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Chances weak for online gaming

26 December 2012

By Howard Stutz

A year ago this past Sunday, the Justice Department gave Internet poker proponents an early holiday present.

Politicians and gaming interests turned the gift into a lump of coal.

Senate Majority Leader Harry Reid ended debate Dec. 14 on a bipartisan online gaming bill in Congress.

The move, which wasn't unexpected, pushed the U.S. further away than it was last year at this time from having legalized online poker nationwide.

More pressing fiscal issues and congressional changeover will probably keep the issue sidelined in 2013.

That's too bad. On Dec. 23, 2011, government prosecutors pulled a surprise when they released a favorable revised opinion on the federal Wire Act of 1961, saying the law applied only to sports wagering.

Analysts said the change in position paved a clear path for the federal legalization of online poker. Websites in one state would have the ability to accept wagers from residents of a different state.

Legislation from Congress was required to set up a process to legalize, regulate and tax online poker nationally.

"This is an unfortunate ending to the year," said Tom Breitling, chairman of Las Vegas-based Ultimate Gaming, which was planning to launch a nationwide online poker website.

The lack of federal online gaming legislation hurt many gaming companies. Caesars Entertainment Corp. is unable to leverage its World Series of Poker brand through the Internet to U.S. customers. Slot machine giant International Game Technology has to limit content to its social gaming DoubleDown Casino.

Meanwhile, despite promises by Reid and Nevada Republican Sen. Dean Heller to relaunch the legislation in 2013, there is little chance an online poker bill would make it through Congress.

Opponents of federal online poker legalization - Indian tribes averse to states infringing on their sovereign rights, state lottery leaders and Republican lawmakers - aren't showing signs of backing away.

American Gaming Association President Frank Fahrenkopf Jr., the industry's chief Washington, D.C., lobbyist, has his work cut out in bringing together gaming's factions.

If there is going to be a cohesive effort to legalize Internet poker on a national scale, commercial casinos, tribal gaming and state lotteries all have to be on the same page.

Some observers don't have much hope.

"We don't expect to see the political environment changing to a point where a federal bill would be likely to get passed," Macquarie Securities gaming analyst Chad Beynon told investors.

That's not to say fence mending isn't under way.

The National Indian Gaming Association offered to work with Reid and other senators next year, even though the organization believe s it was cut out of the process in 2012.

Association Chairman Ernie Stevens said the draft legislation didn't provide tribal gaming communities "fair access" to new gaming markets. The language also ignored the history of tribes regulating gaming operations.

State lotteries, however, may not want to play.

The North American Association of State and Provincial Lotteries opposed the Internet poker legislation. Lottery directors from seven states descended on Capitol Hill last month to lobby against the bill, which they said would have restricted the online expansion of lotteries and other games.

The National Governors Association also opposed the bill, although Nevada Gov. Brian Sandoval broke from the organization and expressed his support.

Even governors from lottery states that also have casinos, including Gov. Martin O'Malley of Maryland, opposed the federal poker bill.

Republican lawmakers are another obstacle. The GOP called for a "prohibition" on Internet gaming in its party platform in August. Leaders may be skittish in taking sides against the party's largest benefactor, Las Vegas Sands Corp. Chairman Sheldon Adelson, who broke ranks with the casino industry in 2011 and expressed his opposition to Internet poker.

Adelson doesn't believe available technology is good enough to prevent underage gamblers from making wagers on the Internet. He has not softened his position despite overtures from others in the industry.

After contributing as much as $150 million to Republican campaigns and causes this year, and vowing to spend more money in 2014, Adelson's wallet might suppress GOP online poker support.

That also might make it tough for Reid to find a new GOP co-signer for the online poker bill to replace retiring Sen. John Kyl of Arizona, the legislation's current conservative Republican co-author.

Heller is not a good choice because that would further the notion in Congress that the bill favored Nevada over other states.

Observers said the casino industry, which wanted a federal solution, is now focused on state-by-state legislation.

Nevada approved Interactive gaming regulations earlier this year and gaming authorities have licensed 17 casino operators and technology providers.

New Jersey lawmakers approved similar legislation last week, although the bill is awaiting Gov. Chris Christie's signature. Atlantic City casinos would be allowed to operate online gaming websites catering to state residents.

At least a half-dozen other states, including California, are exploring online poker legalization.

"It will become increasingly hard to pass federal legislation as more states adopt online gaming legislation of their own," Beynon said. "Many companies had already started to shift resources to focus on state level online gaming strategies."


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Howard Stutz
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