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Board OKs Caesars Entertainment ties with foreign Internet gaming company

Updated Wednesday, March 9, 2011 | 5:28 p.m.

The state Gaming Control Board today approved the suitability of a relationship between Caesars Entertainment with subsidiaries of an Israel-based Internet gaming company operating in the United Kingdom’s overseas territory of Gibraltar.

If approved by the Nevada Gaming Commission when it meets March 24, it would be the first relationship approved for a Nevada licensee with a foreign Internet gaming provider.

The recommendation is viewed as a big step for Internet gaming because it enabled state regulators to formally acknowledge the ability of government entities to oversee online gambling.

“In 2002, we didn’t have a lot of knowledge about how this would work,” Board Chairman Mark Lipparelli said following approval of the recommendation. “But in nine years, we’ve learned a lot more.”

The three-member board recommended approval of Caesars’ relationship with Cassava Enterprises (Gibraltar) Ltd. and Fordart Ltd., subsidiaries of Internet gaming giant 888 Holdings LLC, which offers online casino games, poker, bingo, sports wagering and social gaming applications in the United Kingdom, France and Italy.

If approved, it would be the second time a Nevada licensee would be approved to have a relationship with an operator under the state’s foreign gaming statutes. In 2007, regulators approved what was then MGM Mirage to conduct business with Pansy Ho and her company in Macau.

Representatives of Caesars didn’t offer many details about what they plan to do with the new relationship with the 888 subsidiaries.

Mitch Garber, CEO of Caesars Interactive Entertainment, told regulators the company would continue to utilize its World Series of Poker and Caesars brands in overseas markets through its relationship with 888. He added that Caesars chose to partner with the company because it already has online gaming hardware and software and that his company wouldn’t be writing its own programs.

After the vote, Garber said he believed it was an important step toward the eventual legalization of Internet gambling in the United States.

“It was a historic moment,” Garber said. “It confirms that Internet gaming is a reality. It should allow us to look more and more at a federally regulated environment in the United States.”

Control Board members took great pains to explain that they only were approving of Caesars’ relationship with the 888 subsidiaries and not recommending licensing them and that the end result won’t have any effect on American consumers.

“It’s a business-to-business agreement that would allow Caesars to offer games in the U.K.,” board member A.G. Burnett said prior to the vote. “UIGA (the Unlawful Internet Gambling Enforcement Act of 2006) is vague at best and was done in haste and its passage forced (888) to abandon the U.S. market to its detriment.”

How 888 and its subsidiaries reacted to the 11th-hour passage of the bill outlawing Internet gambling in the United States was a key part of the two hours of testimony given in support of approval of the recommendation, which included closed-circuit televised comments from 888 CEO Gigi Levy from Tel Aviv, Israel, where he was with his wife who was giving birth.

Formed in 1997 with an operation in Antigua, 888 relocated to Gibraltar in 2002 and was licensed there in 2003. Levy said the company has been in good standing with gaming regulators in Gibraltar for eight years.

Because sports betting is not allowed in any state except Nevada, 888 focused on Internet poker and casino games from U.S.-based bettors.

In a surprise to most gaming industry leaders in September 2006, the U.S. House in a Friday-evening session attached the Unlawful Internet Gambling Enforcement Act to the Safe Port Act, legislation aimed at improving port security in the U.S.

The legislation effectively banned Internet gambling in the United States and started a nine-month rule-making process to draft regulations aimed at U.S. financial institutions to identify and block transactions related to unlawful Internet gaming transactions.

Levy and 888 Non-Executive Chairman Richard Kilsby explained to board members that, philosophically, company executives believed they could take bets from the United States because the location where the bet was placed in Gibraltar was regulated and the U.S. had no laws in place banning the taking of wagers.

Levy and Kilsby told Gaming Control Board members that the 888 board of directors and compliance officers met the Sunday after the House passed the legislation and before President Bush signed it into law to consider what to do about the company’s online presence in the United States.

The board opted to announce a decision the next day to remove access to U.S. customers, resulting in an immediate drop in revenue and causing the company’s stock to plummet.

“The words and actions of 888 were clear,” attorney Michael Horowitz said in a summarizing statement. “The company has a commitment to doing what is right and doing what is legal” despite the damage to revenue generation.

The company also trumpeted the efforts of its compliance team and its technologists in developing software to insure the identity and location of an online user and for its stances on addressing problem gambling and underage gambling.

“To use a baseball analogy, I’d say we’re in about the third inning on working through the issues of Internet gambling,” Lipparelli said just before the vote was taken. “It’s an evolving discussion and an evolving set of standards.”

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