The 112th US Congress probably won’t enact a federal internet gambling law, but Nevada, California, and other states will proceed with intrastate regulations regardless.

The 112th Congress is halfway done, but much work must be accomplished if a practical Internet gambling law is to be enacted. Serious discussion on the public record is still needed to reveal the comparative strengths of each of the two policy proposals. For example, one bill gives such a broad degree of power to the federal government that many states might be unwilling to cooperate.
There simply isn’t enough time left on the legislative calendar to expect the current Congress to pass a good Internet gambling law, but Nevada is proceeding with legalized intrastate Internet poker regardless, and California may not be far behind.

Old assumptions about Internet gambling are no longer true, and today even the American Gaming Association (AGA) insists games can be operated fairly, honestly, and securely. Most importantly, technology can enable operators to identify the precise physical location of a customer so that activity can be contained entirely within the territory of a regulating state. And if the activity stays entirely within the state, there is little ground for federal interference.
But without any sort of federal guidelines, the states are not likely to legislate in precisely the same ways. For example, Nevada has chosen to permit an unlimited number of licensed operators, but a proposal in California would cap the number of licensed operators at three.
Meanwhile in Washington, D.C. only one entity– the city’s lottery– is authorized to offer Internet gambling in its territory. 
All of these regulatory formats are legally valid and appropriate under different circumstances depending on characteristics of the market and legislators’ sensitivities to social risk. There are lots of additional ways regulations can vary as well.
The inevitable result is that US markets will be segregated for the first several years. A Nevada license will be good in Nevada only, and a California license will be good in California only.
Federal legislation envisions helping states connect their markets, but nothing prevents the states from pursuing agreements with one another in the absence of federal assistance. However, negotiations between regulating states could be cumbersome, especially if the rules in each state are substantially different. Adding a third or fourth state to the agreement would make matters even more difficult.
And so several states may be able to provide authorized intrastate operators by 2013, but interstate relations are still several years away. The important thing for now is preparation. Would-be competitors must keep a close watch on the ways that special interests influence changes to policy plans – not just in Congress but also in California and the wave of states that will follow. 

Bradley P. Vallerius, JD is the author of the US Regulation Section of GBGC’s Interactive Gambling Report, which provides an overview of the policy discussion in America, including the anticipated roles of the state and federal governments, as well as the shape of regulations in states that are likely to be first movers. The latest edition also examines the potential strength of several strategic alliances that have been formed to compete in American markets, including MGM and Boyd’s technology agreements with Bwin.Party, Caesar’s long-term agreement with 888 Holdings’ Dragonfish, and the Fertitta brothers’ purchase of Cyberarts. 

Read more about Internet gambling regulation in the current edition of GBGC’s Interactive Gambling Report