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Wednesday, February 5, 2014

Is it Time for a Federal Online Gambling Bill?

Is it Time for a Federal Online Gambling Bill?

Hartley Henderson
Is it Time for a Federal Online Gambling Bill?

By Hartley Henderson - exclusive to
Feb 4, 2014, 12:27
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Ever since an indication was given that the United States may be moving towards legalizing online gambling, Caesars and MGM were calling for a federal law to provide consistent rules across all states rather than a patchwork of regulations which would likely occur if individual states were allowed to set their own rules. In that scenario it could become very confusing to for the casino companies and law enforcement officials to determine what is indeed legal and what isn't. In particular, the casino companies wanted a federal regulatory framework for online poker. While casino games are generally contained to the computer they are being played on, poker games and tournaments include players scattered across many cities. And if the opportunity ever occurred where customers in different states could play at the same tables then the rules would need to be clear to all concerned and the best way to ensure that is with a uniform federal law. And make no mistake, if U.S. legalized poker is to ever maximize its full potential it would have to include cross border play. After all, the success of sites like PokerStars, Full Tilt and iPoker is the volume of customers since it guarantees full tables at all rake sizes and a plethora of tournament options. Sites that tried to branch out on their own like Betfair failed miserably due to a lack of volume and eventually joined a network.

In spite of their preference for a federal law Caesars and MGM took advantage of recently passed state laws and set up online poker sites in New Jersey and Nevada with the understanding that those sites can only take players that are intrastate. And if early indications of poker play from those states prove to be the norm, then the casinos may have reason for concern. indicated the following average number of players at any given time using the last 7 days as an indication.

In New Jersey Party/Borgata (MGM's partner) has the most number of cash players with a 7 day average of just over 200 players at any time; WSOP New Jersey (Caesar's site) is averaging just under 200 at any time; All American is averaging just over 100; and Ultimate Poker is barely existing with only 15 people playing at any given time.  In Nevada WSOP is averaging just over 100 players at any given time and Ultimate Poker is averaging just under 100. Compare that to the 25,000 players PokerStars is averaging today and the close to 100,000 players they had before Black Friday and the reason for concern is obvious.

At those levels it will be difficult for any particular website to thrive but if a federal law were passed allowing for true Internet poker networks then the opportunities grow tremendously. Even just using Nevada and New Jersey, Caesars would all of a sudden have about 400 players online at any given time. If that were expanded to say players in California, Florida, Washington, Iowa, New York etc. then those figures would grow into the thousands making the venture far more lucrative. And almost every online poker player has told me that their biggest turn off at any poker site is going to the poker room and seeing the majority of tables showing zero players and tournaments unable to fill the minimum requirements to proceed.

The obvious question, however, is whether it's too late for a federal law to legalize interstate poker. I posed that question and others to Mitch Garber, the CEO of Caesars Interactive Entertainment which owns WSOP and other Caesars online businesses and his answer in relation to state by state vs. federal regulation was quite clear.

"We live under a State by State regime in land based gaming and embrace it today as the prevailing online solution. It is our belief that it is not too late for a Federal bill given that only Nevada, New Jersey and Delaware have legalized online gaming, however we are succeeding at growing a meaningful business in Nevada and New Jersey and see momentum toward a rollout of future state by state legalization, and compacting between states which will address the issue of scalability. So, we are very happy with the rollout of the first states and we are actively working to get the same result in a number of additional states. That is our focus."

Alan Feldman, the Vice President at MGM Resorts provided me with a similar response in the past and most industry experts believe that a federal law is still the best option although that shouldn't stop any casino operators from moving forward with state by state web sites.

The one casino owner who remains completely opposed to online gambling in any form is the Las Vegas Sands owner Sheldon Adelson. In fact Adelson created a lobby group called the Coalition to Stop Internet Gambling and hired on former Republican George Pataki to head it, although there are Democrats on staff as well. Adelson indicated he will spend whatever it takes to succeed and suggested that online gambling only benefits Caesars and MGM. He feels the Las Vegas Sands land based casinos would suffer greatly with online gambling and he also believes that online gambling will lead to compulsive behavior and is thus morally bankrupt. Adelson's hope with his lobby group is that with the right pressure Congress will rewrite the Wire Act to make online gambling illegal in all forms and effectively negate the DoJ's position that the Wire Act only applies to sports betting. While Adelson stood alone in his position among the casino giants, it was recently reported in Forbes Magazine that Steve Wynn is siding with Adelson giving the anti-online gambling side some extra strength. While Wynn considered himself to be neutral in the area of online gambling he has since told a reporter that "this is not a good entrepreneurial opportunity." Wynn indicated that in his view the governments will be the only real winners under the current scheme and unless things change he will continue to oppose it.

Asked about his opinion of Adelson's position Garber was quite candid:

"We believe that Sheldon Adelson has taken a polarizing and hypocritical position on legalized online gaming. His arguments against legalization have no basis in fact, and we believe that we will successfully counter those arguments in whatever forum is appropriate, and ensure that we continue along the path of legalized, taxed, and fully regulated online gaming in the United States, and greater enforcement against illegal sites.

To provide context in regard to (Adelson's) arguments, they are centered around the availability of online gaming 24 hours a day from one's sofa. This argument ignores a number of important facts including the sophistication of the prevailing technology, the generally low stakes nature of online gaming, and most importantly, the fact that we are living in a new paradigm, where you can shop or trade stocks from your sofa 24 hours a day on the internet. Online gaming, properly licensed, with the appropriate focus on responsible gaming, is simply another good and service available online."

The one question I was curious about was whether the Wire Act could even be rewritten to include online gambling and more importantly what would be required to appease the states which already legalized online gambling. I posed that question to Larry Walters, a first amendment attorney and an expert on online gaming law who answered with the following:

"The short answer is that Congress can do anything within the bounds of its constitutional authority, which includes enactment of criminal laws and regulation of anything having an impact on interstate commerce. Thus, Congress could, theoretically, enact a ban on all forms of online gambling by amending the 'carve out' contained in the UIGEA for intra-state gambling, and expanding the scope of the Wire Act to include other forms of gambling besides sports betting.

Any attempt to shore up, and prohibit all forms of online gambling at the federal level would require a tremendously broad statute that would at the same time need to include exemptions for state lotteries, possibly Indian tribes, and others. There are other carve outs in the UIGEA besides intra-state gambling, such as the one for fantasy sports, so that type of gaming may have to be addressed too, in order to enact a broad prohibition. Then the lawmakers would need to think about what to do with things like skill games, online sweepstakes, and penny auctions – which are not traditional gambling, but which might provide a similar recreational feel. The hurdles and political resistance would be substantial from the stakeholders affected by these sweeping changes. Americans have become accepting of the concept of 'gaming,' in a way that we've never seen in this country. People 'wager' with virtual, in-game currency on a regular basis, without a second thought. An entire generation of children have been raised on games where you can win or lose 'credits' through elements of chance, and openly laugh at adults who think that 'gambling' is a vice activity on par with drugs or prostitution. Anything is possible in Congress, but the likelihood of a broad, controversial, online gambling prohibition bill making its way through a divided Congress during an election year is remote."

As to whether New Jersey, Nevada and Delaware would have to be grandfathered in, Walters stated the following:

"Whether Congress would grandfather the states that had already implemented intra-state gambling, in reliance on existing federal statutes, that is likely, but not necessarily mandatory. There are constitutional issues created by both grandfathering and not grandfathering, which could get complicated. If grandfathered, New Jersey would be placed in the unenviable position of arguing that grandfathering under PASPA is unconstitutional, while grandfathering under some new statute is just fine. If it was not grandfathered, it would have the mirror image problem."

So with the casinos taking different positions on whether online gambling should be illegal and with up to 8 states prepared to introduce legalized intrastate online gambling in the near future it probably is best that the federal courts once and for all introduce a law that clarifies the issue of online gambling at the federal level. I have no doubt that when the facts are put on the table and when the courts look at the benefits of a uniform set of laws they'll agree that there is no reason to criminalize an activity that both states and citizens want and that is perfectly legal nationwide at land-based establishments. The lack of problems with the sites that are currently operating will alleviate many fears and in the end the government will almost certainly amend the Wire Act and UIGEA specifically include interstate wagering.  When that happens Americans will once again enjoy the benefits of full online poker tables and poker rooms and in the end it will benefit all tax paying Americans.

Contact Hartley via email at hartley[at]osga[dot]com.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!

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