By Holt Hackney
A federal judge from the District of Colorado has dismissed a lawsuit filed by the Southern Ute and Ute Mountain Ute tribes against the state of Colorado, which involved online sports betting, tribal gaming rights and taxes.
The central issue was where a digital bet is considered to be “placed.” The judge ruled that the location of the bettor, not the location of the server processing the bet, determines whether the activity occurs on Indian land and is thus subject to the Indian Gaming Regulatory Act (IGRA).
Background of the Lawsuit
In July 2024, the Southern Ute Indian Tribe filed a lawsuit against Governor Jared Polis and the Colorado Division of Gaming, with the Ute Mountain Ute Tribe joining the action later. The Tribes argued that since Colorado explicitly authorized sports betting as a Class III game, they should be able to offer online sports betting statewide in accordance with their existing gaming compacts with the state.
The Tribes contended that online bets processed through servers located on their reservation lands should be considered as occurring on Indian land, thus exempt from state taxation and regulation. They sought a model similar to Florida’s Seminole Tribe, where the compact specifies that the bets are considered placed where received (at the server). The state, however, maintained that an online bet placed by a bettor in Denver, for example, occurs off tribal lands and is therefore subject to Colorado gaming laws and the associated 10% tax on net proceeds, which funds state water projects.
The Tribes argued that the state’s position created an unfair competitive disadvantage, essentially freezing them out of the lucrative online sports betting market because, as sovereign nations, they are generally exempt from state taxes. The Southern Ute Tribe had previously operated the Sky Ute SportsBook, but closed it in July 2023 due to the legal challenges and operational difficulties posed by the state’s stance.
The Court’s Ruling
The court’s ruling was based on two primary points:
- Sovereign Immunity: Judge Gallagher held that the State of Colorado is generally immune from such a suit under the Eleventh Amendment of the U.S. Constitution.
- Location of Gaming Activity: The pivotal legal determination was that “the gaming occurs where the bettor is located”. He reasoned that in the context of online sports betting, the location of the individual placing the bet is the sole determining factor for whether the activity falls under IGRA. If a bettor is off-reservation, IGRA does not apply, and state law takes precedence.
The court noted that IGRA was enacted in 1988 at a time when online betting was not anticipated, creating a new “legal tension” in the digital age. It concluded that the Tribes have the option to obtain a state license to offer off-reservation online sports betting, but this would require them to pay the state’s 10% tax on those proceeds and submit to state regulatory jurisdiction.
Aftermath and Implications
Colorado officials, including Governor Polis, welcomed the decision, which allows the state to continue allocating tax revenue from sports betting to water conservation and infrastructure projects. His statement read:
“We deeply respect the government-to-government relationship the state has with the Ute Mountain Ute and Southern Ute Indian Tribes. We are glad that the court ruled in the state’s favor to ensure Colorado can continue to manage sports betting in a way that works best for Coloradans and our state and continue funding important water projects around the state. We are dedicated to working together with the Tribes on gaming matters, and we look forward to ongoing conversations with the Ute Mountain Ute and Southern Ute Indian Tribes on this important issue.”
For the Southern Ute and Ute Mountain Ute Tribes, the ruling was a significant setback. The Southern Ute Indian Tribe issued a statement acknowledging the decision but expressing their belief that a different result is “mandated by federal law,” indicating they are evaluating options for moving forward. Tribal leaders and general counsel viewed the decision as aligning with a “dark legacy of broken treaties and agreements” and a potential threat to tribal sovereignty in the digital age.
Experts suggested the decision underscores the ongoing legal challenges faced by sovereign Native American nations in navigating the complexities of federal, state, and tribal laws, particularly in emerging areas like internet commerce and gaming.
