Internet Gambling: Nevada Prepared for the 'If'

8/23/09 - Las Vegas Review-Journal - View Source

By Howard Stutz

Nevada, where declining gaming and sales tax collections have ravaged the biennial budget, could benefit financially if a bill to legalize Internet gambling in the United States is approved by Congress.

The potential, however, rests on a big IF.

A House of Representatives resolution was introduced in May that would establish a framework to permit licensed online gambling operators to accept wagers from inside the United States.

Legal experts said Nevada has the statutory structure in place to investigate and license online gaming companies. Also, Nevada could become the premier American jurisdiction for hosting Internet casinos.

If the sites were to operate from Nevada, gaming regulators said the online businesses would have to pay upfront fees. Also, the online casinos would be taxed at the same rate as Strip casinos, now 6.75 percent on gaming revenues.

Again, a big IF because the keys to the whole deal rest with the 111th Congress some 2,500 miles to the east in Washington, D.C.

Federal lawmakers have focused attention on health care reform, the nation's economic crisis and other matters, setting aside issues such as Internet gambling.

"(Debate on the bill) probably won't happen this year," said former Sen. Richard Bryan, an attorney with Lionel Sawyer & Collins, who spent 12 years representing Nevada in the U.S. Senate as a Democrat.

"My sense, however, is that there is a gathering, gradual momentum where, eventually, Internet gaming will occur and be regulated," Bryan said. "I'm just not sure if it has reached critical mass yet."

Lack of action hasn't stopped interest in the subject.

Bryan and fellow Lionel Sawyer & Collins attorney Greg Gemignani said the firm has been approached by potential clients who want to set up Internet gambling businesses in Nevada should the activity be legalized.

Nevada lawmakers enacted the process to license Internet gaming in 2001 but the state's effort went dormant a year later when there wasn't any action on the federal level.

If Internet gaming is legalized under the current bill in Congress, Nevada could be chosen by the Department of Treasury to determine whether an applicant is suitable for federal gaming licensing.


Observers believe Nevada, which legalized casinos in 1931, stands to benefit because the state has investigated and licensed gaming companies and regulated the industry longer than any other jurisdiction.

"The suitability requirements under the current bill look like a subset of what Nevada already requires," Gemignani said. "Given Nevada's current laws permitting interactive gaming licensing, Nevada is well-placed to be at the forefront of regulating online gaming and providing assistance to the federal government in determining the suitability of applicants."

Gaming Control Board Chairman Dennis Neilander said the state's current regulatory structure could be enhanced with regulations covering online gambling. Under the state's 2001 law, the Nevada Gaming Commission could set policy that mirrors federal regulations.

Nevada online casinos would have to use technology that offers reasonable assurance that wagers would not be accepted from states where Internet gambling is prohibited and that minors could not access the sites.

"We have the enabling legislation in place that would allow us to go forward with the concepts that I've heard are being discussed," Neilander said. "The federal government would set a baseline standard of minimum requirements. It would be up to individual states to opt in."

Under the state's law, Nevada could earn upfront fees, which could be larger than normal licensing fees.

"We would contemplate going forward with a gaming tax that would be the same as a bricks-and-mortar casino," Neilander said.

Rep. Barney Frank, D-Mass., is the main sponsor of House Resolution 2267, the Internet Gambling, Regulation, Consumer Protection and Enforcement Act. Rep. Shelley Berkley, D-Nev., whose district includes the Strip, was one of the bill's co-sponsors.

The legislation provides safeguards against compulsive and underage gambling, money laundering, fraud and identity theft.

It's not the first time Internet gaming has come through Congress.

President George W. Bush signed the Unlawful Internet Gambling Enforcement Act in 2006, which made it a crime for banks and other financial institutions to process transactions used in online gaming.

Bryan, who was Nevada's attorney general when Atlantic City legalized casinos, was the state's governor when gaming began to expand nationally into riverboat casino markets.

Nevada's casino industry initially opposed the growth. Eventually, the Nevada gaming companies moved into new markets and fueled much of the expansion in the 1990s. In 2007, commercial casinos reported gross gaming revenues of $32.54 billion.


The American Gaming Association, the casino industry's Washington D.C.-based lobbying arm, estimated that Americans wagered $5.9 billion on gambling Web sites outside the United States. Those same sites took in another $21 billion from gamblers worldwide.

"I haven't taken the industry's temperature in terms of Internet gaming, but, because of the potential revenues involved, I do believe there is some momentum moving in favor of the activity," Bryan said.

Gemignani said gaming companies licensed in Nevada that are interested in jumping into the online casino business would have an advantage over outside companies seeking to break into the market.

"There are a substantial number of Nevada licensees with experience in the technologies, systems and management of systems that can be used for online gaming," Gemignani said.

The casino industry is split on Internet gaming. As such, the American Gaming Association has taken a neutral stance on the issue "due to the divergent views of its members," according to a policy statement.

"We don't have a public position on the bill, but we are interested observers and will continue to monitor the situation as things progress," Las Vegas Sands Corp. spokesman Ron Reese said.

MGM Mirage took a short-lived stab at running an Internet gambling site in September 2001, but abandoned the idea after 21 months. The casino, which was licensed by the Isle of Man, did not accept wagers from U.S. citizens.

MGM Mirage spokesman Alan Feldman said the company's position on Internet gaming has not changed.

"We have always felt it should be legalized, regulated and taxed," Feldman said. "There is no need to create a whole new infrastructure with government oversight because it already exists in the states."

Harrah's Entertainment is the most vocal proponent of legalizing Internet wagering. Earlier this year, the company hired a former online gaming executive to expand its World Series of Poker brand internationally and online.

Harrah's Chairman Gary Loveman has said on many occasions that Internet gaming, especially poker, should be legalized.

Slot machine giant International Game Technology owns two subsidiaries based in Europe that provide content to online casinos.

Bryan said Washington, D.C., moves at a "glacial pace." However, he said there may be an underlying effort to pass Frank's bill because states could realize much-needed tax revenues from Internet gaming.

"I believe there is probably more support for it today than there was a decade ago," Bryan said.


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