Legal gambling in Arizona has undergone dramatic changes

Stacie Stern is the general manager of Head2Head Sports, a locally-based fantasy sports organization. Stern says her favorite thing about fantasy sports is that they are skill-based games. (Photo courtesy Miranda Tomlinson/Cronkite News)

PHOENIX – Arizona is among the most prohibitive states in America toward gambling. Yet, since Congress passed the Indian Gaming Regulatory Act in 1988, casino gambling has proliferated in Arizona. There are now 23 casinos operating on tribal lands within the state.

It is a dramatic change. The dog and horse racing industries once dominated legal gambling in Arizona, along with lottery games that were approved by voters in 1980.

Dog racing, which was contested at five different tracks around the state and for a period of 72 years, ended in Arizona earlier this year when Gov. Doug Ducey signed legislation banning it. In June, Tucson Greyhound Park, which was the last track operating west of the Mississippi River, held the final race in Arizona.

The decline in horse racing has not been as steep. There are still two Arizona horse racing tracks in operation, Turf Paradise in Phoenix, which celebrated its 60th anniversary this year, and Rillito Park in Tucson. However, Yavapai Downs in Prescott Valley was shuttered in 2011.

“In this country, gambling is what funds the track,” said Wendy Davis, associate coordinator of the University of Arizona’s Race Track Industry Program. “That is the only way racing exists in North America. It funds everything. It funds the racetrack. It funds the purses. It’s the economic driver.”

Now, frustrated proponents of fantasy sports games, which have grown in popularity across other parts of the country, are trying to find a niche in Arizona, but two attempts to pass legislation that would allow Arizona residents to play daily fantasy contests for cash or prizes have failed.

“Arizona is probably among the most restrictive states in the country for limiting what is permitted as gambling,” said Heidi McNeil Staudenmaier, a Phoenix attorney who specializes in tribal and gaming law.

Casino gambling has become a major source of income for many Native American tribes, and Arizona shares in the profits – to the tune of about $100 million per year, according to the Arizona Indian Gaming Association.

“Arizona is not looking to expand gambling unless it is done very carefully and on a limited basis and to assure that it’s regulated,” Staudenmaier said. “To get over the daily fantasy sports issue, I just think all stakeholders need to get comfortable with it to assure that it is permissible and that it is for the benefit of everybody . . .”

Web-based fantasy sports portals such as DraftKings and FanDuel allow players to buy into single-day contests for cash and prizes that are based on the performances of individual athletes in professional sports. Others, like Head2Head Sports based in Scottsdale, provide season-long fantasy games.

Fantasy sports fall into a murky area in Arizona law.

“If you go ask 10 attorneys in the state of Arizona, ‘Are fantasy sports legal or illegal?’ you’re going to get 10 different opinions,” said Stacie Stern, general manager of Head2Head Sports, which offers for-pay games to residents of other states, but not in Arizona where it is based.

“(Arizona) is just this gray-area state,” Stern said. “But for a lot of companies, and specifically the daily fantasy sports companies and companies with cash games, it’s too much of a gray area to risk getting in trouble. That’s why they don’t offer these games to residents in Arizona.”

According to the Fantasy Sports Trade Association, there are 57.4 million people playing fantasy sports games in the U.S. and Canada this year, more than double the number of players in 2009. More than a third are women and two thirds are college educated.

On average, players 18-years-of age and older, who play for money, spend $556 annually on fantasy games. However, players who reside in Arizona can only play “amusement” versions of the games.

Aaron Shapiro, a junior at Arizona State majoring in Sports and Media in the W.P. Carey School of Business, said he isn’t interested in playing fantasy sports contests that don’t include a payout.

“I don’t play because you can’t win money, which makes it pointless to play,” he said. “It’s basically like playing a free league of fantasy football. And nobody wants to do that. Especially in daily fantasy sports, where nobody knows who you are, anyway.

“I’m frustrated with our laws (in Arizona) because they are completely upside down in the sense that while many people don’t see daily fantasy sports as gambling, there are a lot of people in this state that do.”

Those who do include Arizona Attorney General Mark Brnovich, who sent letters last year to DraftKings and FanDuel advising that the state has taken a “strong stance against Internet gambling, which is where daily fantasy sports betting falls” in Arizona.

Two previous opinions from former Arizona Attorney General Grant Woods also concluded that fantasy games do not fall under any of the state’s six statutory gambling exclusions.

Finally, there is a so-called “poison pill” provision in the Arizona Tribal-State Gaming Compacts that could potentially cost the state as much as $80 million annually if additional gambling is allowed, while also opening up the possibility of tribes building even more casinos.

“The compacts are what the tribes and the state put into place that regulates and sets forth the structure for tribal gaming in the state and those have been very carefully negotiated,” Staudenmaier said.

Ducey recently signed amendments to the Arizona Tribal-State Gaming Compacts, which were passed as a referendum in 2002 called Proposition 202.

The amendments allow the tribes a higher gaming class on their reservations in return for not building future casinos within the Phoenix metropolitan area. Notably absent from the tribes represented at the signing was the Tohono O’odham Nation, which recently opened a casino in Glendale.

Reportedly, the Tohono O’odham are not likely to agree to the amendment.

Robert Clinton, an Arizona State University law professor who specializes in tribal law, said that while there is precedent for amending the compacts, the move could be challenged under the state constitution, which requires that a statute adopted by initiative can only be changed by a three-quarters vote of the state legislature.

Does he expect a challenge?

“No, is the simple answer,” Clinton said. “It was contested in 2002 because competitors like the racetracks funneled a lot of money into the legislature and tried to prevent gaming compacts, and they’re no longer a big player at this point. So, I don’t think anybody’s got any reason to prevent this from happening.”

Cronkite News reporter Matt Layman contributed to this report.