The Mouthpiece


By Martin Owens
Contributing Editor


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    Martin Owens

    We've Been Here Before, I Can Recognize the Stop Signs.

    State-Level Internet Gambling Reform Wavers Again.

    "People expect Byzantine, Machiavellian logic from politicians. But the truth is simple....they don't decide what they don't have to decide. That's not evasion, it's wisdom."
    Former New York Governor Mario Cuomo

    Like the man said , this is definitely deja' vu all over again. From coast to coast, legislation is being written, forwarded and even passed to advance Internet gambling at the state level. Yet again and again, they can't move that ball once it hits the red zone. The expansion of Internet gambling from horse racing bets to poker and other games is about to happen - and has been for about the past five years.

    Jersey Twirl

    In New Jersey, it looks as though legislation to expand Internet gambling in-state will once again be sidestepped by the adroit Governor Chris Christie. Why? Simple prudence. His name is already in the hat as a possible running mate for Mitt Romney this time around. And if this isn't the year, so much the better perhaps - his name will almost certainly ring out in nominating conventions to come. But anyone suffering from Oval Office fever must first navigate the shoals of the party primaries. And primaries are not run or won by moderate, independents or middle-of-the-roaders. No, these commanding heights of nomination are where the diehards and berserkers of the tribe, left or right, wield a power far beyond the mere ability to command votes in a general election later on.

    For Christie, this means that direct approval of Internet gambling might come back to haunt his Presidential prospects in those districts where the deacons and the Daughters of the Confederacy hold sway. That is why he is ducking signing the legislation, preferring instead a referendum. It's cover in case the decision is questioned. "What could I do?" he can say in that case, and with a straight face. "The Will of the People was plain."

    Moreover, even the will of the people may not be sufficient to prevent a pitched legal battle if the latest proposed amendment to New Jersey's prospective Internet gambling is passed or even signed. This amendment would allow New Jersey I gaming licensees to take bets from other countries and even other states. Paradoxically, taking bets from other nations would be less problematic - after all, most of them did not (and many still don't) have any problems with taking bets and money from US residents. But reaching out to other states in the USA could cause quite a stir. You see, in order to offer licensed Internet poker and so forth, state governments rely on the Unlawful Internet Gambling Enforcement Act (UIGEA), which specifies that properly licensed and supervised Internet gambling will not be classified as "unlawful". However, that exception also specifies that the gambling in question be offered only to residents of the state, located within the state borders.

    So at first glance, it would seem that New Jersey cannot offer its licensed gambling outside the state borders. There may be, however, a loophole in the UIGEA definition of unlawful Internet gambling. This is I-gaming that involves "the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made." Technically, therefore, if the bet in question makes its way from customer's computer to operator's server via jurisdictions where such gambling is legal, there is also no violation. The best way to guarantee this, of course would be for several states to enter into agreements covering this matter, as they have already done for the simulcast horse race bets and lottery pools such as MegaMillions and Powerball. But hammering out such agreements is certain to be a long and involved process, with no immediate results to be hoped for. And in any case, a head-on conflict with the Federal government is all but certain, as this proposed expansion would definitely involve interstate and international commerce.

    California Schemin'

    In California, on the other side of the country, I-gaming expansion is haunted by ghosts of the Indian Wars. California had to modify its state Constitution to allow its 108 Federally recognized Indian tribes to participate in casino style ( Class III) gambling, offered on their tribal lands under the Indian Gaming Regulatory Act of 1988. Many tribes and bands had already built up an informal "gray area" bingo and poker fan base. Which meant that state legal approval, an unspoken reparations payment for the dispossessions and wrongs of the past, was the signal for Indian economic and political liftoff. An $8 billion gambling industry sprang up as the California gambling public slighted their licensed municipal card rooms and former weekend haunts in Reno, to play at much closer Indian venues. And thus it came to pass that the California gambling tribes, formerly pariahs, became overnight power players in the politics of the Golden State.

    But the prosperity was not equally spread. The money rolled right on in for tribes like the Agua Calientes and Baronas, whose tribal lands were close to major metropolitan areas like LA and San Diego. For tribes located in remote and rural areas, not so much. Then, too, the card clubs did not disappear, but retained political clout of their own. For these parties without front row seats, the advent of expanded Internet gambling, especially online poker, promised them a cut of the big-time at last. California's Internet poker market, even in its current disorganized and semi clandestine state, is still estimated to be worth about $1 billion a year. Some estimates of the annual handle, indeed, go as high as $13 billion. Even the lower estimates of prospective state revenue from licensing online poker run $200 million and over. And, it's important to remember, this is revenue that can be gained without cutting programs or raising taxes. Since California's budget deficit remains visible from space - the latest revision puts it at just under $16 billion for the coming fiscal year- approval for an Internet poker licensing regime would seem to be a slam dunk.

    But the gambling tribes have proved to be an especially hard sell. It has taken years of convincing to bring most of them around to the view that licensed Internet gambling will not steal their existing customer base; rather, as the coming generations go completely mobile and social, and online connection is the only effective way to reach and secure the market of the future. A group called the California Online Poker Association even manage the seemingly impossible feat of gathering a coalition of California gambling tribes and card rooms under one banner, working hard for passage. Not all the tribes, however, are convinced. Suspicion still lingers, in certain quarters, that the advent of Internet gambling in California would be the signal to undercut hard-won tribal independence and legal sovereignty on their lands. And even if the holdouts don't command many votes in the state legislature, they can still gum up the works with lawsuits.

    Conventional wisdom in Sacramento is that the hardliners will eventually be coaxed into camp. The big question is, can it be done this year, in time to pass enabling legislation? California's annual budget is a drawn out and contentious process which monopolizes the energies of all concerned. Even worse, since this year is a national election year, many of the legislators, lobbyists, and other stakeholders will be delegates and attendees at the national party conventions in late summer. All of which means the window for passage this year is shrinking fast. Again.

    The Chicken, the Egg, and the RFP

    And as other states such as Iowa, Illinois, and Florida consider licensing I gaming, it is dawning on the assorted legislators that they don't know very much about this beast. There are few operations based in the USA that could effectively, immediately step in and set up a state-based Internet gambling operation, no matter how fast the enabling legislation is passed. But any state's I gaming licenses will, for obvious reasons, be confined to businesses from that state. Which means that the in-state businesses have to reach out to experienced operators, mostly European. Reputable and experienced firms are already, in fact, exploring various partnership arrangements over here.

    But at this point, it becomes a standoff: the states want a commitment before they'll pass a law, and the foreign operators want a law before they'll make a commitment, even to the extent of responding to a state Request for Proposals (RFP). The foreign operators' nervousness is quite understandable. The USA, after all, is where gaming executives were grabbed in the airports not too long ago, where the US Department of Justice squeezed draconian "settlements" from payment processors whose "guilt" was questionable at best, and where state governments pull such stunts as confiscating URLs on the grounds that these somehow meet 19th-century definitions of "gambling equipment". It's hard to make a commitment to set up an expensive and complicated business in a country where the gendarmes can pounce at any moment without warning. State governments who wish to see lucrative Internet gambling licensing applications would probably be well advised to issue some sort of safe conduct to potential overseas partners.

    The Handwriting on the Tablet

    And there is one last, but very important, factor at work here. The online and interactive world does not stand still, and that's especially true for gambling and gaming. In fact, interactive video gaming may be in the process of supplanting online gambling as we know it. Like everything else, people are taking their pastimes and moving into the mobile space, as smart phones, tablets, and so forth become the new standard of accessibility. The people most heavily represented in this particular demographic also extensively patronized social media. The combination has led to the development of phenomena such as Zynga's stable of games, which managed to avoid classification is gambling games, but are nevertheless quite lucrative. The phenomenon has, in fact, come full circle as a number of state lottery authorities are exploring the possibility of offering online games - not gambling - in order to attract and retain customers.

    Could it be that, within a few years, a state offering Internet gambling licenses, as the term is now understood, will find that it essentially has nothing to sell, that the times and the markets have moved on?

    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 Comments and inquiries welcome at to mowens@trade-attorney.com.

    Copyright 2012


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