Harry Reid Pushing Fed Gaming Bill

By ALEXANDRA BERZON

States considering plans to legalize online gambling could collide with Congress.

Senate Majority Leader Harry Reid, a Democrat from Nevada, and Sen. Jon Kyl, an Arizona Republican, are working on legislation that would legalize online poker but outlaw many other forms of online gambling, according to people briefed on the matter.

They have not introduced their plan in Congress and it's not known whether they would try to do so this year, the people briefed on the matter say.

Last summer, the senators told Attorney General Eric Holder they opposed legislation by states to legalize online gambling, as well as state lottery efforts to offer tickets online.

In a letter, the senators asked the Justice Department to "consult with Congress before finalizing a new position that would open the floodgates to Internet gambling." The pair called moves by state lotteries to operate online "troubling."

The Department of Justice said lotteries wouldn't be violating current federal law by operating online.

People backing a federal bill say that opinion, which reversed DOJ policy, has provided them new momentum, although they still face significant obstacles.

"Now states are moving rapidly and the federal government is saying, 'Time Out,' "Jon Porter, a former congressman from Nevada who is lobbying for the bill on behalf of online poker companies and others, said on a panel at an Internet gambling conference Wednesday.

Spokesmen for Messrs. Reid and Kyl declined to comment.

At stake is the future of the online gambling industry, which is steadily evolving as a host of states consider legalizing some forms of it. One state, Nevada, is already licensing gambling companies to operate online poker sites.

Others may soon follow. New Jersey's legislature is considering a bill to authorize online gambling sites run by Atlantic City casino companies, a move Gov. Chris Christie vetoed last year but has indicated he is now more likely to support. California is considering an online poker bill. State lotteries are moving ahead with plans to sell lottery tickets and, in some cases, operate other casino games online.

The legislation being drafted by Messrs. Reid and Kyl is rattling state governments, even though few details have been made public. The draft legislation would create a federal system for online poker, similar to one being pushed by large Nevada-based casino companies, according to people briefed on the matter and a version of the bill obtained by The Wall Street Journal in 2010.

The legislation is likely to prohibit states from allowing many other forms of online gambling. Many backing the bill say they want to stop lotteries from operating instant games, slot machines and other traditional casino games online.

Last fall, several governors wrote to members of Congress in an effort to prevent online gambling regulations from getting attached to proposals to reduce the deficit. The language was never publicly introduced.

"Historically, states have had the right to make their own decisions about whether to offer gambling and how to regulate the industry," Maryland Gov. Martin O'Malley wrote at the time. Proposals in Congress, Mr. O'Malley wrote, "would strip states of those rights."

—Heather Haddon contributed to this article.
Write to Alexandra Berzon at alexandra.berzon@wsj.com