AGA’s Itchy E-gaming ‘Patchwork Quilt’: States Push Past Reid, Congress
If there was any doubt that the clearest road to expansion for U.S. Internet gambling runs through the states, the train wreck of federal regulation that was the Reid-Kyl bill in the waning days of the last Congress should have laid them to rest.

Texas Tea Partier Joe Barton says he will reintroduce his failed 2011 poker-only bill in the House of Representatives, but it’s difficult to imagine that going anywhere in the Republican-controlled lower chamber. The big listed operators in the land-based sector, those headquartered in Las Vegas and fronted in Washington by the American Gaming Association (AGA), still believe their best shot at controlling the debate lies with the Senate, where their own Harry Reid leads a slender six-seat Democratic majority.
This is not to say that Democrats have been all that supportive. 

Regulation entails formal recognition, and that is and always has been an extremely difficult sell politically at the national level. Reid’s loss of a key ally from across the aisle in Jon Kyl, the Senate’s No. 2 Republican prior to his retirement in January, will make it that much more difficult. Nevada’s senior senator hasn’t helped the cause either by alienating the state’s junior senator, Republican Dean Heller, and the rest of the GOP by playing politics with it, slamming Heller during the 2012 election for not doing enough to wrangle Republican support for the bill he was drafting with Kyl at a time when Heller’s seat was under assault from the Las Vegas Democratic machine in the person of seven-term Congresswoman Shelley Berkley. Heller won, but barely.
None of this is likely to matter, however, as events appear to be overtaking Reid, the AGA and their corporate constituents.
Legalization in New Jersey, Delaware and Nevada is impressing state governments with the need to move sooner rather than later to carve out their respective slices of the internet gambling pie, either through their lotteries—Georgia, Illinois and New Hampshire are already selling online and are soon to be joined by Kentucky—or by issuing commercial licenses. 
As this gathers momentum the effect will be to render Reid’s vision of a poker-only industry regulated for the rest of the country by Nevada and controlled by the big Las Vegas Strip operators—the substance of the bill he and Kyl never got as far as unveiling in the 112th Congress—a distinct non-starter.
It’s the lotteries more than anything that have reshaped the political realities.
In December 2011, the U.S. Justice Department cleared them to engage in intrastate online gambling, and since then their voice has sounded loudly within a growing chorus of opposition to any action at the federal level that would supersede the longstanding prerogative of the states to regulate gambling within their borders.
Illinois, to take an example, a state of 12 million people, is considering an online authorization bill that allows its lottery “to enter into agreements with other gaming entities, including foreign entities,” and it will not want its hands tied by Nevada regulators in the interests of Nevada-based operators. New Jersey, meanwhile, is being enticed by Isle of Man-based PokerStars with a $30 million-plus investment in a struggling Atlantic City casino. It’s an investment Trenton appears to support because the seaside resort town is on hard times and desperately needs it. 
The AGA vociferously opposes it as it would position the world’s largest online poker operator as a competitor in the state’s newly legalized intrastate market with Las Vegas-based incumbents Caesars Entertainment and Boyd Gaming. This wouldn’t have been an issue under Reid-Kyl, which contained a “bad actor” clause banning operators that took bets from Americans post-UIGEA. Instead, the AGA is having to fill the void by doing what it has never done in its 18-year history—taking sides publicly against an applicant for a state license. (Also looking to cash in is MGM Resorts International, another prominent AGA member, which has asked the N.J. Casino Control Commission to let it take back the 50 percent stake it relinquished in Boyd’s Borgata casino a few years ago in a dispute with the CCC over the suitability of MGM’s Macau partners.).
Outgoing AGA Chief Executive Frank Fahrenkopf warns that consumers are “at risk” from a “patchwork quilt of rules and regulations” if states legalize on their own, “making effective regulatory and law enforcement oversight extremely difficult”. Congressman Barton likewise speaks of the need for regulatory “uniformity”. 
The lotteries are having none of it, and backing them are the National Governors Association and the National Conference of State Legislators. Senators and congressmen from lottery states, Democrats and Republicans alike, will be hard-pressed not to do the same if anything resembling a “money bill for Nevada,” as one well-known industry lawyer termed Reid-Kyl, comes their way.
Lastly, there is the opposition of the country’s $28 billion tribal casino industry, which is not to be discounted either, for in addition to preventing lotteries from running full-scale gambling, Reid-Kyl would have frozen out tribes if the states where they reside declined to opt in to the regulatory framework it proposed. 

States Take Charge 
At present, Fahrenkopf’s “patchwork quilt” is a loosely knit one comprising some 15 states, counting the four aforementioned lotteries.
Of the states that have legalized, Delaware is reviewing bids from 14 service providers—PokerStars, 888, Stan James, Ongame, Amaya Gaming, SHFL and IGT among them—and hopes to have casino-style games up and running via its lottery by September. Liquidity is the big issue for sparsely populated Nevada, and its poker-only bill signed into law earlier this year is in a period of public consultation over how best to structure agreements with other states for sharing players and revenue. New Jersey’s 12 Atlantic City casinos could be in business as early as the end of this year, according to some experts. Others say that’s optimistic. 
A regulatory framework is being finalized. This will be followed by a period of public comment. Service providers will be invited to apply for licensing at that time.
In Illinois opposition by Gov. Pat Quinn has likely doomed regulation of casino-style games in the current legislative session, although as of this writing its provisions were still included in a bill authorizing a broad expansion of the land-based sector.
California, the biggest prize, is on its third attempt at legalization in three years in the form of two intrastate poker-only bills introduced in the Democratic-controlled Senate by long-time advocates Roderick Wright of Inglewood in Los Angeles County and Lou Correa from neighboring Orange County. 
The Kansas Senate has approved the insertion of an online ban in the state’s gambling statutes. The amendment, which would make Internet wagering a criminal misdemeanor, is sponsored by Republican Jacob La Turner. The state is home to four land-based casino “zones”. La Turner represents the only one without a casino.
In Louisiana, Republican Rep. Mike Huval has asked the GOP-controlled Legislature to conduct a study on the prospects for Internet gambling in the state.
In the New York Senate a coalition between the Republicans’ three-seat majority and a caucus of so-called Independent Democrats is supporting a proposal to include intrastate poker in the 2013-14 budget.
In Oklahoma, in one of the stranger disputes to arise over internet gambling, the Cheyenne and Arapaho Tribes have agreed to take down a free-play site in exchange for the state’s consent to an internet gambling operation outside the United States if the tribe chooses to launch one. It’s an agreement that could manifest itself along the lines of a real-money site Nevada’s Shoshone Tribe plans to launch next month in partnership with an Alberta, Canada-based software and network provider called GEObet. 
The Cheyenne and Arapaho owns two land-based casinos in Oklahoma under a federally mandated gaming compact with the state that does not permit expansion onto the Internet, not in Oklahoma nor anywhere in the United States, according to the state’s interpretation, while the negotiations that produced the agreement on a possible international operation would require the tribe to continue to pay fees to Oklahoma.
In Pennsylvania, suburban Philadelphia Democrat Tina Davis is reported to have a bill ready for introduction in the House of Representatives to allow the state’s casinos and racinos to expand into online.
Texas voters will decide on a constitutional amendment in November that would authorize online poker intrastate.
Poker advocates in Washington are preparing a pair of voter initiatives, one to authorize the Legislature to regulate online poker, the other to remove the criminal penalties the Legislature imposed on online gambling a couple of years ago.