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UIGEA GAME CHANGER

By Wendeen H. Eolis
Poker Player Newspaper

June 17, 2010

Just as the World Series of Poker (WSOP) opened its doors at the Rio All-Suite Hotel and Casino in Las Vegas, last month, the Nevada Gaming Control Board (GCB) raised the curtain on its evolving policies in the new environment of the Unlawful Internet Gambling Enforcement Act (UIGEA).

GCB Packs a Powerful Punch

The UIGEA aims to stop U.S.-based players from making bets over the internet. Commencing June 1, the UIGEA requires U.S. financial institutions to block debit and credit card transactions destined for online gambling sites. Once the UIGEA regulations were finalized and in effect, the Nevada Gaming Control Board (GCB) publicized its role as the arbiter of suitable business relationships between Nevada casinos and online gaming entities.

The GCB chose May 28th, the first day of the 2010 WSOP, to reply to an unidentified lawyer’s inquiry concerning the permissibility of a business relationship between the Venetian Las Vegas Hotel and Casino and the North American Poker Tour presented by PokerStars.net. The Venetian/NAPT inaugural event in Las Vegas last February was sponsored by PokerStars.net.

The GCB response was posted on its website by board member Randall Sayre, immediately after the June 1 deadline, for financial institutions to implement the regulations under the UIGEA. The Board’s letter addressed, in particular, the lawyer’s question as to the regulatory body’s distinction between Internet gaming company dot-com and dot-net websites. The GCB’s reply puts a bull’s eye on its developing policy in the face of “blurred” lines between dot-com websites which take bets and dot-net websites which do not take bets.

Venetian Casino Retreats

In its letter the Nevada GCB infers that the unidentified lawyer advised a client not to do a deal like the one between the Venetian and NAPT. Mr. Sayre applauds the lawyer for having rendered appropriately conservative advice, even though it purportedly put his client at a competitive disadvantage. More broadly, Sayre warned casinos to stay away from questionable business relationships with Internet gambling companies. Mr. Sayre also highlighted plans for increased scrutiny on proposed business partnerships between Nevada licensees and Internet gaming companies, going forward. He promised to level the playing field, but hedged on the GCB’s position by insisting it would still make decisions on a case-by-case basis.

The Venetian reportedly had obtained explicit permission from the Nevada GCB prior to proceeding with plans for the inaugural NAPT. By all accounts, throughout the tournament, Venetian personnel and Poker Stars fans were aglow over the initial collaboration. Venetian and NAPT–related personnel told folks in the waning hours of the inaugural NAPT that they were raring’ to do an encore.

A government affairs lawyer in Carson City has explained, “A few days after the February NAPT event last February, Nevada casino regulators politely and quietly informed the Venetian that permission would not be granted for a second event anytime soon, given the current environment.”

The Makings for a Perfect Storm

The GCB’s post-tournament chat with the Venetian occurred against the backdrop of a clashing timetable between the NAPT event in Las Vegas and the World Poker Tour event in Los Angeles. The discussion played havoc in expansion plans of the NAPT in Las Vegas and effectively eliminated the prospect of a clash occurring this summer—an NAPT Festival at the same time as the WSOP. The mysterious lawyer and his client have not been publicly unidentified except as exemplary complainants.

Over the past three months, the firestorm created by competitive backstabbing of uncertain origin and velocity led to promises by the GCB to level the playing field. During this period the GCB expanded its deliberations on relationships between casino licensees and online gambling entities, keeping the specifics of their discussions under tight wraps.

The GCB Takes Center Stage

The GCB’s May 28 “advisory,” put casinos, online gaming companies and poker players of all stripes—on notice of the extended reach of Nevada regulators as enforcement agents on issues arising from competition among casinos and online gaming partnerships. The GCB suddenly showed itself as bent on taking into new account the relevance of the UIGEA, particularly including the position of the United States Department of Justice.

Historically, many other states have looked to Nevada for guidance in setting up rules and regulations. Nevada’s GCB has made clear in no uncertain terms it intends to change course, significantly altering its previous laissez-faire attitude toward relationships between Nevada casino licensees and internet gaming companies in the current environment of UIGEA regulations.

The Saber Rattling Accelerates

On one issue, Mr. Sayre was emphatic: “The U.S. Department of Justice has shown no indication of relaxing its position that Internet gambling in any form is illegal in the United States.” Lest anyone wondered about the relationship between the GCB and the U.S. Department of Justice, Mr. Sayre resolved that question too, saying, “As you are aware, this Board will not disregard the Department of Justice’s interpretation of federal law and the effects that interpretation has on existing state law… I anticipate that the Board’s increased attention directed at this issue will level the commercial playing field as current and proposed relationships are assessed on a property by property basis.”

In recent days, gaming industry lawyers have expressed increasing concern over the GCB letter —— noting that the regulator has made nothing clear except the possibility of a dramatic change from the status quo of the past three years.” (The UIGEA was passed in 2006).

Harrah’s and the PPA Cooperate

Opponents of UIGEA notably include Harrah’s, which owns the WSOP and has a business-to-business deal with 888 Holdings. 888 Holdings operates several substantial gambling websites. 888’s B2B division, Dragonfish, supplies technology and services to facilitate online gaming operations.

Harrah’s registered to lobby for online gaming in early 2009, and since then has made no secret of its game plan: to be in the best possible position to secure a license to operate online gaming activities when, as, and if it becomes legally permissible to do so.

The Poker Players Alliance (PPA), which boasts a million+ members, including strong support of some of the biggest online poker sites — has opposed the UIGEA since its inception. Harrah’s and the PPA have worked cooperatively for the past fifteen months in an effort to obtain a “carve out” of poker from UIGEA and/or a more palatable statute that would result in licensed, taxed, and regulated online poker.

Federal Legislation May or May Not Move

A legislative bill favored by both Harrah’s and the PPA has been introduced into the United States House of Representatives by powerful House Financial Services Committee Chairman Barney Frank. It is HR 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act. His committee, however, has been slow to move it forward.

Latest word from friendly lobbyists is that the bill will be “marked up” by mid-July. They say moving the bill out of Committee is more complicated–a pick’em bet. US Representative James McDermott (WA) has also submitted a companion bill that would require internet gaming companies to pay a federal licensing fee of 2% of customer deposits—monthly. This bill should head toward the Ways and Means Committee, if the Frank bill gets off the ground.

More recently, there has been a whole lot of buzzing about United States Senate Majority Leader Harry Reid’s current position toward online gaming. The senior Senator is up for re-election; campaign advisors are said to be divided on the political wisdom of his supporting online gaming legislation this year.

Meanwhile rumors of support have been flying furiously of late. In the past couple of days two casino executives have gone so far as to suggest the Senator may either introduce a bill “favorable to commercial casinos in Nevada or possibly take the Frank bill to the Senate.

However, the general consensus among gaming and regulatory lawyers consulted for this report, is less promising. There is widespread concern that UIGEA is going to have a last hurrah before favorable online gambling bills make their way into enacted federal law.

The GCB Remains on Stage

In the meantime, the evolving stance of the Nevada Gaming Board is more unsettling, as Nevada regulators move to establish more stringent state regulations to address relationships between casinos and online gaming entities in the environment of UIGEA.

For the second time in recent weeks, a foreboding message of peril has been sounded—the last one by an FBI agent, this one by the Nevada GCB. Echoing the FBI agent’s position almost verbatim, GCB board member Randall Sayre said, “The lack of federal criminal prosecutions under UIGEA should not be interpreted by the gaming industry as a lack of interest by state and federal law enforcement and regulatory agencies on this issue.” He added, “As you are aware, this Board will not disregard the Department of Justice’s interpretation of federal law and the effects that interpretation has on existing state law.”

NAPT Diverts Attention From Previous Announceement of Mid-Summer NAPT Event

Gaming indusrtry lawyers contacted for this article report recent conversaitons with regulators outside Nevada, explaoining states in addition ro Nevada are taking a hard look at the dot.com dotnet distinctions as applied to casino partnerships with onloine gaming entities.

According to the NAPT website in early June, its next event was to take place mid-summer. There is no longer any indication of such an event taking place as evidenced by the napt.com countdown clock which shows its next event 148 days hence at the Bicycle Casino. The NAPT has not issued an explanation for the apparent change in the schedule for the next NAPT event.

Meanwhile, howewver, the inimitable World Series of Poker is in full swing, the Venetian’s top rated card room is packed for its usual Deep Stack summer tournament and the NAPT/ Bicycle Casino’s partnership is gearing up with plans for a home run in the capital of the poker world come November.

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Writer’s Note: This article has been updated and corrects the dates for the NAPT/Los Angeles/Bicycle Casino event and clarifies that the NAPT sponsored by PokerStars.net. The NAPT operates under the banner of Global Poker Tours Ltd (gptl).

Editor’s Note: Ms. Eolis is the CEO of Eolis International Group, an internationally recognized legal/business/government affairs consultancy. She has 40 years of experience in the worldwide gaming industry and in her spare time she has cashed 7 times es at the WSOP; including the first ever for a woman. She was also the first woman to win a No Limit Event at the European Open (1990).