In 2004, Oklahoma voters approved State Question 712, which established legal compacts between the state of Oklahoma and Native American tribes to regulate tribal gaming. Under the gaming compacts, tribes contribute over $125 million to the state, which goes almost exclusively to public education. However, the compacts and the millions in education funds may be in jeopardy if the Oklahoma Legislature passes a bill aimed at authorizing daily fantasy sports contests.
How Oklahoma’s gaming compacts work
Under State Question 712, the State-Tribal Gaming Act, Oklahoma’s Native American tribes agreed to pay a share of revenue from Class III tribal gaming operations to the state as “exclusivity payments.” After an initial $250,000 is allocated to the Department of Mental Health and Substance Abuse Services for gambling education and treatment, 87.5 percent of gaming revenues are deposited in the 1017 Education Reform Fund, with the remaining 12.5 percent allocated to the General Revenue Fund. Tribal gaming revenues contributed $128.4 million to Oklahoma in FY 2015.
Thirty-one tribes are part of the gaming compact, with the lion’s share of revenue (70 percent in 2015) coming from four tribes – the Chickasaw ($45.4 million), Choctaw ($21.0 million), Cherokee ($14.3 million) and Muscogee (Creek) ($9.0 million) Nations. The state also collects some $20 million annually from racetrack gaming terminals. Gaming revenues are expected to contribute $127.1 million to the HB 1017 Fund for common education in FY 2016, which amounts to about 5 percent of common education’s annual appropriation. An additional $17.9 million from gaming goes to the General Revenue Fund.
Fantasy sports bills could put compacts at risk
Under Part 11 of the Model Tribal Gaming Compact approved by SQ 712, tribes were granted exclusive rights to operate gaming establishments in return for sharing part of the revenue with the state. However, under the compact this agreement only holds “so long as the state does not change its laws after the effective date of this Compact to permit the operation of any additional form of gaming by any such organizational licensee, or change its laws to permit any additional electronic or machine gaming within Oklahoma.”
This exclusivity guarantee is what is at stake with HB 2278 and SB 1396, labelled the Oklahoma Fantasy Contests Acts. As anyone who watches NFL football or listens to sports radio knows, daily fantasy sports contests are big business. The two largest operations, DraftKings and FanDuel, are among the most aggressive sports advertisers, aiming to attract customers to pay entry fees for short-term competitions based on the performance of selected teams of players. Following an insider-activity incident last fall involving a DraftKings manager that generated enormous publicity and sparked federal and state investigations, the industry is now promoting legislation in Oklahoma and numerous other states to provide legal authority and a regulatory framework for their operations.
“A growing consensus is emerging that daily fantasy sports are indeed a form of gambling.”
The daily sports fantasy industry strongly contends that their contests are games of skill, not chance, and do not constitute gambling. Their Oklahoma bills include language asserting that “nothing contained in Chapter 38 of Title 21 of the Oklahoma Statutes” – which govern gambling operations – “shall be applicable to a fantasy contest as defined in this act.” However, this interpretation has been roundly disputed, and a growing consensus is emerging that daily fantasy sports are indeed a form of gambling:
- Last fall, the Nevada Gaming Control Board published a memorandum ruling that daily fantasy sports games were a form of sports wagering and that DFS services must cease serving customers in Nevada until they obtain a sports pool license;
- State attorneys general in New York, Illinois, Hawaii and Texas declared daily fantasy sports illegal under their respective states’ gambling laws;
- A New York court has issued a preliminary ruling determining daily fantasy sports illegal under state law;
- The NCAA considers daily fantasy sports to fall under its prohibition of sports wagering by student athletes.
It’s possible that if the fantasy sports industry can gain passage of HB 2278 or SB 1396, it can protect itself from Oklahoma’s anti-gambling laws. In return, Oklahoma would get a $2,500 annual registration fee from each operator offering fantasy contests within the state. But Oklahoma would open itself to a compelling challenge that authorizing daily fantasy sports would be permitting “the operation of any additional form of gaming” under the terms of the tribal gaming compacts — a claim already asserted by the Cherokee Nation, Chickasaw Nation, Muscogee (Creek) Nation, and other tribes.
The bottom line
Authorizing fantasy sports could put more than $125 million of state revenue at risk, most of which is currently going to education funding. In a time when Oklahoma already faces a massive budget shortfall, that seems a most foolhardy wager.