February 23rd, 2013
Two articles on the Nevada Legislature recent unanimous pass of an online poker bill. The first, via GamesBeat:
Gov. Brian Sandoval (R) signed legislation that legalized online gambling inside the state of Nevada — a move that could signal a potential goldmine for developers of social casino games.
Both houses of the Nevada legislature passed the bill as an emergency measure so the could lay claim to being the first in the nation to sign such a bill into law — ahead of New Jersey. Online gambling firms pray that the Nevada law could be the start of an avalanche of legislation by tax-hungry states to legalize the industry across the country. And the video game industry’s social casino game makers hope the legalization will happen and bring a windfall to them as well.
New Jersey governor Chris Christie (R) vetoed an online gambling bill Feb. 7, but he said he was planning on signing an amended bill next week.
Social game companies like Zynga are hoping for legalization of online gambling to help their own businesses. Social casino games — where you can buy virtual chips to make bets but you can’t cash out — are considered the “top of the funnel,” or the industry that could recruit new gamblers at very low marketing costs for the gambling companies. Indeed, while online gambling may draw about 40 million players, the number of social casino players is about 170 million.
While social casino games are generating around $1.7 billion in revenue, online gambling is a $35 billion worldwide business, according to Morgan Stanley. It is part of a larger $390.5 billion real-money gambling casino business, with the turnover of dollars reaching into trillions of dollars.
The Associated Press reported that Sandoval said it was a historic day and that the law would “usher in the next frontier of gambling in Nevada.”
Sandoval is the former head of the Nevada Gaming Commission, and he said the law was critical to the state economy. A.G. Burnett, the current chairman of the Nevada Gaming Control Board, said the state has 20 applications from various potential online gambling operators looking for licenses.
The new law permits Nevada to authorize cross-state gambling with other states that offer Internet poker. Previously, lawmakers passed a bill that positioned Nevada to legalize online gambling if the federal government allowed it. That federal bill failed, leading Nevada to try negotiating agreements with other states.
The potential for online gambling brightened at the close of 2011, when the U.S. Department of Justice issued a letter saying that the federal Wire Act of 1961, which had previously been used to crack down on gambling on the Internet, only applies to sports betting.
Other states could benefit from partnering with Nevada because it has the most mature regulatory infrastructure, the Nevadans argued.
The second, via the Las Vegas Sun:
The Nevada Legislature today fast tracked an online gaming bill, declaring it an emergency measure to get it to Gov. Brian Sandoval for a signature today.
After a 90-minute hearing before a joint meeting of the Assembly and Senate Judiciary committees, both houses of the Legislature voted unanimously to pass Assembly Bill 114, which would allow Nevada to move ahead with online poker in the absence of federal action and to join in interstate compacts that would expand the customer base for Nevada casinos.
Sandoval signed the bill just before 4 p.m. today. The entire process took less than seven hours.
“We’re going to do it now,” said Assembly Majority Leader William Horne, D-Las Vegas. “We’re going to beat New Jersey.”
In his State of the State speech, Sandoval declared online poker legislation to be his most immediate priority and called on lawmakers to pass it within the first 30 days of the session. That timetable sped up when New Jersey passed similar online gambling legislation earlier this month.
Both states are in a race to become an online gambling hub, hoping to use existing gaming regulations to help new states enter the gaming market.
Shortly before the Senate’s unanimous vote Thursday afternoon, Senate Minority Leader Michael Roberson had a few words for New Jersey.
“To the great state of New Jersey, Nevada is still No. 1 in gaming and will continue to be,” he said.
New Jersey Gov. Chris Christie vetoed the first bill passed by the Legislature in his state, but he is expected to sign an amended bill as early as next week.
“This is good-natured competition,” said Pete Ernaut, lobbyist for the Nevada Resort Association, in reference to New Jersey. “If we get there first, fantastic. If we get there within 24 to 48 hours, it’s not a big deal.”
Ernaut said the competition is the “gaming version of the space race.”
“This is a historic day,” Sandoval said before signing the law in the old Assembly chambers, where Nevada first legalized gambling in 1931. “This is the day we usher Nevada into the next frontier of gaming.”
The Republican governor praised the bipartisanship effort to hasten the bill through the legislative process.
“We said ‘saddle up, let’s do this’ and we got it done,” Horne said.
“I think this was record fast,” Sandoval said. “This is an extremely important bill for our economy.”
The unanimous passage came after Sandoval and Horne reached a compromise on how much to charge for an online poker license. Horne had wanted to double the current license fee to $1 million.
He backed down from that, agreeing to a compromise that would allow the Nevada Gaming Commission to increase the $500,000 fee in certain circumstances. The legislation would also allow the commission to lower the fee, as needed. That’s the opposite of Christie’s take. He wants New Jersey to increase its tax rate on Internet gambling revenue.
In an example of the bipartisan support, Sandoval and Horne sat side by side to testify in support of the compromise legislation.
“It makes me proud know we can get in a room and put our heads together and make this happen,” Horne said after the bill passed both house.
Republican and Democratic support for the bill helped it sail through the Assembly and Senate to the governor’s desk, where Sandoval could be one of the first governors in the country to sign an online poker bill.
“It is important that we move quickly,” Sandoval said, arguing that Nevada must maintain its edge in being responsive to changes in gaming technology and culture. “Other states are on the verge of approving similar measures. It is vital that we move quickly.”
The online poker law will legalize online gambling for the first time in Nevada, allow Nevadans to play online poker with players in other states, and potentially net Nevada millions of dollars in licensing and other fees.
The bill repeals a Nevada law that says the state should wait for federal action authorizing online gaming. A federal proposal failed this past year, spurring states to push their own gaming proposals.
“We cannot wait any longer for Congress to act,” Sandoval said to a legislative committee Thursday.
Even without federal approval, Sandoval said the state should be in “good legal standing” to enter into interstate compacts exclusively for online poker, and his administration will communicate with the federal Department of Justice as Nevada crafts the compact language that would be authorized under this proposal.
Calling it a “new frontier,” Sandoval said that although the bill talks about “interactive gaming,” he believes federal law precludes any interstate compacts involving gaming other than interactive poker.
Additionally, Ernaut said the Nevada Resort Association favors poker because it is a player-versus-player game.
“We don’t want to have undue competition for those who have spent billions of dollars building these beautiful resorts in Las Vegas and Reno, and that’s why we’ve limited it to poker,” he said.
Gaming regulators will address many of the specifics and mechanics of what online poker will look like for consumers.
“Those sort of things would have to be hammered out in interstate agreements,” said A.C. Burnett, chairman of the state’s Gaming Control Board. “Our staff have traveled the world during the past five years to understand how online poker is regulated overseas.”
Overseas gamblers have played online poker for years and Americans have played illegally.
“This essentially legitimizes and regulates what is already going on,” Burnett said.
Delaware is the only other state to have an online gambling law in place, but many are examining proposals similar to Nevada’s.
“This is a multibillion dollar industry that we haven’t been participating in,” Horne said.
The bill puts pressure on the state’s gaming regulators to use their expertise to craft the specific language of interstate compacts that appeal to other states that may not have as much history in regulating gambling.
They will have to address regulatory requirements including fraud and identity theft protection, age verification and geolocation technologies.
“In these agreements, we’re hoping that our regulatory framework that we have developed over the decades will be part of the selling point to jurisdictions that don’t have that,” Horne said.
Horne said the idea is to partner with states that have larger populations than Nevada, which would provide millions of customers for land-based casinos that also operate licensed online poker websites.
The price of entering into that market had been a sticking point for Horne and Sandoval.
Horne previously advocated a $1 million licensing fee and $500,000 renewal fee for online gaming licenses. The governor did not support Horne’s proposal, which had doubled the fees.
The bill passed with an amendment that knocked the fees back down to $500,000 for a license but allows the state’s Gaming Commission to increase the licensing fees to up to $1 million or lower them to $150,000.
Under the bill, operating licenses for gaming establishments would only be available to a “resort hotel that holds a nonrestricted license to operate games and gaming devices.”
The bill would ban for five years some companies who illegally participated in the online gaming market between 2006 and 2011.
Horne said the ban is a compromise between a “Pete Rose” and “single game suspension” punishment for companies that didn’t play by the rules and could now have an unfair advantage if they entered the legal market proposed under Nevada’s bill.
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