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U.S. Online Legalization a Crapshoot?

iGaming North America outlines need for unity

Black Friday, April 15, 2011, looms in online gaming like fallout. The indictments of PokerStars, Absolute Poker (and its subsidiary, Ultimate Bet) and Full Tilt Poker rocked an online gaming industry that has been preparing for possible U.S. legalization. But as uncertain as that was before April 15, it’s anyone’s guess today.

At last month’s spring conference for iGaming North America in Las Vegas, experts were divided on how legalization would move forward in the U.S., if indeed it would.

Caesars Senior Vice President of Communica-tions Jan Jones told the group that the only way to effectively legalize online gaming is at the federal level. In fact, online gaming proponents got a boost late the previous week when longtime federal gaming opponent Senator Jon Kyl (R-Arizona) said he would consider accepting the legalization of online gaming.

In a statement on his website, Kyl said, “Efforts to carve out an exception for games like poker, which many believe is a game of skill, may be considered later this year. Until I have the chance to review them, I cannot make a judgment about their merits, but I will consider them carefully as long as they leave in place the broader proscriptions against online betting.”

Kyl began his statement by emphasizing his opposition to widespread online gambling, complaining about “addiction and, in turn, bankruptcy, crime, and even suicide.”

Kyl was one of the major sponsors of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006. But Kyl recently announced that he will not seek a fourth term in the Senate, and may be freer to follow his heart.

Mark Tenner, president of the consulting company Concept Development Group, said there is a narrow window to pass online poker, and the indictments of the online operators have narrowed that even further, leaving the fall congressional session as the deadline.

“If it doesn’t get done this year,” he said, “you can kiss it goodbye until after the 2012 elections. And then all bets are off.”

Joe Brenner, the president of iMEGA, says the chances of passage by Congress are “slim and none,” so the industry should concentrate on passage in the states rather than at the federal level.

“Congress is a bottleneck,” he says. “Online gaming will grow the same way land-based gaming and the lotteries grew: on a state-by-state basis.”

Meanwhile, major executives in the gaming industry have begun to push hard for online gaming legalization. Gary Loveman, the CEO of Caesars Entertainment, last month wrote a column on CNNMoney about why it is necessary, and followed up with an AP interview last month.

“Our industry has to modernize itself in a way that allows its services to be provided electronically and not in these massively expensive brick-and-mortar facilities,” Loveman said. “To speak to a younger audience, this is increasingly necessary.”

Steve Wynn, chairman of Wynn Resorts, was not embarrassed by the indictment of his former partner, PokerStars, and told his investors that he’s simply trying to understand what his company should do.

“Most everything in Washington is mysterious and unfathomable,” Wynn said during an earnings call. “We’re trying to figure out what the hell the public policy is, and then we can have a corporate policy.”

Like other experts, Loveman pointed out that the poker indictments weren’t about declaring online gaming illegal.

“What they’re indicting was the illegal activity of foreign operators in the United States,” said Loveman. “The solution to that problem is not simply to send our law enforcement people out chasing foreign operators. The solution is to take a very simple pastime that’s been around this country for hundreds of years, and allow licensed, regulated providers to provide it.”

Meanwhile, U.S. Attorney General Eric Holder seemed befuddled by the question of whether online poker is a game of skill or chance. He declined to give his opinion, but suggested there must be “some skill” involved, while testifying before Congress on an unrelated issue.

Holder told congressmen that he has an obligation to uphold the law.

“We have to enforce the law as it exists, and there are laws on the books with regards to internet gambling that we have to enforce,” Holder told the House Judiciary Committee.

At the iGaming North America conference, attorney Fred Heather of K&L Gates agreed with Loveman.

“The heart of this case is this collateral activity, which constitutes bank fraud and money laundering,” Heather said. “One of the indications of that is the fact that the government isn’t resisting the return of money to the players through their deposits.”

Some experts claimed that the industry has done a poor job of selling the benefits of online gaming. Laurie Itkin, vice president of government affairs for Betfair, which owns the TVG horse-racing network in the U.S., says she gives the industry a “D-minus” in that department.

“We must all come together for the good of the industry,” she said. “We need to form a coalition and reach an agreement on how we’re going to proceed. I’m appalled by the lack of movement toward a compromise. Everyone is trying to position themselves for when legalization happens, but no one has earned the right to position at this time.”

Steve Rittvo, the CEO of the Innovation Group, says the argument that “everyone is doing it” doesn’t work.

“I’ve had legislators look at me and say, ‘Everyone is doing drugs, too. Do you want to legalize drugs, as well?’ We need better and more cohesive arguments,” he says.

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