Nevada eyes online gaming(Part 1 of a two-part series)

April 24, 2001 7:43 AM
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Nevada’s biggest casino operators have served notice they intend to grab their share of the billions being wagered over the Internet. Finding a way to do it that’s legal in the eyes of the U.S. Justice Department is another matter.

It’s one of the principal tasks facing state gaming regulators with the expected passage later this spring of a bill that sailed through the Assembly Judiciary Committee last week with the blessing of the industry’s Carson City lobby.

Here’s the bottom line: Bettors worldwide lost an estimated $1.5 billion on their personal computers last year. By 2003 it’s projected they’ll lose more than $6 billion. Nevada’s operators want to have the first licensed, regulated online casinos in the United States to get a piece of that. They’re prepared to pony up the $1 million each in licensing fees required by the bill, plus the standard 6.25 percent state tax on winnings, to make sure of it. If they don’t move now, so they believe, one or more of the 11 other gaming states will.

The bill, as crafted in the Assembly, charges the Nevada Gaming Commission with adopting regulations for the licensing and operation of online casinos. The commission will be relying on the legal and technical experts at the Nevada Gaming Control Board for solutions to a host of complicated issues: like the security and reliability of the games, the electronic transfer of monies to cover the bets, ensuring minors aren’t bellying up to the virtual tables with dad’s password, and ensuring bets don’t come in from jurisdictions where Internet gambling is illegal.

Assuming the bill becomes law, Commission Chairman Brian Sandoval says the first step will be to form something like a subcommittee of commissioners and board members and experts to begin examining and testing the available technology. A few of the major casino companies are already doing this privately. Regulators also will be taking a close look at jurisdictions like Australia where Internet gambling is legal. Both bodies will then conduct hearings in what Sandoval says will be "a very lengthy process." He and Gaming Control Board Chairman Dennis Neilander haven’t met yet to discuss the issues, he says.

Which is not to say both haven’t been trying to gauge the political and legal winds blowing out of Washington and the rest of the country on what is a hot-button issue, to say the least.

"First of all, is it a legal activity, and that’s something I believe is unclear," says Neilander. "From Nevada’s perspective, we’re not going to go forward with anything until we’re crystal clear it’s legal."

Sandoval says he hears that the Justice Department is not budging from its long-held position that Internet casinos are illegal under the 40-year-old federal Wire Act, which prohibits taking bets, specifically sports bets, over phone lines or any kind of communications wiring.

There is a body of legal opinion, represented by attorney Anthony Cabot of the Nevada law firm of Lionel, Sawyer & Collins, that says it may not matter what the Justice Department thinks. They point to a February ruling by a U.S. District Court in Louisiana dismissing a lawsuit brought against several major credit cards by a group of Internet bettors. The bettors claimed their gambling losses aren’t enforceable because Internet casinos are illegal. They brought the suit under federal racketeering laws. The judge, in dismissing the suit, stated that the Wire Act, as he reads it, doesn’t apply to online casinos. On that basis, says Cabot, there is no law on the federal books prohibiting them.

"An actual case against a casino based on the Wire Act has never been brought by the federal government," he says. "I think they don’t bring one because they know they’d lose."

Regulators aren’t so sure. District Courts do not make precedent-setting law, they say. And Sandoval says it’s his understanding the Louisiana ruling will be appealed.

"I am told the Justice Department is interpreting the Wire Act as prohibiting Internet gaming nationwide," he says.

(Next week: A federal judge says there’s no law banning online casinos after bettors sue to recover their losses, while the Justice Department wins a key conviction against an offshore bookmaker.)