Appeal Special Report: Nevada Flush with Online Gaming Opportunity

The stakes just got higher. Nevada officials last week approved the nation’s first two interactive gambling licenses — a step that clears the way for online poker within state lines, even while a federal interstate gambling ban remains in place. Members of the Nevada Gaming Commission signed off on licenses Thursday for rival slot machine manufacturers International Game Technology and Bally Technologies Inc., the first two companies to get the certification since officials approved online gambling regulations in January.

Nevada, which is reviewing almost 30 applicants for gambling licenses, is the first state to adopt a statute allowing interactive gaming and the first state to adopt regulations for online gaming of any kind.

“I’m determined that Nevada maintain its position as leader of gaming in the world,” Gov. Brian Sandoval said.

With approval in hand, Bally and IGT now must wait for individual casino operators to be licensed for such wagering. Nevada regulations specify that the interactive gambling systems must be able to weed out underage and out-of-state players. The companies have said that their Internet games would be available to people outside Nevada boundaries but that those players wouldn’t be able to exchange money.

Bally CEO Richard Haddrill said his company has contracted with the Golden Nugget casino to provide an Internet poker product. He said that he expects it to be ready for the public by the end of this year or early 2013 after routine testing and inspections from state regulators. Bally is offering its iGaming platform technology and content to casino operators. The platform features open architecture, which enables operators to choose from best-of-breed content from a multitude of providers. The iGaming platform is also designed for mobile integration and is ready to accommodate, when authorized, online wagering beyond poker, such as casino table games, video slots, bingo, social, and sports wagering.

IGT executive Robert Melendres said IGT is also on track to provide the new systems to customers.

The company has said it expects ultimately to create some 400 jobs, though not all in Nevada.

Jobs are part of the pot

Revenues from Nevada’s card rooms have sagged more than 20 percent since their 2007 peak as an early 21st-century poker boom cooled, suggesting that approving online poker is just a first step in spurring economic growth. And because Nevada is first with online gambling, it gets some benefits, with promises of more to come: 888 Holdings, operator of the 888poker website, has a software relationship with Caesars Entertainment and is looking for offices in Nevada. It expects to hire 40 to 50 workers, according to 888 Chief Executive Officer Brian Mattingley.

Any job creation is a positive step forward economically, and Nevada’s two U.S. senators, Majority Leader Harry Reid and Republican Dean Heller, remain all-in regarding online poker’s legalization.

“Senator Reid believes legalizing online poker remains important for Nevada, and he will continue to work on this issue,” said Reid spokesman Kristen Orthman.

Echoed Stewart Bybee, communications director for Heller:

“Senator Heller continues to support legalizing Internet poker and has been working closely with both Senator Reid and Senator (Jon) Kyl on legislation to achieve this goal.”

Nevada Republican Rep. Mark Amodei is on board, as well, but he believes that the onus is on the states themselves to come up with consistent, collective legislation in order for the movement to have a chance.

Silver State is gold standard

But despite the poker decline and the legislative uncertainty, Nevada remains the focus, as European online gambling companies scramble to stake claims in the Silver State by forming joint ventures with casino companies. For instance, digital entertainment, the product of a merger between U.K.- and Austria-based online gambling companies, is allied with MGM Resorts International and Boyd Gaming.

Being licensed in Nevada is sure to bring prestige that might impress regulators elsewhere. However, online action within Nevada alone is unlikely to be very profitable for the European gambling companies. There’s just too much competition and not enough people here. With a population of just 2.7 million, Nevada is smaller than Lithuania, the European Union’s 21st-biggest country.

“We are never going to get rich on that,” 888’s Mattingley said.

Significant growth won’t come until other states start approving online gambling, according to David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas.

The key to online poker is “liquidity,” or the size of the pool of players. Strong liquidity means players can get games when they want them, at stakes they prefer. It also means bigger prize pots for tournaments. To appeal to poker players, Nevada must find find a way to pool its players with those in states such as California, with its population of nearly 38 million.

Giving Nevada a poker run

Other states — New Jersey and Delaware, most prominently — see the potential, too, and could rival Nevada for jobs in the online poker industry.

Delaware’s House passed a bill June 12 for online casino, poker and slots, and if it passes the state’s Senate and is signed into law, it would become the second U.S. state with online gambling.

In New Jersey, the state Assembly recently passed an online gambling bill that would allow interstate Internet gambling compacts. New Jersey is looking for ways to revive its sagging Atlantic City casinos.

New Jersey state Sen. Raymond Lesniak has said he wants to make his state the Silicon Valley of online gambling.

It’s a tougher fight in other states. In California, for instance, poker legislation may be stalled. The likely parties — Indian tribes, card rooms and horse-racing associations — can’t agree on how to proceed.

A California Senate bill was pulled from committee June 12 after facing nearly unanimous opposition from Indian tribes, which were unhappy with the involvement of the state’s pari-mutuel industry. Tribes in the state also object to online competition, fearing it will cut into their casino revenue.

IGT’s Melendres says he’s sensitive to that.

“I want to make it abundantly clear: IGT has absolutely no intention to compete with our casino partners,” he told the Nevada commission, according to the Las Vegas Review-Journal.

Beyond state borders

Consistent legislation is seen as the key to expanding online poker beyond individual state borders.

Amodei, speaking in April at the Global iGaming Summit Expo in San Francisco, said that a state-by-state approach could lead to a patchwork of legislation that doesn’t serve the industry and that the industry as a whole should push for federal regulation in the U.S.

He noted that the industry has a good reputation for regulation but that by not uniting and moving forward, it plays into the hands of opponents.

“The only challenge is to resolve the issue amongst yourselves,” Amodei said at the gaming expo. “The bill that will pass is what you folks can come together on.”

But approval of online gambling in the U.S. is happening more slowly than advocates had hoped, given that state legislatures are hard-pressed to generate tax revenue to replace that lost since the 2008 banking and real-estate crash. Federal laws that would legalize and regulate interstate online gambling are hung up in Congress and face opposition from state lotteries and the Indian casinos. It’s unclear when the matter will come up for a vote.

The U.S. Department of Justice has ruled that Internet gambling across state lines is illegal, but some interpret the rules as allowing online play within state borders.

The lack of urgency is even more surprising in light of a U.S. Justice Department ruling in December that the 1961 Wire Act forbids only sports betting, not other forms of Internet gambling such as poker. In March, Minnesota, Nebraska and Hawaii rejected gambling-expansion bills, with Hawaii’s legislature snubbing measures that would have legalized online casinos, poker and a lottery. Utah passed a law in March providing for up to six months in jail and a $1,000 fine for anyone gambling on the Internet. Hawaii and Utah remain the only states without any legal form of gambling, according to GamblingCompliance, an online information business. Washington, D.C., even repealed its Internet gambling bill, under pressure from members of Congress.

When states balk, the other option is a federal bill allowing online gambling. It was the Unlawful Internet Gambling Enforcement Act of 2006, passed under President George W. Bush, that barred online gambling transactions and pushed out publicly traded European companies that were offering Internet poker in the U.S.

Analyses by Wells Fargo and other financial firms indicate passage of federal legislation could lead to a $20 billion annual market online in the U.S. within five years.

Nevada supports federal legislation, in part becaus estate-by-state approval could be disjointed and slow, according to Mark Lipparelli, chairman of the state’s Gaming Control Board. No federal bills have made it out of congressional committee, and a key advocate of online gambling, U.S. Rep. Barney Frank of Massachusetts, is retiring from Congress.

Lipparelli, speaking at the Global iGaming Summit Expo, said the outlook is disconcerting for those Americans eager to log back in and start playing poker online.

“There will be governors or legislators that stake their name to certain requirements,” Lipparelli said, “and to think that five, six, 10, 12 states will overcome all those objections, all those regulatory complexities — I’m not someone who believes it will happen very fast.”

• David Altaner, an American journalist who works for, reported from London. Contributing were Nevada Appeal Capitol correspondent Geoff Dornan, Appeal news editor John R. Kelly and The Associated Press.

Coming Tuesday: Can the U.S. duplicate Europe’s success with online gaming?

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