Regulators focus on in-state, cybergaming

May 21, 2002 9:41 AM

Despite a mandate from the Nevada legislature to explore Internet wagering on a global scale, gaming regulators have zeroed in on "intrastate" gaming as "a good first step."

That was the message at last week’s meeting of the Nevada Gaming Commission, which accepted comments and recommendations, but took no action on the issue.

"In March and April, we examined issues of whether we can regulate interactive gaming ”” legally and technically," said Commission Chairman Pete Bernhard. "Now we examine whether we should regulate interactive gaming."

The earlier meetings determined that Nevada would be in conflict with federal law if it approved interstate online gambling. That view is based on the long-standing Department of  Justice opinion that interstate gambling over the Internet or other electronic media violates the 1961 Wire Act.

The position was strengthened last week when the American Gaming Association (AGA), a trade and lobbying group representing the commercial casino industry, threw its support to a bill that would ban web gambling. The bill, authored by Rep. Bob Goodlatte (R-Virginia), would ban all forms of Internet gambling, but would exempt states that legalize online gaming. The other exemption that induced the AGA to endorse the bill is a provision that would allow Nevada race books to continue to accept bets on racing conducted in other states.

"We think each state should have the right to determine what goes on within its borders," said Frank Fahrenkopf, president of the AGA. "He (Goodlatte) saw we were right on the law and came around."

Realizing the "slippery slope" of trying to regulate gaming beyond its own borders, Nevada regulators have focused on in-state, interactive gaming. In a report prepared by the Nevada Attorney General’s office, "intrastate" betting ”” wagering by Nevada residents within the state ”” was cited several times as a requisite for any public policy on interactive wagering.

Intrastate online gaming was also cited as a "good first step" by members of the Interactive Gaming Task Force, which submitted its report and recommendations to the Commission. The Task Force was convened last September at the William F. Harrah College of Hotel Administration at UNLV.

But not everyone was leaping onto the intrastate bandwagon.

The proposition of Nevada bettors playing video poker from home didn’t sit well with Station Casinos, whose attorney, Jack Godfrey, expressed opposition to the concept of intrastate gaming.

Godfrey warned that existing operators who have huge investments in the state, such as Stations, could have their market share eroded or "cannibalized" by a form of gaming in which players stayed at home.

"We must examine whether intrastate gaming will benefit existing licensees, or cannibalize existing investment and market share," Godfrey said. "The question is, how does intrastate gaming increase revenue to the state, without the loss of revenue to existing operators."

In asking regulators to consider whether in-state, interactive gaming "helps or hinders" the gaming industry, Godfrey cited Station Casinos $1.6 billion investment in the state, as well as its 10,000-plus employees.

He added that extending gaming to Nevada households would fly in the face of a decade-long "trend to restrict the spread of ”˜convenience’ gaming in the state."

"The trend has been to limit access, and now we’re looking at extending it," he said.

While not conceding that intrastate gaming would necessarily "cannibalize" existing operators’ profits, Dennis Nielander, chairman of the Gaming Control Board, reminded the Commission that the "precise reason the (interactive gaming) bill was enacted ... was so Nevada could remain competitive" in the worldwide, online gaming market.

"Legislators heard global predictions, and they intended to tap into that market," Nielander said. "The focus was to be on international markets and other states; there wasn’t much discussion of in-state, intrastate gaming."

He added that Nevada’s enabling legislation, AB466, "was designed to tap additional revenues and taxes based on a global market."

Nielander said that the legal issues surrounding intrastate gaming were "easier to get your arms around," but he questioned whether it would generate additional revenues for the state.

"If you allow intrastate interactive wagering, are you generating new revenue or just shifting revenues around?" he said.

Regardless of how far the Commission goes in extending interactive gaming, it would require a whole new set of regulations, Nielander said.

"Compared to regulating bricks and mortar casinos, interactive wagering will require another set of regulations," he said. "The first step would be in the area of technical standards. I don’t favor piggybacking on existing standards, but creating a whole framework for interactive gaming."

Nielander added that the framework would be a "souped up version of the way we do it now," and would extend to the licensing of operators and manufacturers.

It would also include the monitoring of interactive systems on an on-going and real time basis, he said.