Arizona Sports Betting Lawsuit Faces Uphill Battle Due to Language in 2002 Ballot Initiative

With legal sports betting in Arizona set to launch on Sept. 9, an Arizona Indian tribe is taking steps to try to prevent that from happening. Late last week, the Yavapai-Prescott Indian Tribe (“YPIT”), a federally recognized Indian tribe located within the State of Arizona, filed a lawsuit in the Maricopa County Superior Court seeking a judicial declaration that Arizona’s new sports betting law—which grants 10 sports wagering licenses to the state’s professional sports teams and 10 licenses to Indian tribes—is unconstitutional because it eliminates the “exclusivity” granted to Arizona’s Indian tribes under a 2002 amendment to the Arizona Constitution.

The YPIT claims that the 2002 constitutional amendment—a voter-approved ballot initiative designated on the statewide ballot as Proposition 202 (the “Indian Gaming Preservation and Self-Reliance Act”)—expressly limited all gaming within Arizona to Indian tribes and, through a model compact authorized as part of that voter initiative, granted the YPIT and all other state-compacted tribes the “exclusive right” to operate Class III gaming (a category of gambling under federal law which includes sports betting). The YPIT contends that the new sports betting law (H.B. 2772)—which expands gambling beyond tribal borders and allows both tribes and non-tribal entities to operate sports wagering under state-issued licenses—violates the exclusivity granted to the YPIT under Proposition 202 and its 2003 Compact with the State of Arizona.

This breach of exclusivity, the YPIT alleges, is also in violation of the state’s Voter Protection Act (“VPA”), a provision of the Arizona Constitution which limits the state legislature’s ability to amend voter-approved initiative measures unless the amending legislation “furthers the purposes of such measure and at least three-fourths of the members of each house of the legislature . . . vote to amend such measure.” H.B. 2272 easily cleared the three-fourths approval threshold in the Arizona Legislature. But that’s not the problem according to the new lawsuit. The YPIT complaint focuses on the “furthers the purposes” language of the VPA. To that point, the YPIT alleges that the “primary purpose” of Proposition 202 was to grant Arizona-based Indian tribes the “exclusive right” to engage in Class III gaming activities (which include sports betting), while claiming that the real purpose of H.B. 2772 was to accomplish the exact opposite: to “eliminate” Class III exclusivity for Arizona’s compacted Indian tribes by granting non-tribal individuals and entities the right to engage in sports betting and other Class III games (such as keno and draw games).

Based on this alleged violation of the exclusivity language in Proposition 202—which rises to the level of a state constitutional violation through the Arizona Voter Protection Act—the YPIT seeks a judicial declaration that H.B. 2772 is unconstitutional. This is the primary claim advanced in the YPIT lawsuit. However, the YPIT also asserts as additional claims that the new law unfairly discriminates against tribal entities because every professional sports team in the state will be able to secure one of the ten “event wagering” licenses reserved for pro sports teams while roughly half of Arizona’s 21 Indian tribes will not be to participate in sports wagering because the new law caps tribal licenses at 10. The YPIT contends that this disparate treatment renders H.B. 2772 an unconstitutional “special law” and also violates the equal protection clause of the Arizona Constitution.

The relief that the YPIT seeks from the court is an injunction prohibiting the Arizona Department of Gaming—the state’s gambling regulator—from issuing event wagering licenses and allowing sports wagering to commence under H.B. 2772, “and to maintain the status quo” during the pendency of the lawsuit, until the court determines whether H.B. 2772 is lawful. Towards that end, the YPIT has filed a motion for a temporary restraining order and preliminary injunction. An emergency hearing on the motion has been scheduled for Sept. 3. The Court will likely issue a ruling before the expected Sept. 9 launch date for legal sports betting in Arizona.

To be granted a preliminary injunction—which is an “extraordinary” and “drastic” remedy—the YPIT, as the requesting party, must prove four things: (i) that there is a “strong likelihood” of success on the merits following a trial; (ii) the possibility of “irreparable injury” not remediable by money damages if the injunction is not granted; (iii) a balance of the hardships in its favor; and (iv) the public interest would be served by the issuance of the injunction. The requesting party must establish all four of these elements at the hearing; if just one is missing, preliminary injunctive relief will be denied.

A clear obstacle to YPIT’s request for emergency injunctive relief would seem to be problematic language contained in section 3(h) of the standard form of tribal-state gaming compact expressly incorporated within Proposition 202. (This is substantially the same compact that the YPIT signed in 2003). Section 3(h)—revealingly entitled “Additional Gaming Due to Changes in State Law with Respect to Persons Other Than Indian Tribes—expressly contemplates that the State of Arizona would enact new laws to authorize other forms of Class III gaming for non-tribal entities. Rather than expressly prohibiting such action—as the YPIT’s complaint appears to suggest—the model compact simply gives the YPIT the right to reduce its revenue-sharing payments to the state. Section 3(h) provides, in relevant part, that “[i]f, on or after May 1, 2002, State law changes . . . to permit either a person or entity other than an Indian tribe to operate . . . any form of Class III Gaming . . . that is not authorized under this Compact, . . . then, upon the effective date of such State law, . . . the Tribe’s obligation . . . to make contributions to the State shall be immediately reduced . . . to seventy five hundredths of one percent (.75%) of its Class III Net Win for the prior quarter.”

This remedial provision makes crystal clear that the YPIT—and, equally important, the voters of Arizona—understood that Proposition 202 left open the possibility of subsequent (i.e., post-2002) changes to state law that would expand Class III gambling to include non-tribal persons and entities at locations outside of tribal lands. And it provided a very specific economic remedy if that were to happen—i.e., the Tribe would be able to reduce its revenue-sharing payments to the State.

Throughout their complaint, the YPIT appears to be conflating the “exclusivity” language in Proposition 202 with an outright ban on any new forms of Class III gaming. Contrary to the allegations in the YPIT’s complaint, Proposition 202 did not “expressly limit[] gaming only to Indian Tribes” (para. 26) or to “limit all forms of Class III gaming within the State to on-gambling reservation gambling by Arizona Indian tribes” under the terms and conditions of the model compact expressly incorporated within Proposition 202 (para. 29). Rather, as made clear in its “Declaration of Purpose,” Proposition 202 merely “authorized” the Governor to execute new tribal-state compacts in accordance with specified parameters “so that Indian casinos can continue to operate.” Or, as a 2002 fiscal impact statement prepared by the Joint Legislative Budget Committee Staff prior to the vote aptly described it, “Proposition 202 allows an increase in the number of slot machines at Indian casinos.”

While Proposition 202 grants Arizona’s Indian tribes the right to conduct gaming in the state “with substantial exclusivity” (see section 13 of the ballot initiative), it did not expressly limit Class III gaming to Indian lands or purport to prevent the Governor or the state legislature from expanding the gambling entitlements in Arizona. The “exclusivity” provision in the model compact was tied to a certain level of revenue-sharing payments, such that if any new state laws authorizing Class III gambling infringed upon tribal exclusivity, the tribe’s remedy under section 3(h) would be a reduction of revenue-sharing payments, not a court injunction. Stated another way, the availability of this purely economic remedy—and the other similar remedies afforded by section 3(h)—negates the element of “irreparable injury” that is a condition precedent to the entry of a preliminary injunction.

Daniel Wallach is the co-founder of Conduct Detrimental. He is a nationally-recognized gaming and sports betting attorney. You can follow him on Twitter at @WALLACHLEGAL.