Idaho Indian Tribe Rolls the Dice on Gambling in Cyberspace

The Coeur d’Alene Indian tribe, whose casino has netted $22 million in five years, is taking its biggest gamble yet: that its Internet gambling operation will survive beyond its first birthday.

The deck is stacked against the 1,550-member tribe in northern Idaho’s Panhandle, the only tribe in America offering gambling in cyberspace beyond bingo.

Attorneys general in 36 states have asked the National Indian Gaming Commission to shut down the US Lottery, the tribe’s phone and Internet games. And lawsuits against Unistar Entertainment, the company managing the lottery, are pending in federal courts in Missouri and Wisconsin.

But perhaps most threatening of all to the Coeur d’Alenes’ Internet games is legislation proposed by Sen. Jon Kyl (R-Ariz.) that would ban all gambling over the Internet. The bill is expected to reach the Senate floor this month and a similar bill has been proposed in the House.

“We’re worried about it,” concedes Dave Matheson, a former deputy commissioner of the Bureau of Indian Affairs who returned to the reservation in 1993 to head up his tribe’s gaming operations.

Worried, sure, but not willing to pull the plug.

Ernest Stensgar, the tribal chairman who has a Purple Heart from Vietnam, said the tribe was convinced of its games’ legality when it began US Lottery and that hasn’t changed.

“We knew it was going to be a challenge, a fight,” Stensgar said. “But what hasn’t been a challenge? It wasn’t that hard of a decision.”

Since last May, US Lottery has been offering pull-tab or scratch-off games that simulate lottery tickets. In January it began a weekly six-number draw game that can be played from 33 states via the phone or Internet.

“They’re real trailblazers,” said Sebastian Sinclair, a gambling analyst with Christiansen, Cummings Associates in New York.

Unistar has picked up most of the tab, so far amounting to $13 million for the legal battles, 25 staffers and a new computer center next to the tribe’s 5-year-old casino along the two-lane U.S. 95 here.

Neither the tribe nor Unistar has yet made a dime. Only about 4,000 play regularly and just 1,300 play the weekly draw game for a minimum jackpot of $1 million.

Public suspicion that the games are not legal, combined with the refusal of phone companies, so far, to provide 800 numbers for phone sales, are dampening interest, Matheson said.

But if the legal hurdles--including a lawsuit the tribe filed against AT&T; for phone lines--can be overcome, the tribe and Unistar believe the market will be huge.

“We think it could be a big success, justifying our investment in it,” said Mike Yacenta, president of Unistar, a subsidiary of Executone Information Systems Inc., a publicly traded telecommunications company based in Milford, Conn.

Lottery players buy $114 billion worth of lottery tickets worldwide each year, $40 billion in the United States, Yacenta notes. The Coeur d’Alene tribe wants to slice several hundred million dollars a year from that pie.

“The vision we have is the self-sufficiency of the Coeur d’Alene tribe, the American dream if you will,” said Stensgar.

“There was a period of apathy, despondency, alcoholism,” Stensgar said. “Now people are happy. They’re working and it’s because of gaming dollars. We can’t go back to where we were.”

The $22 million the casino has made since it began in 1993 has already gone to education, land purchases, elders’ programs, law enforcement and tribal members.

The casino employs 220, and another 100 jobs--such as those in the new tribal police department and Justice Court--were created with casino money.

Matheson boasts that reservation unemployment has fallen from 55% to 15%.

As he sees it, the casino money has jump-started the tribal economy, long dependent on fickle agricultural and forestry markets. Internet gambling could give the tribe real money to start other industries, he says.

“We hope it will be a footnote in our history,” Matheson said.

Between the tribe and the pot of gold, however, stands some formidable opposition.

The 36 attorneys general who last summer asked the Indian Gaming Commission to prohibit tribes from offering Internet gambling say the games are not allowed under the Indian Gaming Regulatory Act. The commission previously authorized the Coeur d’Alene tribe’s lottery.

The commission heard from all sides at a hearing in November but has taken no action.

Because the law allows gambling only on Indian lands, the central issue is where the game is played.

The tribe argues that the games are played in Idaho, on the reservation’s computer server. The attorneys general, however, say that gambling via the Internet does not transport a player to the location of the computer server.

“They are taking Missouri money for something that is illegal in Missouri,” grumbles Jay Nixon, that state’s attorney general. “If we allow this, we must allow anything that’s illegal as long as it’s legal in the state it comes from.”

Further, he said, there’s no assurance that teenagers are screened out or that the operation isn’t used for money laundering.

Nixon has appealed two federal judges’ rulings in cases against the tribe and Unistar.

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In Wisconsin, Atty. Gen. James Doyle will not appeal the dismissal of the tribe as a defendant in his federal suit. But he believes that he has a good chance of prevailing against Unistar.

“Without Unistar this venture is out of business,” said Jim Haney, Doyle’s spokesman.

Like Nixon, Doyle doesn’t think Internet gambling is a good bet for consumers. “There’s nobody checking the odds, nobody monitoring the payoffs,” Haney said.

The Coeur d’Alenes cite several layers of regulation, including the tribe’s own regulators, who have a budget of $360,000 this year.

“They probably think we still live in tepees too,” scoffed Stensgar. “We consider ourselves to be the most regulated people in America.”

Nelson Rose, a Whittier College law professor and expert on gambling law, says the Coeur d’Alene tribe has some good legal arguments--for the moment.

But the Kyl bill probably would kill US Lottery.

Even with the threat of the new law, other tribes are preparing to offer gaming online. Two of them--the St. Regis Mohawk tribe of northern New York and the Lac Vieux Desert Band of Chippewa Indians of Michigan--have Web sites nearly ready to go, said Don Harris, president of an Ohio-based company that is helping them go online, Native American Interactive Gaming Inc.

Rose, however, contends that the market will remain small until the public has confidence the games are run honestly.

Just last month, the U.S. attorney in New York announced the indictments of 20 U.S. operators of Internet gambling sites in the Caribbean.

Says Rose: “Having arrests made by the Department of Justice is not going to help.”