GPWA Times - Issue 20 - March 2012

Seeing the light: More U.S. state governments get on board with Internet gambling By Martin Owens “Your big opportunity may be right where you are now.” –NapoleonHill ********* It’s already here Internet gambling is a fact of life in the United States right now. No less than 32 states already use licensed Internet servic- es to help take in their horse-racing bets. So when they speak of “legalizing Internet gambling,” what is actually being decided is which programs for the expansion of Internet gambling will be deployed, and by which states. New interest in the revenue-producing possibilities of licensed iGaming has been generated by an opinion given out by the U.S. Department of Justice (DOJ) in December 2011. In response to ques- tions from the governors of New York and Illinois regarding sales of state lot- tery tickets online, the DOJ abandoned its long-held position that all Internet gambling violated the Wire Act (18 USC s. 1084). In point of fact, there was nev- er any support for that allegation, either in the language of the statute itself or in case law. And anyway, the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006 established a clear safe harbor which was licensed and su- pervised by state authorities, within state borders. The legal coast, therefore, is now indisputably clear for regulation. But how to do it? The federal level It might seem to make more sense to reg- ulate Internet gambling at the national level, particularly from the point of view of nationwide gambling operators, such as Caesars and MGM, as well as foreign companies that might want to participate in the U.S. market. But so far in the USA, powerful factors have prevented this. First, state law is the traditional refer- ence point for all gambling law in the United States. This is because when the country was founded, gambling was considered a minor crime and a nui- sance, and therefore fell under the po- lice power, reserved by the Constitution to the state governments. Federal licens- ing would mean that states would have to share both power and revenue with Washington, which they are hardly ea- ger to do. Second, Wicked Gambling is a stock po- litical bogeyman for the political right wing. Congressmen and senators from conservative regions can always score quick points with their base by publicly opposing and condemning it. But out- side of Nevada, there is no corresponding pro-gambling lobby of any importance. So for most Washington politicians, the risks of supporting gambling outweigh any potential advantages. “The rule of thumb for U.S. gambling cross-border is that if the states say there’s no problem, there’s no problem.” Third, even a nationally licensed regime of Internet gambling would only inject a few billion more dollars into a federal budget that regularly runs trillion-dollar deficits. Add to that the fact that there are many more pressing matters, such as the world economy, the situation in the Middle East and this year’s presidential election, and it becomes quite difficult to focus lawmakers’ attention on this matter at all. This is why repeated at- tempts to inaugurate Internet gambling licensing on a national level have come to nothing, and probably will continue to do so for the foreseeable future. The state level At the state level, legislation is gener- ally quicker and easier, not to mention more responsive to popular sentiment. The revenue offered by licensing more Internet gambling is increasingly attrac- tive to cash-strapped states, for which even a few tens of millions are still worth- while money. A number of states are ex- amining the possibilities. Nevada was the first, passing its enabling legislation in 2001. It has taken a long time, but the initial opposition from land- based gambling interests has been over- come, and Nevada began to take its first applications for online gaming licenses this year. Existing law, however, limits the applications to the big hotel resorts. California, with its large population, liber- al social mores and extensive digital infra- structure, would seem to be an ideal state for licensed Internet gambling. But there have been difficulties here, too. Some come from the politically powerful Indian casino tribes. Their rivalry with still-po- tent licensed cardrooms is one reason no Internet gambling bill has made it to a vote in the California legislature. Another is the tribal concern that Internet gam- bling might cut into their monopoly on casino-style gambling, and even somehow affect their sovereignty rights vis-à-vis the state government. But the biggest obstacle has been a lack of support from the leg- islative leadership, coupled with a lack of understanding about what a system of li- censed Internet gambling would look like, and what it would be expected to do. This has now changed, as California Senate President pro tem Darrell Steinberg has coauthored a new and quite thorough bill which addresses the con- cerns of various interests, and lays out a detailed picture of the licensing, permits, fees and other requirements needed to make Internet gambling a working reality. Perhaps the most interesting aspect is that while only existing land-based California licensees may get online licenses, there is no restriction on how many of those may EYES ON U.S. REGULATIONS Seeing the light: More U.S. state governments get on board with Internet gambling