The end-around: A new model of statewide online sports betting through tribal compacts
This article was originally published in Sports Business Journal on May 28, 2024, and is republished here with permission.
In June, a federal court of appeals in Washington, D.C., authored a decision that could drastically alter the future of sports betting across the nation. In West Flagler Associates Ltd. v. Haaland (“West Flagler”), the court concluded that Florida’s proposed “Hub and Spoke” model of tribal sports betting was permissible under the Indian Gaming Regulatory Act (“IGRA”).
This article breaks down Florida’s “Hub and Spoke” model, the federal appellate court’s decision in West Flagler, and the ripple effects the decision may have on sports betting — not only in Florida — but across the nation.
The rise of tribal sports betting
In the wake of the Supreme Court’s decision in Murphy v. National Collegiate Athletic Association (2018), state legislatures began crafting a wide array of intrastate sports betting regimes. Some states adopted regulatory regimes soliciting a finite (or infinite) number of sports betting operators. Others opted to conduct all sports betting through their state-run lottery commissions. And numerous states have granted the authority to offer sports betting to tribal nations.
Tribal gaming is governed by IGRA, which permits Native American tribal nations to enter into compacts with states. These compacts authorize tribes to offer Class III gaming, which includes sports betting. Importantly, IGRA compacts may only permit Class III gaming on tribal lands. IGRA compacts cannot grant tribal nations the power to conduct off-reservation gaming.
After the Murphy decision, tribal nations across the country renegotiated their IGRA compacts to incorporate language authorizing them to offer sports betting on their tribal lands. These updated compacts allowed states to incorporate tribal tie-ins into their sports betting regimes.
Florida’s unprecedented approach
In 2021, Florida announced a 30-year, multibillion-dollar gaming compact with the Seminole Tribe that shook the gaming industry. Not only was the compact notable due to its sheer size, but it was also unique in that it granted the Seminoles the exclusive authority to offer sports betting across the entire state, not just on its tribal lands. But how did the compact sidestep IGRA to permit the Seminoles to offer sports betting beyond its tribal lands? The answer: the Hub-and-Spoke model.
The Seminoles’ compact with the state of Florida explicitly categorizes bets placed over the internet by off-reservation individuals as bets made on tribal land. In other words, the compact deems bets to have been “made” where they are received — that is, where the servers processing the bets are located — not where the bets are placed. Because the servers receiving the bets are located on the Seminoles’ land, the Hub-and-Spoke model complies with IGRA.
West Flagler and Florida’s launch of the Hub-and-Spoke model
The U.S. Department of the Interior Secretary, Deb Haaland, whose agency oversees IGRA enforcement, allowed the compact to go into effect. Brick-and-mortar casinos in Florida sued in federal district court, alleging that the compact violated IGRA because it impermissibly governed off-reservation gaming conduct. The court agreed. However, on appeal, the D.C. Court of Appeals reversed, deciding that the Hub-and-Spoke model was permissible under IGRA.
In February 2024, the brick-and-mortar casinos petitioned the U.S. Supreme Court to review the appellate court’s decision, arguing that the Hub-and-Spoke model impermissibly “bootstrap[s] approval of off-reservation sports betting” in violation of IGRA. The Supreme Court has not yet decided whether to hear the case. As a result, the appellate court’s decision authorizing the Hub-and-Spoke model remains in effect.
In late 2023, the Seminoles launched their sports betting app, Hard Rock Bet, enabling users across Florida to place bets through the Hub-and-Spoke model. Following a failed attempt by the brick-and-mortar casinos to invalidate the compact on Florida state constitutional law grounds, the tribe’s Hub-and-Spoke model is live and provides the sole outlet for online sports betting throughout Florida.
Kansas: The next frontier?
Interest in the Hub-and-Spoke model is not confined to Florida; Kansas was eager to adopt it. In fact, the state renegotiated their compact with the Prairie Band Potawatomi Nation in May 2023 — before the appellate court reversed the lower court’s decision in West Flagler. This compact clearly had West Flagler and the Florida regime in mind. The compact not only explicitly adopts the Hub-and-Spoke verbiage, but it also includes a judicial trigger, which allows the tribe to accept Hub-and-Spoke wagers if the model is found to comply with IGRA by the federal court of appeals in Washington, D.C., or the United States Supreme Court in a judgment that is final and not appealable.
Should the Supreme Court either decline to review the West Flagler decision, or review and affirm the decision, the tribe in Kansas will be fully authorized to launch a mobile sports betting app and accept bets placed by sports fans across Kansas.
Coming to a state near you?
The Hub-and-Spoke model may prove influential in other states. Like Kansas, several other states — where sports betting is legalized via tribal compacts but limited to bets placed when the bettor is physically located on tribal lands — may be inclined to amend their tribal compacts and state laws to embrace the Hub-and-Spoke model. Doing so would expand the geographic scope of sports betting from just tribal lands to the entire state geographic boundary. These states may include Washington, Wisconsin and North Dakota. Note, however, that additional, state-specific hurdles may affect this process, as state statutory and constitutional provisions regulating gambling vary.
Conclusion
While U.S. Supreme Court review is still pending, the West Flagler decision upholding the Hub-and-Spoke model continues to affect the sports betting industry. Kansas is likely to be the first of potentially many states to follow Florida’s lead and move to expand the grant of sports betting authority to tribal nations pursuant to the West Flagler interpretation of IGRA. That movement could begin apace should the Supreme Court decline to review West Flagler.
Update: On June 17, 2024, the U.S. Supreme Court declined review of the appellate court’s decision in West Flagler. Online tribal sports betting will continue throughout Florida, and the Hub-and-Spoke model remains a viable option available to various states’ sports betting regimes.
