revenue with the State over the first five years. However, shortly after the compact was approved, the State began allowing state-licensed cardrooms to offer a form of card game that the Tribe argued violated its exclusive right to offer banked card games. In 2016, a Florida federal court agreed that these so-called “designated player games” were banked card games as defined in the compact. When the State still failed to halt the activity, the Tribe exercised its right to suspend revenue sharing payments to the State.

Finally, in 2021, the Tribe and State emerged from another round of lengthy negotiations with a new gaming compact (the 2021 Compact), agreed to in conjunction with State law amendments ratifying and implementing the agreement (the Implementing Law). Together, the Implementing Law and the 2021 Compact authorized the Tribe to conduct new forms of gaming with substantial exclusivity, including a first-of-its-kind arrangement for the Tribe to conduct statewide online sports betting operated from servers based on the Tribe’s Indian lands. In exchange, the Tribe agreed to resume and increase its revenue sharing payments, with US$2.5 billion guaranteed to the State over the first five years. Because the Secretary did not affirmatively approve or disapprove the agreement within 45 days, the 2021 Compact took effect by operation of law, or “deemed approval,” on August 11, 2021.

The Implementing Law was a necessary component of this online sports betting model, sometimes called a “hub-and-spoke” model, in which the bettors — users placing wagers from mobile devices physically located throughout the State — are the “spokes,” and the Tribe — where those wagers are received and processed by the Tribe’s servers, physically located on Indian lands — is the “hub.” In the hub-and-spoke model, IGRA, which can only authorize gaming on Indian lands, authorized the “hub” activities of receiving and processing wagers, while the Implementing Law authorized the “spoke” activities of placing those wagers off Indian lands. Further, both the 2021 Compact and Implementing Law deemed the “spoke” activities —placing wagers — to occur on Indian lands for regulatory purposes. Using IGRA, this then shifted regulatory jurisdiction over the “spoke” activities to the Tribe, allowing the Tribe to regulate both the “hub” and “spoke” activities — meaning, the entire online sports wagering transaction — from start to finish. This allowed the Tribe to apply its Indian gaming expertise as the primary regulatory authority for its online sports betting operations.

Procedural history – the West Flagler parties push back

Just five days after the 2021 Compact went into effect, two Florida pari-mutuels — West Flagler Associates, Ltd., which then operated Magic City Casino in Miami, and Bonita–Fort Myers Corp., operator of Bonita Springs Poker Room (together, West Flagler) — sued Interior in the U.S. District Court for the District of Columbia. A Florida anti-gambling expansion group called No Casinos led another lawsuit against Interior. The court considered the two suits together, with West Flagler Associates, Ltd. v. Haaland (West Flagler) as the lead case.

West Flagler argued the 2021 Compact’s online sports betting provisions were invalid not only under IGRA, but also under the Interstate Wire Communications Act (Wire Act), the Unlawful Internet Gambling Enforcement Act (UIGEA), and Fifth Amendment equal protection principles. Therefore, West Flagler asserted, Interior’s deemed approval of the agreement violated the Administrative Procedure Act. By attacking the 2021 Compact in this circumspect manner, West Flagler attempted to avoid naming as defendants the actual parties to the agreement — i.e., the Tribe and the State, each cloaked in sovereign immunity.

The Tribe sought to assert its sovereign immunity, seeking to intervene for the limited purpose of moving to dismiss the case. Meanwhile, as permitted by the 2021 Compact, the Tribe prepared to launch online sports betting, which went live through the Tribe’s Hard Rock Bet platform on November 1, 2021.

On November 22, 2021, Judge Dabney Friedrich of the D.C. District Court ruled in favor of West Flagler and denied the Tribe’s motion as moot. Deriding the “deeming” language in the 2021 Compact and Implementing Law, Judge Friedrich determined that an IGRA compact could not include off-reservation gaming activities and, therefore, Interior should not have allowed the agreement to go into effect. Though West Flagler sought only to invalidate the 2021 Compact’s online sports betting provisions, Judge Friedrich struck down the entire agreement.

The Tribe immediately appealed, but, after attempts to stay the D.C. District Court’s order failed, suspended its online sports betting operation just a few weeks after the launch. Interior appealed the decision on the merits and the U.S. Court of Appeals for the District of Columbia Circuit heard oral arguments about a year later, in December 2022.

On June 30, 2023, the D.C. Circuit unanimously reversed Judge Friedrich’s decision, finding the 2021 Compact and its online sports betting provisions lawful under IGRA. West Flagler’s requests for rehearing en banc and a stay from the U.S. Supreme Court were both denied. With the 2021 Compact thus reinstated, the Tribe relaunched online sports betting in November 2023 — nearly two years after suspending its initial operations.

In February 2024, West Flagler filed a petition for a writ of certiorari with the U.S. Supreme Court. In June 2024, the U.S. Supreme Court declined to take up the case, upholding the D.C. Circuit’s opinion and putting an end to West Flagler’s available appeals.

Analysis: key legal issues decided in West Flagler

Writing for the unanimous D.C. Circuit, Judge Wilkins rejected each of West Flagler’s arguments, accepting the 2021 Compact’s framework that “consider[s] all bets placed through the Tribe’s sports book, regardless of where the person placing the bet is physically located within the state, to occur where the sports book servers are located — in other words, on Tribal land.” From this premise, the West Flagler opinion decided major issues for Tribal internet gaming under IGRA, the Wire Act, UIGEA, and constitutional equal protection principles.

IGRA

The D.C. Circuit explained that IGRA can only provide authorization for a Tribe’s conduct of gaming activities on Indian lands; IGRA cannot, on its own, authorize gaming activities conducted off Indian lands. Under the 2021 Compact, IGRA could authorize the receipt and processing of a sports betting wager at the servers on the Tribe’s Indian lands, while placement of the wager off Indian lands was separately authorized under State law. This, as the D.C. Circuit noted, is consistent with Michigan v. Bay Mills Indian Community, in which the U.S. Supreme Court ruled that IGRA’s scope of authorization could not extend to a Tribe’s gaming facility off Indian lands, where state law instead would govern.

While IGRA does not reach beyond Indian lands, there is nothing in IGRA that prohibits a compact from addressing activities that occur off Indian lands. The D.C. Circuit held that the 2021 Compact could include provisions that address all aspects of the sports betting transaction because the placement of the wager is, as IGRA’s catchall provision requires, “directly related to the operation of” the Tribe’s sportsbook, including the receipt and processing of the wager on Indian lands. This is also consistent with Bay Mills, in which the U.S. Supreme Court acknowledged that IGRA compacts can discuss topics covering state or Tribal activity off Indian lands. Finally, the 2021 Compact could “deem” the placement of the wager to occur on Indian lands because IGRA allows parties to allocate jurisdiction in this manner, and corresponding “deeming” language was built into State law. The 2021 Compact “simply allocates jurisdiction between Florida and the Tribe, as permitted by [IGRA],” thus allowing the Tribe to regulate online sports betting transactions from start to finish.

Wire Act, UIGEA, and equal protection

The D.C. Circuit further determined that West Flagler’s challenges to the 2021 Compact based on the Wire Act, UIGEA, and equal protection principles “lack[ed] merit as matter of law.”

The Wire Act prohibits knowingly using wire communications for the interstate transmission of bets or wagers, while UIGEA prohibits knowingly accepting payments in connection with unlawful internet gambling. The D.C. Circuit rejected the idea that Tribally operated online sports betting would, by definition, violate either of these federal laws, noting instead that any issue would require factual case-by-case review. The court noted that following this argument “to its logical end” would mean Wire Act violations could arise from “even online betting by patrons who are physically located on Indian lands… because some of those bets may be routed off of Indian lands into a state, and then back.” The court balked at this “novel and sweeping argument that the Wire Act poses such a broad obstacle to an Indian tribe’s ability to offer online gambling on its own lands.”

The D.C. Circuit similarly dismissed West Flagler’s argument that the 2021 Compact violated the Fifth Amendment’s equal protection requirements, rejecting the notion that the Tribe’s exclusive right to operate statewide online sports betting could constitute a suspect form of discrimination. Relying on well-established precedent that Indian-specific federal laws and policies are based on the political government-to-government relationship between Tribes and the United States, the D.C. Circuit explained that the 2021 Compact’s exclusivity rights promoted the legitimate purpose of Tribal economic development and were rationally related to IGRA’s goal of ensuring that Tribes are the primary beneficiaries of their gaming operations.

West Flagler’s significance for Indian country

West Flagler set a nationwide precedent for Tribes to operate statewide mobile sports betting and broadened prospective opportunities for expansion into online casino gaming (igaming) and other markets. In March 2024, the Seminole “hub-and-spoke” model became formal federal regulatory guidance as well as codified into Interior’s new IGRA regulations. Together, West Flagler and the regulations position Tribes on a more equal footing to negotiate with states and compete with commercial gaming operators. Still, the nature of IGRA is that Tribes must navigate legal and political nuances state by state.

For many Tribes, West Flagler leads back to the negotiating table — with their respective states and among themselves. While Seminole is just one of two federally recognized Tribes based in Florida, states like Washington, with 29 Tribes, and California, with more than 100, require more of a coalition approach. Relative to California, Washington Tribes are fewer in number and already have the exclusive right to operate retail sports betting in the state (though even this right was recently subject to a West Flagler-like challenge). California, however, with its 100+ Tribes and absence of legal sports betting is an entirely different story.

The West Flagler decision may provide precedent for Tribes in states that have already legalized commercial online sports betting, like Arizona and Michigan, to renegotiate compacts with more favorable terms and to incorporate IGRA into future Tribal gaming expansion efforts. Tribes conducting online sports betting under general state licenses do not have the benefit of IGRA’s protections and are pitted against, or must partner with, large commercial operators. Such arrangements have resulted in relatively little profit for Tribal governments and communities.

Unresolved issues

State Law Nuances

As a federal court decision, West Flagler did not decide any issues of state law. But many Tribes face state constitutional and other restrictions on what types of gaming can be allowed, and even where that gaming can take place.

While the D.C. Circuit agreed that IGRA allows the parties to treat an entire online sports betting transaction as occurring on Indian lands, it is not clear whether specific “deeming” language is required in every circumstance or whether it was only necessary in West Flagler due to a quirk of state constitutional law. The Southern Ute and Ute Mountain Ute Indian Tribes are testing this question in litigation against Colorado, where statewide online sports betting is legal for commercial operators. The state law that authorized online sports betting is silent as to Tribal operators. The Ute Tribes argue that their existing IGRA compact language is broad enough to encompass online sports betting, and therefore passage of the state law authorizing sports betting for commercial operators triggered the Ute Tribes’ ability to engage in online sports betting as well. The Ute Tribes sued after state regulators sought to shut down their online sports betting operations. The question this case raises is what precisely is required before Tribes can engage in online sports betting and whether IGRA compacts need to be renegotiated to allow for online sports betting in every circumstance.

Equal Protection

In denying West Flagler’s application for a stay from the U.S. Supreme Court, Justice Brett Kavanaugh noted his concern that the case could implicate “serious equal protection issues” to the extent state law authorized the Tribe’s exclusive right to statewide online sports betting. Justice Kavanaugh would also have granted West Flagler’s petition for certiorari. Notably, however, no other Supreme Court Justice — even the Court’s most conservative — shared Justice Kavanaugh’s view.

Good Faith

It is unclear whether IGRA’s requirement that states negotiate compacts in good faith would extend to allowing Tribes to accept wagers from players located off Indian lands, especially if allowing such wagers would require changes to state law. While there is a good argument that the good-faith requirement would apply if a state otherwise permits mobile gaming, it is also unclear how a tribe would enforce this right. Most states would assert their Eleventh Amendment immunity to foreclose any lawsuits. While in some cases Tribes may be able to request Class III gaming procedures directly from Interior to remedy such situations, two federal circuit courts have held that the regulations for these procedures are invalid. Moreover, a significant question remains as to whether such procedures could authorize a tribe to accept wagers from off Indian lands, since the placement of those wagers is governed by state law.

Conclusion

The groundbreaking West Flagler opinion provides an important new framework for Tribes as Tribal gaming continues to evolve in the twenty-first century. While the framework may not work for all Tribes, and there are a number of unresolved questions, it is likely to serve as a critical component for upcoming compact negotiations in a number of states.