- By Chez Oxendine
Tribes with gaming enterprises have been watching closely as sports betting has proliferated in a patchwork of states across the country.
On the one hand, many of them see sports betting — particularly via mobile technologies — as a competitive threat to their existing operations, especially given the complexities of sovereignty and the slow-moving evolution of how the foundational Indian Gaming Regulatory Act has been applied to regulate tribe’s activities in the new market.
Yet savvy tribes also understand the opportunities inherent in offering new amenities to existing customers and growing their customer base in perhaps one of the most significant ways since the dawn of tribal gaming.
With so much on the line, tribes need to get involved early to help craft favorable legislation on a state-by-state basis and tread carefully into potential new partnerships, with an eye toward the sustainability of their own operations and the viability of the new market segments.
To discuss this new dynamic aspect of the gaming market, Tribal Business News convened a group of industry experts for a virtual executive roundtable. The discussion was sponsored by Rosette LLP, a majority Native-owned law firm that represents tribal entities and Native Americans, with specialties in gaming, economic development, finance, and sovereignty matters, among others.
Participating in the executive roundtable with Tribal Business News managing editor Joe Boomgaard were:
- Anna Bruty, partner at Rosette LLP based at the firm’s office in Grand Rapids, Mich.;
- Dr. Steve Light, faculty member and co-director of the Institute for the Study of Tribal Gaming Law and Policy at the University of North Dakota;
- Michael Olujic, general manager of Lemoore, Calif.-based Tachi Palace Casino Resort, a gaming enterprise of the Tachi Yokut Tribe, and a member of the Oneida Nation of Indians of Wisconsin; and
- Manuel Stan, senior vice president of North America at Kindred Group plc, a global online gambling operator under the Unibet brand.
Here are some highlights of the conversation.
With sports betting, should tribes be satisfied with retail operations in their casinos or is mobile truly the real opportunity?
STAN: You have about a 90/10 rule between mobile and sports betting, sometimes even higher than 90 percent. The retail opportunity is much lower if you're looking from that perspective. The top three operators in the mobile sports betting industry right now are FanDuel, DraftKings, and BetMGM. They have about 80 percent market share across the U.S. in states with mobile sports betting at the moment, so that leaves everybody else, including commercial operators like us as well as tribal operators for mobile sports betting, fighting for the 20 percent market share.
In sports betting for retail, I think the tribes have a very good chance to fight because at the end of the day, you're talking about location, footprint and offering a good product. Either directly or partnering with a sportsbook like us, you can offer a solid product in your casino, in your properties.
If we're talking about the mobile sports betting, where the biggest chunk, the 90 percent of the revenues, I think the investment levels in the industry make it relatively difficult for anybody to compete. The top three are capturing about 80 percent of the market, which leaves very little to compete for. It's a very challenging landscape and it's very expensive landscape to buy market share. An operator like us is fighting for 2-3 percent market share. … In order to get there to that 2-3 average percent, we’re spending right now in seven states about $50 million a year.
BRUTY: What I've found is that tribes, because they have these casinos and they want so badly to add a sports betting lounge or something like that, they get a little too focused on the retail side of it that's only going to make 10 percent or less of the profit when really, where they should be focusing on is the mobile aspect. You’ll see other companies or vendors come out and try to almost pull the wool over the tribe's eyes by bringing these big flashy projections of, ‘This is what we can do for a retail operation. We can make your lounge look like this,’ but then it comes with no mobile partnership and they’re just scooping up all the retail. I would very much caution tribes: Make sure you’re looking at a mobile partner as well as a retail partner if it’s possible, whether or not mobile’s legalized right now or not.
LIGHT: For a lot of tribes, particularly in rural areas and in states that are off the two coasts that are large land-based treaty tribes with existing retail operations that are critically important for tribal livelihood in tribal communities and reservation communities, the first and best option is to look at the addition of retail sports wagering to their operations given the existing tribal-state compacts. If there are opportunities to add online and mobile to it, absolutely, the tribes should be positioning themselves to take advantage of that. If there are opportunities to partner with commercial partners because a state like Arizona is looking to grant some degree of tribal exclusivity … tribes should be going all in on that. But it isn't the case that all tribes can simply say, ‘What we want is online and mobile (gaming).’ That’s just not viable for all tribes at this time.
What is the opportunity for tribes in these new markets?
LIGHT: The rebound after the pandemic (has been) to a $37 billion-plus overall tribal gaming market, and sports wagering is just beginning to be a part of those numbers. Think about sports wagering as adding a third (to) that market. That’s a reasonable projection thinking about the potential impact on tribes and tribal gaming overall.
The competitive advantage that tribes have is a platform of casino operations, retail operations, in-person operations, bricks and mortar across the United States. That is 500-plus casino operation in number, and the question then is where does sports wagering or iGaming fit into the existing brand environment and business and value proposition for tribes? Think about casino design and where sportsbooks and sports bars fit into that, food and beverage spend and all of the indirect benefits that come from the addition of these things to the portfolio.
I know that ranges beyond iGaming to some degree, but to take it back to sports betting, for example: For tribes, the existing brick-and-mortar platform and adding sportsbooks and sports bars to their operations creates tremendous potential for foot traffic for a new customer base, for new spend on food and beverage, and for a lot of these tribes, including in resort destinations like in California or Arizona or New York, that’s incredibly important and shouldn’t be overlooked.
BRUTY: You’ve got to look at the backdrop of the Indian Gaming Regulatory Act. Personally, I think that in order for tribes to be competitive, they have to be able to participate in statewide mobile sports betting or mobile gaming of any sort, and that’s where we’re seeing issues with legislation. Tribes have got to get out there and be in front of the legislation and shape the legislation.
We’ve seen a similar disadvantage with marijuana through the state license system. States were free to make their own laws using sovereignty to profit off the cannabis industry, while tribes were restricted by federal law. Now we have online statewide betting where states can do it through sovereignty and tribes again cannot.
Given some of the challenges with how IGRA is being implemented around mobile betting, does it make sense to take another crack at the legislation to modernize it?
BRUTY: It’s a risky situation opening up IGRA because we’re worried what else will get amended or changed if we open it up. I would love to have that one change and make that and then be done with it, but I think there are risks that come along with that.
LIGHT: Most tribes contend that IGRA is a framework that works generally very well for tribes in advancing policy goals around tribal sovereignty. But IGRA is a flawed framework in some specific ways. It can bring states to the table in ways that leave tribes disadvantaged. That’s what most legislative frameworks look like: They’ve got pros and cons, and anytime you open that up or allow Congress to look at it, that can be seen as problematic. Once Pandora’s box is opened, all kinds of changes could be made.
OLUJIC: The intent of IGRA is still there. It just evolves with different types of gaming and different types of technology. I think we could look into these changing products, but I don’t think anyone wants to open up IGRA.
If you’re a tribe in a state that is looking to legalize sports betting, what should you be doing to ensure you have a place in the market?
BRUTY: Rosette has guided our clients with three to four pillars to follow when their state’s gaining interest in sports betting and those are: maintaining exclusivity, seeking tribal equity, online mobile betting is imperative, and mitigation — meaning that for tribes that don’t participate in mobile sports betting, there needs to be appropriate mitigation, like the initiatives in California.
I think after the legislation’s done, the tribes are really at a disadvantage if they didn’t already become part of that. I know a lot of tribes are very anti-mobile gaming or anti-sports betting. My personal opinion is the train’s coming - sports betting is coming and eventually someday after that, mobile gaming’s coming. Instead of saying, ‘no,’ try to get a seat at the table and help shape that legislation to the best benefit of tribes as possible.
LIGHT: You should be looking at the existing environment in your jurisdiction and looking at the likelihood of achieving newly negotiated compact provisions as needed. You should be looking at the nature of your competition, whether that’s intertribal competition or otherwise. You should looking at, if possible, presenting a united front from the tribal perspective in negotiating with the state.
STAN: You have the gray market or black market already. There’s all these offshore operators already. It’s happening, it’s coming anyway, and it’s just a matter of finding the right way for all the parties involved to regulate it and to make sure that the customer is essentially protected and the money goes in the right place.
How incumbent is it on tribes to be proactive with these state-by-state legalizations?
BRUTY: You can’t wait until it’s legalized and then think, ‘What are we going to do now? What are our options now?’ At that point, if you want to partner, the partners are already gone, or you’re left with these partners that aren’t going to make you anything. To the best of your ability, you should be prepared for anything. Whatever you think might be down the road, before it legalizes, you should be considering option A, B, and C.
For example, Oklahoma’s looking at only legalizing retail. That doesn’t mean you should find a partner that can only do retail. You should look to see if that same partner can partner with you later for mobile. Retail is a very important component to tribal operations because it’s something that tribal members can see, but I tell them not to get too focused on that.
With regards to partners, how should tribes be looking at these platform relationships?
LIGHT: We counsel tribes to be very cognizant of the track record of potential partners because in this incredibly fast-moving dynamic environment, there are lots of potential partners out there and most of them don’t know very much about how tribal gaming works and the regulatory overlay that comes from IGRA.
BRUTY: A lot of the times, I have my clients call other tribes or somebody else who’s already dealt with that partner. If that went really bad or really sour, I’m not saying that’s a deciding factor, but that’s definitely something all my clients (consider). They reach out to other tribes and tribal leaders who have partnered or dealt with them and see how that partnership went. It doesn’t bode well if one company does a tribe very badly.
What are some tribal best practices that have emerged so far in states that have legalized sports betting and mobile gaming?
BRUTY: I think Michigan is a good example. A lot of tribes got a seat at the table and instead of fighting the state on passing statewide mobile, they made sure they were a part of shaping that policy. The market access to sports betting companies was limited to tribal casinos and the three existing commercial casinos, and that’s what was important to the tribes.
STAN: Michigan allowed for 15 licenses for sports betting and iGaming, 12 tribal operators plus three commercial operators. What we’ve seen in Michigan is that we’ve had more than 15 operators — commercial or online or tribal — that wanted to take one of the 15 seats, which created a very interesting dynamic where essentially, what happened was the prices for a license increased and some of the smaller tribes in Michigan managed to get a pretty decent payout from having one of the only 15 licenses in the state.
BRUTY: If you look at Wyoming in comparison, operators don’t even need to be tied to a tribe. That’s where you’re getting away from the exclusivity and it’s really quite sad. Arizona is a mixed bag. There’s 22 tribes in Arizona and only 10 licenses for tribes, and 10 for the sports teams. That exclusivity was opened up and now, only 10 of the 22 tribes get the other 10 licenses. You have those 22 tribes fighting over those licenses and it’s pitting tribes against each other, because there’s going to be 12 tribes left in the dust that don’t get anything.
Then there’s California, which recently fended off two attempts to legalize sports betting via referendum. What’s the play in that state in the wake of those decisions?
OLUJIC: We always knew the biggest thing is iGaming. When you look at the pure math of how marketing dollars are spent and the volatility of sports betting, there is a logical bigger, long-term play and that’s iGaming.
I think California tribes have to come together and figure out how they want to manage it as a whole group and then get to the table with the big operators, back end or front end, and have a mutual agreement of how this is going to work and then take it to legislation jointly. (T)hat’s the way to get things done where then it could have social acceptability.
Like Manuel said, it is here. It’s just that people don’t talk about it. I’d prefer just to talk about it and have all the tribes talk about it and then sit together with all the operators on the back end and front end and have a logical conversation: How can we both make this work and work together as a group? Then you support local communities, everybody makes money, everybody feels comfortable, everybody’s in support of it. Then it’s fair so then everybody can then succeed from that.
How key is tribal involvement to the California market going forward, given the way Prop 27 went?
OLUJIC: I think everybody needs to have a share of the pie. I think even with mobile sports betting, if they’re going to make it happen in some of these states, you’ve got to bring the tribes to the table because you have to look at it within a local community perspective.
Electric and mobile gaming is great, but you have to look at who’s giving donations, providing jobs, building schools and fire stations, buying police cars and paying for little leagues in these communities. It’s the local tribes. They invest more heavily in their communities than commercial gaming does.
It’s no disrespect to online operators and online people and the commercial operators, but we do give the most money back to our local communities, and we have generations of families working at these properties, getting paid well, getting good benefits. A lot of vendors have their whole livelihoods because they’re prime vendors of the casino.
In states were sports betting is allowed, what’s a practical approach to the amount of incentives sports betting operators need to provide up front to bring in new customers and buy market share?
BRUTY: What I advise my tribes is just because someone has a lot of market share doesn’t necessarily correlate to profit or profitability or anything like that. The tribes will get a lot of spiels about their marketing or their market share, but then in the states that you can pull up the numbers, you see that that company is running in the red greatly. I’m not saying that that’s a huge issue unless they keep doing that. ‘Are they sustainable?’ is the question my clients are always trying to ask right now. You have this marketing and you have great market share, but how much are you spending to acquire those customers and is that sustainable?
OLUJIC: You have to be cognizant of it because it can create a Pandora’s box where all of a sudden it’s just hyper over-investment. You don’t want the lack of profitability in a sports betting realm to have a waterfall effect onto the overall property, because the retail sports betting is not a big chunk. The online sports betting, after you look at the revenue shares, it’s a decent amount of money, but for more successful properties, it’s not your primary source of income.
You got to look at really the sustainability of the partner you have, you got to look at their long term approach to really find stuff that’s a solution that compliments your brick-and-mortar property because you don’t want to run into that waterfall effect of where something that’s a smaller portion of your revenue is going to start influencing your biggest money maker and that’s the slot machines at this point in time until online gaming comes.
STAN: The majority of the bonuses that are coming in the early days are not sustainable. It’s a land grab, it’s a fight for getting the customers in the early days. Everybody’s willing to lose that or most of the operators are willing to lose money in order to acquire the customers. … I think we’re seeing that very, very aggressive right now, and I think that’s another challenge for tribes that may want to go on their own. They will also have to have that fight with that insane amount of bonuses and investments, which is not healthy.
The sports betting and mobile gaming platform providers have been consolidating over the last year as some of these giant players get even bigger. How does that continue to evolve the landscape that tribes need to consider?
BRUTY: Definitely, this is something we’re seeing as companies eat other companies, mergers and acquisitions. If you’re partnering with someone, it’s almost a marriage. As you go into the contract negotiations, you just need to make sure you’re protected if something like that happens. We are seeing it happen in Arizona, we’re seeing it in lots of different states.
STAN: For us, we’ve been on the acquirer side in the last 25 years. We’ve actually acquired 25 companies in 25 years, so we’re averaging about one a year. As we’ve seen in the last three years, North America increased the stakes quite a bit for all the operators. We’ve seen quite a few operators being acquired by the bigger ones and it’s very likely that it’ll continue as operators are struggling for scale and they’re struggling for bottom line. With these long-term partnerships, I think it’s important for a tribe to understand who they’re partnering with and what the future will hold.