Gaming’s new frontier

By Liz Benston (contact)

Friday, Nov. 23, 2007 | 7:13 a.m.

Congress has allowed states to develop their own online gambling regulations. Bets are legal as long as they begin and end in a jurisdiction where Internet gambling is allowed.

Online gambling companies and companies that make gambling software are pressing the state to move ahead. Residents would be allowed to bet online, but only within the state, which could get a new source of tax revenue.

In 2003, the Legislature authorized state regulators to study online gambling. They've been reluctant to act on their own, but hope a study now under way will help legislators decide whether to go forward. Results are expected within weeks.

As gambling profits spur an unprecedented multibillion-dollar building boom on the Strip, untold ranks of professional poker players, sports bettors and recreational gamblers continue to pour money into a shadow industry based offshore but with a de facto home in Las Vegas.

And while a seemingly endless debate rages on in Congress over whether to legalize Internet gambling nationwide, some gaming interests are pursuing a different tack by appealing to Nevada regulators with the power to allow and oversee online betting for Nevada residents within the state's borders. Federal law allows such online gambling.

As a step in that direction, UNLV's International Gaming Institute is trying to quantify how many Nevadans gamble online and measure gamblers' attitudes toward legalizing Internet gambling. The study, commissioned by the state Gaming Control Board and expected to be released within weeks, is intended to inform Nevada legislators about the pros and cons of regulating online gambling.

"This will be valuable information for policymakers," Gaming Control Board Chairman Dennis Neilander said.

While regulators already have the authority to adopt rules governing in-state online gambling, they aren't entirely comfortable taking that step just yet and want the Legislature to revisit the issue before moving forward.

The Justice Department maintains that all forms of Internet gambling are illegal based on a decades-old law known as the Wire Act. The casino industry has argued that the law, designed to combat mob bookmaking operations in the 1960s, prohibits only online sports betting. The Justice Department sent the Gaming Control Board an opinion letter clarifying that position in 2002.

The Nevada Legislature in 2003 allowed regulators to study whether Internet gambling could be regulated. The Gaming Control Board has since learned of developing technology to pinpoint the location and identity of gamblers using satellite signals, conduct online background checks and maintain account information. But regulators, wary of the federal government's position, haven't pursued the notion of approving online gambling in Nevada.

Online gambling companies and technology companies that make gambling software are pressing the state to reconsider.

The federal government's crackdown on Internet betting and the passage of last year's Unlawful Internet Gambling Enforcement Act in Congress have driven the online gambling industry further underground. Some of the largest and most trusted gambling Web sites no longer do business in the United States, leaving the business to privately held offshore operators willing to operate just out of reach of the Justice Department. U.S. banks and credit card companies also steer clear of Internet gambling transactions, forcing gamblers to set up accounts with offshore banks and credit cards.

The ban that passed Congress last fall further criminalized Internet gambling on a federal level but specifically allows states to pursue their own regulations. It also says bets are legal as long as they begin and end in a jurisdiction where Internet gambling is allowed.

That definition is important because it means the gambling data that travel through the Internet can leave the state, go to computer servers and routers elsewhere and return without violating the law in terms of interstate transactions. "That's an important point because it reduces some uncertainties that may have existed in the past," Las Vegas gaming attorney Tony Cabot said.

Cabot, who has consulted for Internet operators, said the UNLV study may show there are enough gambling dollars going to offshore sites to warrant efforts by the state to tap that revenue.

Besides, he said, state regulation is appropriate. "It's historically been the policy of the state of Nevada to regulate gaming so that we can protect patrons and make sure they get paid when they win," he said.

Some experts say in-state online gambling could eventually spread nationwide much as statewide lotteries proliferated in the 1990s, bypassing federal rules. And some states' systems could link up with others', as with multistate lotteries.

"It's more a matter of when, not if," Las Vegas-based gaming consultant Phil Flaherty said.

If that happens, Nevada - in spite of its free-market opportunities for gambling - may not be the first state to pursue online gambling.

Nevada's population is relatively small compared with other states', such as California's, that would stand to gain more from the gaming and tax revenue generated by residents online.

Internet gambling won't come without some controversy - even in Nevada.

Previous discussions didn't focus on online gambling by locals, which raises the prospect of compulsive gambling as well as convenience gambling.

Neilander said Internet gambling won't be an easy decision for Nevada because it "seems contrary" to the aim of several laws passed in recent years to restrict convenience gambling, including a prohibition on locations for suburban casinos in Las Vegas and a requirement that casinos be built with attached hotels, he said.