By Martin Owens
Holding Pattern Continues for US Internet Gambling
"Obstacles are those frightful things you see when you take your eyes off the goal."
Progress for Internet Gambling in the USA is beginning to resemble the ancient Greek legend of Tantalus. As punishment for offending the gods, Tantalus was chained up in a pool of sweet water beneath a low hanging fruit tree. But every time he bent to drink, the water receded away from him, and every time he tried to pick some fruit the branches raised up out of reach. And this seems to be the model across America. State governments are considering expanding Internet gaming; they are writing and even passing legislation to do it; they are even taking and granting applications for licenses to offer it to their respective residents, as allowed under the UIGEA. But so far no licensees have actually opened up, except for one or two state lotteries. No new money, no new taxes. As the saying is, what gives?
Even the actual signing of Internet gambling legislation is only the first step in the process of actually establishing a licensed Internet gambling system within the state. There must be a system of licensing and supervision, from the government side, and somebody has to actually set up the circuits and servers on the operating side. It takes a while. Here is the lineup of the lot most likely and most active states.
The most immediate prospect is Nevada, which has already approved a number of major operators such as Bally's and IGT for state Internet gambling licenses. Nevada's enabling legislation, of course, has been in place since 2001, and the state authorities were simply waiting for the day they could count on enough support to actually begin the process in earnest. That time is apparently very close- but again, even in Nevada, nobody has opened up. But of all the states, Nevada is far and away the best prepared to get going
Next, and far more interesting, is New Jersey, where the state legislature has not only authorized expanded Internet gambling via the states licensed casinos, but the introduction of sports betting as well, although it is not entirely clear whether this will begin as an online venture or simply an addendum to the existing resorts. Either way, many observers were surprised to see Gov. Chris Christie come off the fence in a big way, not merely backing expanded Internet gaming but sports betting, to. In fact, the Governor speaks of having regulations in place to begin operations as early as this fall.
That may be an optimistic prediction. The first problem is that without a lot of preliminary groundwork, writing regulations is no easy task. In California, for instance, the state Department of Justice estimated that writing Internet gambling regulations may take as long as two years, and that's after it's formally approved by the lawmakers. Second, the bid to legalize sports betting at the state level conflicts directly with existing federal law, namely the Professional and Amateur Sports Protection Act(PASPA) 28 USC 3701 -04. Passed in 1992, this law forbids state and tribal governments to legalize sports betting (except for parimutuel betting). Existing programs in Nevada, Montana, Delaware, and Oregon were given a "grandfather" exception, although only Nevada now has anything like active sports betting.
There are a great many things wrong with PASPA - it violates the Constitution on about four counts. First and foremost, the federal government has no business telling the states what their gambling policy should be. This law gives the major sports leagues such as the NFL and NBA the right to sue state governments, which is also against the Constitution. It ought to be void for vagueness, because it does not really defined what is forbidden. Lastly, it distorts interstate commerce by granting waivers to four existing state gambling programs, merely on the basis of political convenience at the time. Even the Clinton administration lobbied against its passage- and when Bill Clinton says you're going too far, maybe it's time to listen.
Nevertheless, PASPA is the law, and so if and when New Jersey starts licensing sports betting, a federal suit for an injunction seems inevitable. But while that suit is being settled, sports betting will be put on hold. And resolution of the court action could take years. I personally hope that New Jersey opens up its sports betting and sails smoothly on. But as the man said, that's not the way to bet.
Delaware's assembly has just voted to expand Internet gambling to table games and slots, with sports betting too. Since Delaware originally had an exempted program under PASPA, do they get a pass to bring sports betting back? It's too early to tell. For one thing, the state Senate hasn't passed it yet. For another, the previous Delaware gambling in question was a lottery with sports teams and connections rather than actual wagering on the outcome of sporting events. It seems doubtful that the Feds will allow a new and improved sports betting program to substitute for the old-fashioned (and unsuccessful) state lottery sports connection.
The Golden State has provided the biggest surprise of all in Internet gaming legislation this year - and it's not a good one. For the past several years, a truce of sorts (a wary and suspicious truce, but a truce nonetheless) had developed between the two strongest vested gambling interests in California politics, the gaming tribes and the proprietors of the licensed municipal cardrooms. It wasn't a perfect marriage, yet it was slowly but surely progressing toward an arrangement to allow expanded Internet gambling, especially poker, within the state.
All but a few hardliners had gotten the message that Internet gambling was not a threat to their existing clientele, but rather the only way to keep a working clientele as the older generations left the scene and new people came in with a whole new gambling market, one centered on interactive gaming, mobile platforms, and social media. Communication was now possible, and eventually progress.
But the latest version of an Internet gambling bill to go before the California state Senate brought in two other factions. First were California's racetracks. Although horse racing was the first of the gambling formats to actually go online, the industry has been in steady decline for years. In fact, the idea behind placing Internet gambling facilities in the race track grandstands was to do something - anything! - to bring those sagging attendance numbers up. And the bill, SB 1463, also allowed existing advance deposit wagering facilities themselves to obtain licenses for poker and other Internet games. It was the appearance of these two additional players to that apparently broke down the existing detente. Old suspicions that the pie really isn't big enough, and that other side is out to rob everybody, have resurfaced, along with patently impossible demands that all out-of-state interests be kept away from the California market (where else could experienced online operators be found at short notice?). It is worse than stalemate, it is regression. SB 1463 has been withdrawn from the voting line up, never mind that California is just plain desperate for additional government revenue. The votes weren't there. Again.
There is talk of new negotiations, and modifying SB 1463 to fit new realities and new objections. The problem is, as so often before, California's lawmakers are just plain running out of time. The formal deadline for submitting revenue proposals is very close, if not already here.
There are alternatives available, but less and less willingness to consider them. This is, after all, a presidential election year, and many of the legislators, regulators, administrators, and so forth will now concentrate on the national party conventions, and the election after that. It is beginning to look more and more as though California has let its opportunities slip by for another year.
We are closer, but we ain't there yet. Even when enabling legislation is passed, there is still lots of hard work to do for a state that wishes to make licensed Internet gambling a working, paying reality. In fact, as we see in California, bringing the reality closer may force vested interests to confront their true situation, their true readiness to deal with what the future will bring.
Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming since 1998. Co-author of INTERNET GAMING LAW with Professor Nelson Rose, (Mary Ann Liebert Publishers, 2nd ed 2009) ; Associate Editor , Gaming Law Review & Economics; Contributing Editor, TSN. Com
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