AGA Repeats Call For Federal E-gaming Regulation
By James Rutherford
The American Gaming Association (AGA) recently took the one-year anniversary of the sweeping “Black Friday” crackdown on offshore poker sites by the U.S. Justice Department to once again call on Congress to establish a national framework for regulating online gambling.

As the Washington lobbying arm for the commercial casino industry, the AGA is tasked by its dominant members — Caesars Entertainment, MGM Resorts International, Boyd Gaming, International Game Technology, Bally Technologies, et al. — with trying to secure a legislative solution in the Senate and House of Representatives that serves their best business interests. As the association’s Black Friday anniversary statement reads, this is “to ensure that only licensed, taxed and highly regulated companies” — i.e., its members — “can operate in the U.S”. 

Although nothing about this is simple, the heart of the matter is not all that difficult to grasp:
Ideally, do you get to operate within a uniform system of federal regulation where you can leverage your brand/brands to tap into an interstate pool of poker liquidity valued at upwards of US$7 billion? Or will you have to qualify and re-qualify under any number of disparate state regulatory systems in order to penetrate markets where the political environment is likely to be hostile and you must compete against local operators and government lotteries for US$5 million or US$10 million or US$20 million in wagers, maybe more, maybe less? 
The best the AGA has come up with as a political rationale is consumer protection — to “modernize and strengthen” the Wire Act and UIGEA in ways that will “unambiguously eliminate illegal Internet gambling”. But the association’s chief executive, Frank Fahrenkopf, certainly knows he’s battling a credibility gap. Speaking recently to hundreds of regulators at a Gaming Laboratories International forum in Las Vegas, he acknowledged the opposition to federal regulation among state lotteries. “Their view,” he said, “is that the casino industry is trying to screw them.”
Then there is the multibillion-dollar gambling industry operated by the nation’s Indian tribes to consider. Their claims to sovereign political status under the U.S. Constitution enjoy broad support in the federal courts, something the AGA has been quick to point up. “Tribes are never going to agree that they’ve got to go to a state government to get approval to run something,” 
Fahrenkopf said in his speech to the regulators, “so you have to have the federal government involved to be the agency to work with tribes on licensing and regulation. So you need a federal presence.”
Reasonable as this may seem on the face of it, no one these days would mistake Washington as the capital of reasonableness, and the AGA’s hand there is not a strong one. About the only meaningful card they have to play is Nevada’s own Harry Reid, leader of the Democratic Party’s slim four-seat majority in the Senate. Reid faithfully charges Capitol Hill for federal poker legislation on behalf of his Las Vegas corporate constituents whenever he can. Not that he’s had much to report by way of success so far. It’s not difficult to figure out why. 
Gambling is hardly a vote-getter among the folks back home. Rallying his own party in the Senate behind Internet gambling has been problematic at best. As for securing to the cause a majority of the other 564 members of Congress, Republicans and Democrats, who aren’t from states where casino revenues drive economics and public policy — and in the most partisan, the most polarized political culture in memory — that’s another matter entirely. And Reid has other things to think about, in any case, it being a presidential election year with control of the Senate up for grabs come November.
The consensus is that the AGA’s wishes will have to yield to the greater likelihood of solutions that will vary state by state — a patchwork system of smaller states seeking combinations with other states, the more players the merrier, and larger states fighting to keep the money within their borders — but for now it will be the best of all possible worlds. 
As Goldman Sachs suggested in a recent note to investors: “One state legalizes, we could see a domino impact with other large states accelerating their activity and, more importantly, propelling the U.S. government to create national legislation.”
Nevada, where Internet gambling has been conceptually legal since 2002, is the furthest along. In December 2011, the state Gaming Commission signed off on regulations to allow the licensing and operation of online poker only. In the ideal world envisioned by the AGA’s leading members, Nevada would be the logistical and regulatory headquarters of a vast national poker market. As it stands, they will have to settle for now with the likelihood of intrastate compacts to augment the state’s tiny population. 
Operators began submitting licensing applications in December 2011, and regulators currently expect the first licenses to be granted by early summer 2012. Those operators can be online as soon as their technological platforms are running and the required player controls are in place.
In March 2012, Illinois, one of the states involved in the Justice Department’s December 2011 clarification of the Wire Act, began selling state and multi-state “Mega Millions” lottery tickets online. Adding other games would require legislative approval, but the state believes current sales will prove a significant lure to new players and will raise between US$78 million and US$118 million a year in incremental revenue. 
In New Jersey, Senate Bill 1565 authorizing Atlantic City’s casinos to offer online gambling to state residents has passed the Budget Committee of the upper house and could come to a vote on the floor of the Senate by 31 May 2012 at the earliest. At that point, the bill runs up against crunch time for passage of the state budget, which must be completed by the end of the financial year on 30 June 2012. SB1565 also has to be reconciled with the preferences of the state Assembly, which also must pass it for it to be presented to Gov. Chris Christie to be signed into law. The timing for possible action in the Assembly was uncertain as of this writing. The good news is that after being vetoed by Christie last year, 2012’s effort has largely been crafted with input from the governor, and it is expected he will approve the legislation when it arrives on his desk.
California is the big prize. The state with the largest population, the most lucrative liquidity prospects, and the most varied and complex interests to accommodate, if online gambling can be enacted there, it is believed the rest of the country will be quick to tumble. The historical record, though, offers nothing but a trail of failed attempts. 
Senate Bill 1463, introduced in February 2012 by Senate President Pro Tem Darrell Steinberg, a Sacramento Democrat, and Los Angeles County Democrat Roderick Wright, authorizes 10-year licenses for the state’s tribal casinos, card clubs and horse racing interests, about 150 entities in all, to offer online poker, with other games possible after a two-year evaluation period. It’s a deeply divided group, however, and feuding has been intense over who should get licenses and who shouldn’t. Many in the industry also want the state to do more to keep license holders with few resources from acting as fronts for wealthier out-of-state entities, such as Las Vegas casinos.
If these issues can be resolved, it is expected that only a handful of well-funded, well-marketed websites will go live, given the significant barrier to entry posed by SB1463’s US$30 million license fee (although this would be credited against the bill’s proposed 10 percent tax on gross revenue), and it’s likely that groups of license-holders will combine as joint-venture operators.
The size of the prize in relation to e-gaming in the US is not in doubt. But it is because the rewards are potentially so great that all vested interests want to position themselves to gain their share of the spoils, starting with governments both state and federal. Political machinations, greed, and indecision in some quarters as to what they actually do want, could see another opportunity missed in the coming year before the presidential elections.