N.J. Appears Set to Become 3rd U.S. State to Legalize Online Gaming

New Jersey is poised to become the third state in the country to legalize online gaming. Today, Gov. Chris Christie (R) sent the state iGaming bill back to the legislature requesting some minor changes and indicated that he is prepared to move forward with the bill once those changes are made.

Gov. Christie’s statement said, “I have concluded that now is the time for our State to move forward, again leading the way for the nation, by becoming one of the first States to permit Internet gaming.” The statement goes on to say, “I authorize this step towards modernizing Atlantic City’s entertainment attractions cautiously, with carefully constructed limitations that will ensure the highest integrity and the most robust oversight.”

New Jersey’s online gaming bill allows for all casino games to be played online, not just poker.

On December 20, 2012, the New Jersey State Senate voted 33-3 to legalize online gaming in the state after the state General Assembly previously approved the bill by a vote of 48-25-3.

State legislators have indicated that they are prepared to make the changes suggested by the governor and could get a new bill back on his desk in a matter of weeks.

The sponsor of the bill, State Sen. Raymond Lesniak (D), called the governor’s decision “a huge win” and something that “can help keep Atlantic City from drowning in red ink.”

The changes requested by Gov. Christie today included an increase in the tax rate on revenues generated from online gaming, additional funding for problem gamblers, and tighter regulations on relationships between state employees and companies that hold an Internet gaming license. The bill also expires in 10 years, although there is nothing preventing the state from renewing the legislation in the future.

We are very happy to see New Jersey take a huge step toward bringing Internet gaming to the state and toward adding more jobs and revenue.

DOJ Brief Tries to Keep N.J. Sports Gaming Law Out of Bounds

On Friday, February 1, 2013, the U.S. Department of Justice filed a brief in the U.S. District Court for the District of New Jersey defending the constitutionality of the Professional and Amateur Sports Protection Act of 1992 (PASPA), the hotly contested federal law that prohibits sports betting in most states. New Jersey is seeking to have the court find this law unconstitutional. A win for the state would have far-reaching ramifications by eliminating the primary hurdle that individual states have in implementing legal sports betting within their borders.

PASPA prohibits any state from offering sports betting unless that state had a sports betting scheme in place between 1976 and 1990. New Jersey had a one-year period to enact sports betting, but its legislature failed to act. Delaware, Oregon and Montana have limited sports betting schemes in place, and Nevada is the only state that is authorized to offer single-game sports betting under the law.

On January 22, DOJ announced that it planned to intervene in the lawsuit brought by the four major professional sports leagues and the NCAA challenging the New Jersey state law. DOJ could have brought a case when the law was initially passed, but chose not to.

The DOJ brief raises three main constitutional issues: the anti-commandeering principles of the Tenth Amendment, Congress’s power to regulate sports wagering under the Commerce Clause and the applicability of the uniformity and equal sovereignty principles under the Commerce Clause, and due process and equal protection clause issues under the Fifth Amendment.

DOJ argues in its brief that the anti-commandeering principle applies only when a federal statute requires specific, affirmative action by a state and that since PASPA does not require New Jersey to take any action but merely to refrain from starting a betting program, the principle is inapplicable.

New Jersey replies that the anti-commandeering principle does apply because a federal law is imposing constraints on the state. PASPA’s stated purpose is “to require States to govern according to Congress’ instructions.” The Supreme Court case that established the anti-commandeering principle, New York v. United States (1992), states that “the Constitution has never been understood to confer upon Congress the ability to require the States to govern according to Congress’ instructions.”

Additionally, under the Tenth Amendment, the power of the federal government is limited. Courts have typically viewed the ability to raise revenue, such as through gambling, as one of those rights reserved to the states. New Jersey has successfully regulated gambling for decades but has been prohibited from regulating sports betting simply because it did not have a betting scheme in place before enactment of PASPA over 20 years ago.

DOJ argues that PASPA is a valid exercise of federal power under the Commerce Clause because sports gambling has an effect on interstate commerce and PASPA is a rational method of achieving regulation of it. DOJ also does not give any credence to the argument that the law violates the principle of equal sovereignty.

New Jersey argues that the principle of equal sovereignty does apply under the Commerce Clause. The plain text of the Commerce Clause does not make clear that all states must be treated uniformly, but the state believes that the case law makes it applicable.

New Jersey argues that contrary cases cited by DOJ deal with regulations that fell unevenly on the states because of circumstances that were not spread through the country, largely based on geography. However, the rationale for allowing some states to authorize sports betting and not others was the pre-existing scheme in place before PASPA and nothing else. The grandfathering clause of PASPA has served to grant a monopoly to Nevada while discriminating against all other states. This federal government-sponsored monopoly denies to the states the equal sovereignty that they are guaranteed under the Constitution.

The DOJ brief states that the arguments that PASPA violates the due process and equal protection guarantees of the Fifth Amendment are inapplicable because they protect only “persons” and not states from actions of the federal government. New Jersey argues that the discrimination between the states that PASPA has produced, by essentially granting Nevada a monopoly on single games sports betting, rises to the level of “injurious character” as to violate due process. This is likely the weakest argument that the state is making, and the court will likely rule in favor of DOJ on this point.

When PASPA was being debated in Congress, DOJ sent a letter to then Senator Joseph Biden (D-Del.), then the Judiciary Committee chairman, discussing the views of DOJ on PASPA. The letter noted that determinations of how to raise revenue are typically left to the states and since PASPA was seeking to regulate how states generate revenue, “it raises federalism issues.” DOJ chose not to address that letter in its brief.

New Jersey and the New Jersey Thoroughbred Horseman’s Association will have an opportunity to file a reply brief with the court by February 8. Oral arguments on the constitutionality of PASPA will be held on February 14.

The arguments made in the DOJ brief, for the most part, have already been made by counsel for the sports leagues. However, it remains to be seen if the court will give the arguments more weight because they were made by the U.S. government.

If the court accepts any of the arguments made by New Jersey that PASPA is unconstitutional, then New Jersey will prevail. It remains to be seen how the court will rule, but the constitutionality of PASPA will surely be tested and the consequences of this ruling will be very far-reaching. Whichever side loses the battle in the district court will likely appeal, meaning it may be some time before it is settled whether New Jersey can proceed with its plan to implement sports betting.

DOJ Plans to Intervene in N.J. Sports-Betting Case

The U.S. Department of Justice announced on January 22, 2013, that it plans to intervene in the lawsuit brought by the four major professional sports leagues and the NCAA challenging a New Jersey state law that legalized sports betting in the state.

The leagues have argued in court papers that the New Jersey law is invalid because it directly contravenes a 1992 federal law, the Professional and Amateur Sports Protection Act (PASPA) that imposes a ban on sports betting unless the individual state had its own sports betting scheme in place between 1976 and 1990. New Jersey was given a one year window to put in place a sports betting scheme, but the legislature failed to act.

The DOJ has requested that it have until February 1 to respond to the two briefs that challenge the constitutionality of PASPA. The DOJ has also requested the opportunity to participate in oral argument on the constitutionality of PASPA on February 14.

A year ago, New Jersey Governor Chris Christie signed legislation allowing sports betting in New Jersey after it was approved by a 2-1 margin in a nonbinding voter referendum in November 2011.

The DOJ could have brought this lawsuit when the law was initially passed, but chose not to. Instead, the case was brought by the four major professional sports leagues and the NCAA. New Jersey has argued that the leagues lacked standing to bring the suit. However, last month, after briefs were filed an oral arguments were held, a district court judge in New Jersey ruled that the leagues do have standing to bring the suit.

When PASPA was being debated in Congress, the DOJ sent a letter to then Senator Joseph Biden (D-Del.), then the Judiciary Committee chairman, discussing the views of the DOJ on PASPA. The letter noted that determinations of how to raise revenue are typically left to the states and since PASPA was seeking to regulate how states generate revenue “it raises federalism issues.”

A successful outcome for New Jersey in this case would allow for other states to pursue legalized sports betting. We support New Jersey’s efforts to legalize sports betting and generate needed revenue and jobs for the state.

Bitcoins: Online Currency’s Uncharted Frontier

Bitcoin – it sounds like a token you might use to play skeeball at a beachside arcade. It is actually a relatively new, virtual online “currency” being used for payments across the Internet. While some observers have noted that the Bitcoin has been utilized primarily for purchases in the Internet “underworld,” the Bitcoin actually has gained traction more recently as a legitimate payment exchange. The Bitcoin might just be the surprise of the next generation of e-commerce and its progeny, mobile commerce.

The Bitcoin originated in 2009 with the issuance of the first Bitcoins by Satoshi Nakamoto, the pseudonymous person or group of people who designed the original protocol and created the peer-to-peer network. Users connect with other users rather than with a central issuer or server. This makes the Bitcoin attractive for illegal activities – authorities can’t pounce on a central office or simply seize one organization’s assets. The Bitcoin has no central issuing bank. Prices fluctuate a great deal; this past summer one Bitcoin traded at around $10. It is estimated that the monetary base of the Bitcoin is around $110 million.

There are several advantages to Bitcoins. They are largely unregulated. Also, payments can be made anonymously, leaving a minimal or no paper trail. Unlike credit cards, merchants do not face the hassle and uncertainty of “charge backs.” However, because of its past “underground” use, the Bitcoin lacks a reputation and general acceptance by mainstream merchants. For instance, the website “Silk Road” allowed users to buy and sell heroin and other illegal drugs provided they paid for their purchases using Bitcoins. Online gambling services have utilized Bitcoins with relative success.

While the past use of the Bitcoin has been limited, the new currency is picking up steam. Just a few days ago, BitPay, a payment solutions company, announced a large investment by a group of well-known tech investors. They see the Bitcoin as the next “PayPal” offering a fast payment method without the exchange of sensitive personal information that goes along with traditional credit card payments. Investors also see the benefits for small businesses, which can much more easily take payments from overseas using Bitcoins. Today, we can use Bitcoins to buy a wide array of products and services. This website provides links where we can purchase, for instance, jewelry, electronic cigarettes, natural cosmetics, and even survival products and dry cleaning, just to name a few offerings.

Just last month, the Bitcoin gained further acceptance when the Bitcoin-Central exchange owned by Paymium announced that it is partnering with registered PSP Aqoba and Frank Bank Credit Mutuel Arkea in order to legally hold balances in payment accounts within the European regulatory framework. However, as Bitcoins have not to date been backed by a governmental entity and several users have reported losses from fraud and hacking into their computers where they stored Bitcoins, continued use and acceptance will be affected by the reliability of the payment network, as well as any attempts to regulate it.

As use of the Bitcoin expands, regulators (particularly in the United States) may seek to regulate the currency. U.S. prosecutors tend to view anonymous payments with skepticism and suspicion.

Our view is that use of the Bitcoin network has expanded in large part as a natural reaction to overly zealous authorities enforcing anti-money laundering rules and policies against banks and individuals. Parties facing onerous reporting obligations and over-the-top fines have been seeking alternative payment methods. The FBI has shown some interest in Bitcoin (in an April 2012 report the FBI expressed concern about cyber criminals using Bitcoins). Last year, a spokesman for FinCEN stated that “The anonymous transfer of significant wealth is obviously a money-laundering risk, and at some level we are aware of Bitcoin and other similar operations, and we are studying the mechanism behind Bitcoin.”

However, we think the law will take some significant time to catch up with the fast-moving network. It remains to be seen whether current U.S. law can be applied to cover Bitcoins, or if specific legislation would be needed. Further, even if U.S. authorities seek to regulate Bitcoins, actual enforcement would be difficult as there are no stationary “assets” to be seized (not even a domain name or website). Bitcoins are typically stored in a “wallet” on a user’s computer. Authorities would in many instances be required to pursue each “peer” in the peer to peer network, which does not seem terribly practicable. In the interim, Bitcoins appear to be growing in use across industries and geographic locations.

New Nevada Bill Would Allow for Interstate Gaming Compacts

A bill has been introduced in the Nevada General Assembly, on behalf of the state’s State Gaming Control Board, that would allow for the state governor to enter into interstate gaming compacts with other states. This legislation sets up Nevada to potentially be at the forefront of a compact in which individual states that have passed online gaming bills can work together to offer online gaming without federal legislation.

The bill, titled Assembly Bill 5, would remove language in the previously enacted online gaming bill that stated that an online gaming license does not become effective until a federal law was passed authorizing online gaming or the U.S. Department of Justice (DOJ) provided notice that interactive gaming activities are permissible under federal law. The bill would add language that allows for the governor, on behalf of the state, to enter into agreements with other states.

Assembly Bill 5 has been referred to the Nevada General Assembly Committee on the Judiciary. The upcoming legislative session does not begin until February 4, 2013.

The possibility of gaming compacts became a reality after the DOJ released an opinion in December 2011 stating that the Wire Act applies only to sports betting.

This opinion by DOJ eased fears among state lawmakers that money involved in online gaming could not be sent across state lines without incurring a violation of federal law. With that hurdle removed, the possibility of states entering into online gaming compacts became a reality.

Thus far two states, Delaware and Nevada, have enacted laws legalizing intrastate online gaming. Last month, the New Jersey state legislature passed a law legalizing online gaming and the bill is currently waiting for action to be taken on it by Gov. Chris Christie. Other states have publicly stated that they will consider online gaming legislation in sessions this year.

One potential problem with interstate gaming compacts is the potential for a hodgepodge of different laws and regulations for players and operators. States that lack experience in regulating gambling activities may look to the states that do have such experience, like Nevada and New Jersey, to regulate for them as an alternative to establishing their own regulations for online gaming. Thus far, Nevada is the only state to implement regulations governing online poker.

Nevada may want something in return for helping regulate gaming activities in other states, and it is not clear from the bill what that may be. Compacts like this have the potential to entrust a significant amount of power in a state agency, such as the Nevada Gaming Commission, and it is unclear whether it would be in the best interests of players and operators for that to occur. The concern over one state agency having so much power may serve as an impetus for states that do not currently have regulatory bodies for gaming to decide to establish them.

One other potential problem that gaming compacts address is the size of player pools. While there may not be enough players online at one time in one state for games to be big enough, gaming compacts allow for states to share their player pools, allowing for the possibility of many more players to be online at one time.

Not all states would need to pass a law similar to this Nevada law in order to participate in an interstate gaming compact. Depending on the state law or the powers granted to the state executive based on the state constitution, a state may be able to participate in gaming compacts without any legislative action.

Interstate gaming compacts have the potential to be a good development for gamers, but at this point there are too many unanswered questions about how they would operate. The idea of one state-level agency wielding enormous power over online gaming throughout the country is something that should be studied carefully before it is implemented.

N.J. Again Passes Online-Poker Bill; Decision Now in Governor’s Hands

New Jersey could soon become the third state to legalize online gaming within its borders. Its State Senate on December 20, 2012, voted 33-3 to legalize online poker in the state. The General Assembly had previously approved the bill by a vote of 48-25-3. The bill was able to achieve significant bipartisan support in both houses of the state legislature. The bill will now be sent to Gov. Chris Christie.

“If New Jersey’s casinos wish to compete in the 21st century, we have to give them the freedom to adapt a 21st century marketplace,” said State Senator and sponsor of the bill Raymond Lesniak.

This is the second time that the New Jersey legislature has approved an online poker bill. Last year, Gov. Christie vetoed an online poker bill that had been approved by large margins in both the General Assembly and State Senate.

If the bill is signed by Gov. Christie, New Jersey will become the third state, along with Nevada and Delaware, to legalize online poker. The District of Columbia also did so, but later repealed the law.

Last year in his veto message, Gov. Christie said he had “significant concerns” with the legislation, especially the expansion of casino gaming outside of Atlantic City. The New Jersey state constitution restricts gaming to Atlantic City, with exceptions for horse racing and the lottery. Under this bill, all Internet gaming would be deemed to have taken place in Atlantic City and all equipment used to operate online gambling must be located in Atlantic City, with the exception of backups and a few other items. Since no online bet would be completed until a server in Atlantic City accepted the wager, all bets will take place in Atlantic City.

Last year Gov. Christie also took issue with the subsidy that the bill would give to the state’s racetracks, but those were dropped in this bill.

Also in the time since Gov. Christie vetoed the bill last year the U.S. Department of Justice reversed a long held position and stated that the Wire Act only applied to online sports betting. This opinion by the Department of Justice would allow for individual states that have legalized online gaming to form a compact to allow for bigger player pools and the possibility of generating additional revenue.

There was debate in the state Senate on allowing the state’s racetracks to participate in hosting gaming as well. Sen. Mike Doherty (R) sought more information on why the state’s racetracks could not be allowed to offer online gaming instead of just the state’s casinos. Sen. Lesniak said he would work toward the goal of bringing online gaming to the state’s racetracks.

Sen. Lesniak pointed out that the bill is about job creation and keeping the tax rate lower will help attract companies to the state and allow for the state to become the “Silicon Valley” of online gaming. Sen. Lesniak said he believes that this bill could pump a couple hundred million dollars into the casino industry in Atlantic City. In a statement released after the bill was passed Sen. Lesniak said, “This bill will mean more jobs, more revenues for our casinos, more tax revenues for worthy programs . . . and a healthier gaming industry in the Garden State.” .

This bill protects the interests of New Jersey’s casino industry by requiring that iGaming be offered only through brick and mortar casinos in Atlantic City, which may either offer online gaming independently or in partnership with an iGaming vendor. Revenues generated by online gaming would be taxed at 10 percent of gross gambling revenues.

In addition, the bill also outlines permit fees, provides for contributions to support those affected by compulsive gambling, regulates the process for the placing of Internet wagers, and provides penalties for violations of the law.

Under the bill, casinos or their affiliates would be allowed to offer the same games that are currently offered on Atlantic City casino gaming floors. All players must be physically located in New Jersey.

Thus far, there has been no public indication from Gov. Christie regarding his plans for the bill. Gov. Christie now has up to 45 days to act on the bill. He can sign it into law, veto it, or stand aside and allow the bill to become law because he did not veto it.

We are happy to see that the New Jersey legislature has passed an online gaming bill and we support New Jersey’s efforts to legalize online gaming in the interests of bringing jobs and revenue to the state.

Court Hears Argument on N.J. Law Permitting Sports Betting

On December 18, 2012, oral arguments were heard in the federal lawsuit filed by the professional sports leagues and the NCAA against New Jersey, after the state passed a law that would legalize sports betting in the state’s casinos and racetracks. Last week, U.S. District Judge Michael Shipp ordered that oral argument would be limited to the issue of whether the sports leagues have standing to bring the suit.

The leagues filed suit in August arguing that the New Jersey law was in direct contravention of the Professional and Amateur Sports Protection Act (PASPA) of 1992, a federal statute that imposes a ban on sports betting unless the individual state had its own sports betting scheme in place between 1976 and 1990.

New Jersey has argued in court papers that the leagues have failed to allege that they will suffer a concrete injury as a result of the sports betting law. New Jersey asserts that the leagues have failed to show a particularized injury. The state has argued that given the proliferation of sports gambling, the harms that the leagues claim would flow from the new gambling law would occur in any case, regardless of the law or any relatively modest increase in legal sports betting that it may cause.

The leagues’ lawyer, Jeffrey Mishkin, started his argument today by stating that the standard for the leagues to show that they have standing is an “identifiable trifle” in how the law would affect them. Mishkin argued that the leagues do not have to prove damages or injury for standing, they only have to show that identifiable trifle.

The leagues’ arguments focused on two main points: that the leagues have standing because their games are the vehicles for the betting and that in passing PASPA Congress explicitly authorized the leagues to bring action against the states.

The leagues argued that they will suffer an injury to their reputations if there is an expansion of legalized gambling. Mishkin argued that the fact that New Jersey chose to exempt professional and collegiate sporting events held in the state, as well as collegiate sporting events held outside the state involving schools from New Jersey, from betting, as evidence that the state believes that gambling on these events can cause problems.

Mishkin argued that when Congress passed PASPA it explicitly acknowledged that the leagues would have a personal stake in gambling laws because the perception of the leagues would be adversely affected by gambling. Mishkin said that “every dropped pass” and “every missed free throw” would raise suspicion.

Ted Olson, a former United States Solicitor General arguing on behalf of New Jersey, said the state would be regulating conduct that is already occurring. Olson cited statistics showing how prevalent sports betting is in this country, both legally and illegally.

Olson said the leagues needed to demonstrate more than just the perception that the law would hurt their business; they needed to show an “actual, identifiable, particularized, concrete injury” from the law to have standing to bring the case. He emphasized that Congress cannot remove Article III standing requirements, as there needs to be a finding by the court that the injury is specific and supported by facts.

Olson argued that the leagues are already thriving amidst a huge sports gambling market and the state would be bringing the black market gambling into the light and regulating it. Olson argued that there is no evidence that gambling has hurt the leagues and pointed out the prevalence of fantasy sports, which the leagues have largely embraced. He also pointed out that the leagues are in regular contact with the Las Vegas sports books to monitor shifts in betting on their games and this cannot happen in places where sports betting is occurring on the black market.

There was extensive discussion of the 2009 Third Circuit ruling in Office of the Commissioner of Baseball v. Markell, where the court held that most of Delaware’s plan to expand its sports betting offerings violated PASPA. Delaware, a state that had a PASPA exemption because it had a betting scheme in place before PASPA’s enactment, sought to offer single game bets and bets on any professional or amateur sporting event other than NFL games. This was rebuffed by the court because these were betting schemes that were not in place at the time that PASPA went into effect. Standing was not an issue discussed by the court in its opinion in Markell, and lawyers for the league implied today that this was because standing of the leagues was so obvious that the court did not need to address it. Judge Shipp also directly asked the state how it could reconcile the state’s argument that the leagues lack standing with the Third Circuit decision.

The Department of Justice has until January 20 to intervene, if it chooses to. New Jersey regulators have stated that they will begin granting licenses to offer sports betting beginning on January 9.

Judge Shipp stated that a written decision on the standing issue would be released by Friday, December 21. It remains to be seen how the court will rule. Based on observations from court today, it seemed the judge is inclined to believe that the leagues have the sufficient “identifiable trifle” to challenge the law.

If the court does find that the leagues have standing to bring the suit, the court will proceed to hear the case on the merits and will likely have to decide the constitutionality of PASPA.

Reid-Kyl Bill Would Legalize Online Poker at Federal Level

A draft of the online poker bill that Sen. Harry Reid (D-Nev.) and Sen. Jon Kyl (R-Ariz.) plan to introduce was released this week. The bill, known as the “Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012” would legalize online poker at the federal level, a step that became possible last December when the U.S. Department of Justice released an opinion stating that the Wire Act does not apply to online poker.

The bill provides an opt-in structure, in which states have to affirmatively choose to participate in the online poker program. A state would be considered to have opted in if it has passed a law legalizing online poker. Thus far, only Nevada and Delaware have passed such laws. An Indian tribe is considered to have opted in if a designated authority of the tribe submits written notice to the Secretary of Commerce saying so. Money could only be accepted from players located in those states or tribal lands at the time they are playing.

The bill would create an Office of Online Poker Oversight within the Department of Commerce to regulate the industry. The Secretary of Commerce would need to designate, not later than 270 days after the enactment of the bill, at least three state agencies or regulatory bodies of Indian tribes that are considered qualified bodies to regulate online poker. If there are not three bodies qualified, the Secretary will designate all state bodies that fit defined criteria including:

(1) A reputation as a regulatory and enforcement leader in the gaming industry.
(2) A strict regulatory regime.
(3) Regulatory and enforcement personnel with recognized expertise.
(4) Adequate regulatory and enforcement resources.
(5) Demonstrated capabilities relevant to the online poker environment.

In making determinations under those criteria, the Secretary is also to consider the number of years that the agency has directly regulated casino gaming, the size of the gaming market that has been regulated, and the demonstrated ability to evaluate complex gaming technologies, among other things.

No game other than poker would be allowed under the bill, even if it is licensed by the state. A state could still legalize other games under their own laws, but this law would not allow them to operate those games interstate. The bill has a carve-out that allows interstate bets on horse racing to continue to operate legally, as well as an exception to allow lotteries to sell tickets online.

The bill would impose a fee of 16 percent tax on revenues generated from online poker. The money generated from this tax would go to a fund known as the “Online Poker Activity Fee Trust Fund.” Seventy percent of the money in that fund would be given to the states or Indian tribal governments where the player was located at the time he played. The other 30 percent would go to the state that issued the license to the site where the money was generated.

For five years after enactment of the bill, no person may be considered suitable for licensing if the person owned or operated an Internet gambling site that accepted bets after December 31, 2006. Such persons are referred to as “covered persons.” Additionally, no assets that were used to take bets after December 31, 2006, can be used for five years after the bill’s enactment. This provision effectively excludes all companies that were shut down by the federal government on “Black Friday” in 2011.

An individual that is considered a “covered person” may apply for a waiver from the Office of Online Poker Oversight and would need to show by a preponderance of the evidence that the person did not violate, directly or indirectly, any provision of federal or state law in connection with the operation or provision of an Internet gambling facility. A similar waiver process exists for tainted assets. The bill also states that a previous criminal proceeding will not be considered in the waiver process.

The bill would prohibit the operation of public Internet parlors where devices are made available primarily for online poker.

There is no provision in the bill that requires a licensee to own a casino, a proposal that had been considered in some online poker legislation.

Criminal penalties of up to five years in prison can be assessed under the bill to operators that violate certain provisions.

We are glad to see that legislation that would legalize online poker is being considered on Capitol Hill and has reached a draft stage. This draft could change significantly over time, but the bill in its current form may face steep opposition.

Several objections are possible. First, many states have recently explored the idea of legalizing online poker, with the intent of possibly generating significant revenue. The language of this bill would take a significant amount of that potential revenue generated from online poker away from the states.

No state other than Nevada, Harry Reid’s home state, has developed its own regulations to govern online poker, or given the criteria listed in the bill, would be considered qualified to regulate online poker.  The state that issues the license gets 30 percent of the revenues generated from online poker, which would likely all go to Nevada. States may not support such a large percentage of the money generated going directly to Nevada.

In addition, the provision barring all operators who took bets after the enactment of the Unlawful Internet Gambling Enforcement Act of 2006 is too draconian and could be vulnerable to a constitutional challenge. Finally, the 16 percent fee on revenues generated from online poker is very steep and may face opposition from operators.

It also remains unclear what level of support an online poker bill would have in the lame-duck session of Congress. As Senate Majority Leader, Reid has the ability to dictate the legislative agenda to some extent, but it remains to be seen if he will be able to generate the votes needed to pass the bill. Kyl, although he will be retiring after this term, is the Minority Whip in the Senate and could also help rally support from Republicans. If it seems unlikely that a stand-alone online poker bill could generate enough support in Congress, there may still be an alternative. Perhaps the best chance of online poker legislation getting passed is to attach it to another larger bill, which is something that Reid can be influential in helping to achieve. It is a tactic that has been used in this context before, as in 2006, when UIGEA was passed as part of the SAFE Port Act, a bill that regulated port security.

EC Set to Unveil Framework for Online Gaming Across Europe

On October 23, 2012, the European Commission will unveil a series of initiatives and actions that it plans to put into effect relating to online gaming with the overall goal of providing a better framework for online gambling services in the European Union.

One of the main problems that the European Commission is facing is the differences in rules and regulations among member nations governing online gambling. Currently, no EU legislation specifically applies to the online gambling industry, which generated $13.7 billion in earnings in the EU in 2010.

Sigrid Ligne, Secretary General of the European Gaming and Betting Association (EGBA), which represents companies offering online betting games, has said that this is an excellent opportunity for Europe as a whole to offer strong consumer protection in the gaming arena.

Ligne has said, “We deplore the situation today where we see 27 ‘mini-markets’ for gambling in Europe. We are calling for the introduction of European rules to ensure proper protection for consumers and maintain a crime-free environment throughout the EU, while affording open, fair, and transparent licensing conditions for EU-regulated operators.”

Private online gambling operators have expressed frustration with the EC for not forcing member states to open their online gambling markets. According to EU treaties, any business should be able to sell products and services in the EU countries as easily as it does in its own local market. The EGBA has accused the Commission of “failing in its role as guardian of the treaties” by not requiring member states to apply EU treaty rules in the online gambling sector.

Several European national governments, however, have opposed broader EU legislation because they want to protect betting monopolies that generate significant revenues for the state. The EGBA was hoping that the Commission would develop model legislation for its member states, but the Commission stated in June that it would only be developing an action plan at this stage, despite demands from the European Parliament for legislation. The action plan is expected to set out the Commission’s plan in the areas of consumer protection, fraud prevention and sporting integrity. The Commission could still develop legislative proposals in the future.

The EGBA has announced that it will file a complaint against Germany in the near future because its gambling law does not meet the criteria set forth by the EU Court of Justice or the concerns that the Commission raised. The EGBA has said the Germany’s procedure for granting licenses has led to the exclusion of non-German operators in violation of EU treaty rules. The law, which was ratified by 15 of the 16 German states in June, will only allow a limited number of sports-betting licenses and does not allow for online poker licenses. The Commission had been critical of Germany’s gambling law in the past, but gave Germany some time to test the rules before it intervened.

The EGBA is also challenging the Belgian gaming law that has been in place since January 2012, which it argues is an “opaque and protectionist system.” The EC has yet to rule on the challenge.

Time will tell what the European Union action plan will look like, but we think the European Union should strive for universal legislation across states. Universal legislation will allow for greater quality and consistency in games offered to consumers and allow for gaming operators to be more efficient in the delivery of their product by only having to focus on one set of regulations.

Jeff Ifrah Quoted on Historic Online Poker Deal in Wall Street Journal, USA Today, MSNBC, Other Venues

After the $731 milliion deal to resolve federal civil charges against Full Tilt Poker and Poker Stars was announced on July 31, 2012, Ifrah Law founding partner Jeff Ifrah was quoted on the subject in a wide variety of newspapers, magazines, and other sources. Here is a sampling of them.

Wall Street Journal

USA Today

MSNBC

Chicago Tribune

San Francisco Chronicle

BusinessWeek

Forbes

Poker News

ESPN

Thomson Reuters

Law.com

JD Supra

Bisnow Legal