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The Nevada Attorney General’s office has begun studying the U.S. Department of Justice’s surprising new interpretation of online gambling to determine what effects it might have on the state.
What's certain is that the race to offer online poker play has begun among several states and that Nevada has a lead, thanks to last month's approval of new regulations.
But even more states are likely to jump in as well, leading to the prospect of different states providing games with different legal and regulatory standards and tax rates — exactly what the gaming industry didn’t want.
The Justice Department since the George W. Bush administration had concluded that the federal Wire Act prohibited gambling over the Internet across state lines, and many industry leaders have lobbied for federal lawmakers to approve legislation legalizing, regulating and taxing online poker play.
But on Dec. 23, in response to inquiries from Illinois and New York on whether they could sell lottery tickets to out-of-state residents over the Internet, the department issued a letter saying the Wire Act applied “solely to sport-related gambling activities in interstate and foreign commerce,” leading most in the industry to conclude that online poker was allowable.
Now, many industry leaders are renewing their call for lawmakers to pass legislation regulating poker play to head off an expected rush of offshore companies introducing poker websites.
Among those calling for federal legislation is Mark Lipparelli, chairman of the state Gaming Control Board, who fears that a lack of clarification could lead to online pandemonium.
“A piece of federal legislation is going to be a necessity,” Lipparelli said. “What we’re afraid of is that somebody’s going to do it in a way that has an unattractive outcome. The question is how we create a common set of standards and rules.”
He compared the prospect of states having different online poker standards to the confusion that would result if every state maintained its own unique system for purchasing products online from a retailer like Amazon.com.
In light of the new interpretation, Lipparelli expects there will be some form of online poker play before the end of 2012, but what it’s going to look like will depend on whether federal lawmakers act.
Lipparelli said Nevada legal experts were carefully reviewing the Justice Department opinion, written by Deputy Attorney General Virginia Seitz. Lipparelli is hoping an interpretation will be available by February to guide the Control Board and the Nevada Gaming Commission on licensing applications that already have been filed by companies that initially looked to offer intrastate poker play after the commission’s Dec. 22 approval of new and amended online poker regulations.
“The structure is in place and people can apply now. And if they meet the standards, we have the ability to approve them,” said Gaming Commission Chairman Peter Bernhard, who was cautious in evaluating whether online poker would be a reality anytime soon.
“It could be a major change, or much more of the same,” Bernhard said.
The American Gaming Association, which represents more than 60 commercial gaming companies and organizations in the United States, also renewed its call for federal legislation of online poker.
“The Department of Justice’s interpretation regarding the scope of the federal Wire Act validates the urgent need for federal legislation to curb what will now be a proliferation of domestic and foreign, unlicensed and unregulated gaming websites without consistent regulatory standards and safeguards against fraud, underage gambling and money laundering,” the association said in a statement issued after the Justice Department release. “Federal legislation that protects states’ rights can establish uniform safeguards to protect U.S. consumers, keep children from gambling on the Internet and provide the tools law enforcement needs to shut down illegal Internet gambling operators.
“Federal guidelines also would prevent fraud and money laundering, address problem gambling and ensure players aren’t being cheated. These federally mandated protections are vital no matter the interpretation of the Wire Act, and they must be enacted in order to avoid a patchwork quilt of state and tribal rules and regulations that would prove confusing for customers and difficult for law enforcement to manage.”
But prominent gaming attorney I. Nelson Rose, who writes commentary on the industry on his website remains pessimistic that federal lawmakers will address the Internet gambling issue despite the prospect of additional confusion coming as a result of the ruling.
“I don't think there is any chance Congress will do anything,” Rose said in an email. “After all, no substantive law, other than some tinkering with patent laws, has passed both houses since the Republicans took over the House in January.”
Lipparelli disagrees, saying the prospect of a new revenue source for the federal government would be too great to pass up. Experts believe online poker could be a $5 billion industry in the United States.
The need for additional tax revenue should drive state governments to jump into the online poker fray, and Rose predicted California would be quick to consider it.
“Nevada and (Washington) D.C. should start up very soon, and I expect Iowa, California and New Jersey to legalize at least Internet poker and for New Jersey, online casino games, in 2012, with other states to follow,” Rose said.
Other analysts noted additional possible repercussions as a result of the new interpretation.
Bill Lerner, of Union Gaming Research in Las Vegas, said the ruling could lead slot machine manufacturers to develop wide-area progressive jackpots — a type fed by players at multiple sites through machines that are linked electronically — that not only would appeal to players but generate more revenue for the companies.
“To date, wide-area progressives have been limited to intrastate connections,” Lerner said in a note to investors this week. “The upshot is significantly larger jackpots on wide-area progressive machines and progressive table games due to the greater number of unit connections possible for many of these titles.
"Therefore, a $39 million historically high jackpot (on International Game Technology’s Megabucks machines in 2009) may become more closer to the norm or have greater frequency with interstate lottery-like jackpots for slot machines in the $100 million-plus range becoming a possibility. Tying together 20-plus states is the essence here.”
Lerner said interstate wide-area progressives could be deployed in 2012 and could result in 1 percent to 2 percent increases in earnings for companies like IGT, Bally Technologies, Shuffle Master and WMS Industries.
Several casino companies that have supported online poker legislation saw their stock prices rise after the Justice Department announcement.