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Concerns on US Intrastate Online Gambling

By: Joan Peppin, Wednesday January 18th 2012
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On December 23, 2011 the U.S. Department of Justice (DoJ) revised its stand and stated that intrastate online gambling could be legal. This was received euphorically by the online gambling industry and it was felt that midway into 2012 half a dozen states would have some form of regulated online gambling, including online lottery. Now, three weeks later, various experts have come up with "there's many a slip between the cup and the lip" syndrome. The general consensus is that the DoJ statement is too simplistic and many hurdles have yet to be overcome.

One of the first to strike a cautionary note was Andrew Zarnett, the gaming analyst at Deutsche Bank. In a research report prepared for investors he stated that the enthusiasm for federal or intrastate legalization of online gambling was hyped-up and misplaced. Zarnett stated that at best the debate over online gambling has moved "whether" to "when". It not clear which forms of online gambling could be legalized and no one can say how long it would take for the "when" to materialize. Using history as a guide, Zarnett favored the state-by-state roll out for online casino and online poker, much in the same way as lotteries, horse racing and land casinos. He also said that the state lotteries would have a first-mover advantage.

Las Vegas gaming attorney Jennifer Carleton acknowledged that the DoJ announcement was a perceptible step forward in the realization of legalization and regulation of online gambling in the United States. The need of the hour was to be alert, attentive and proactive to what might follow. However, she cautioned that future DoJ opinions could reverse the latest interpretation.

Nevada approved online poker regulations on December 22, 2011in preparation for the federal government allowing intrastate online gambling. Nevada Gaming Control Board Chairman Mark Lipparelli said the agency has received ten applications for licenses from casino operators, equipment providers and manufacturers. It was unclear how long it would take to issue licenses. "The devil is in the details," he said.

One of the applicants with Nevada Gaming Control Board is the South Point Hotel Casino and Spa owner Michael Gaughan. As of now he operates a free play online poker website, which offers cash and noncash prizes, including trips to South Point to compete in live poker events. Gaughan's conclusion is that because Nevada has a small population, any intrastate online poker room will not be able to generate enough player liquidity to be viable. Legalized online poker would have to be across state borders, at least for Nevada. Mark Hichar, a partner with the Edwards Wildman Palmer law firm in Boston, stated that the revised DoJ opinion does not prohibit states from forming compacts with other states, as long as the states have similar online poker regulations.

The states that are in the race to be first off the block with some form of online gambling are California, Nevada, Illinois, Iowa, New Jersey and Washington D.C.

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