Internet poker company looks to Nevada for entry into U.S.

By Liz Benston

Monday, March 21, 2011 | 2 a.m.

The world’s largest online poker site, facing big obstacles in winning congressional approval of Internet poker, has set its sights on a smaller target: getting Nevada lawmakers to approve online poker for state residents.

And the groundwork has been laid in the Legislature allowing such a decision.

But the effort may be doomed because casino giants MGM Resorts International and Caesars Entertainment — and presumably many other casinos — oppose the proposal.

“Has there ever been any bill passed directly affecting gaming over the opposition of the leading casinos in the state? I would bet no,” said I. Nelson Rose, a gaming attorney and industry consultant based in California.

Most in the casino industry think regulated Internet gambling in this country is inevitable, but many don’t want to share the business with a juggernaut like PokerStars.

Among the people in its corner: Randall Sayre, a former Nevada gaming regulator.

Sayre, a PokerStars consultant, says it is shortsighted for Nevada to sacrifice, in the name of protectionism, a golden opportunity to become corporate headquarters for Internet gambling operations in the United States.

“If we don’t approach this in a rational fashion this legislative session, by the time we meet again in two years ... we will be left on the sidelines, which is not a good thing for the traditional gaming industry in Nevada,” Sayre said.

By adopting regulations in Nevada, every casino in the state could get a head start should the federal government allow Internet gambling nationally, he said.

Alongside federal lobbying efforts, which include the revival last week of last year’s defeated bill to legalize Internet gambling, PokerStars has been pressing state lawmakers to legalize Internet poker for residents of certain states.

Although small Nevada casinos don’t necessarily want more competition, giant resorts want federal regulation. They argue it doesn’t make financial sense to limit poker to Nevada residents because the state’s population is too small, and other gambling options too plentiful, to support a major Internet gambling enterprise. Absent a federal framework, it would be difficult for both regulators and operators to police a patchwork-quilt system of state rules for an Internet activity that’s interstate by nature, they add.

For now, the Nevada Gaming Control Board is sitting out this debate.

Partly, though, board members are waiting for direction. The 2001 Legislature passed a bill authorizing regulators to craft Internet gambling regulations — authority that has so far gone unused while companies debate financial and regulatory uncertainties. Before the American Gaming Association came out in favor of Internet gambling a year ago, some casino companies weren’t sure they could control Internet wagering to regulators’ satisfaction, such as preventing minors from gambling — or that profits would be forthcoming.

After years of indecision, no gambling enterprise has presented Nevada regulators with a comprehensive business plan for operating a Nevada-only online gambling system, Control Board Chairman Mark Lipparelli said. Because Nevada’s law doesn’t compel state officials to adopt Internet gambling regulations, the Control Board has held off, preferring not to begin the arduous process of determining security controls and other rules without knowing whether it’s a real prospect that makes financial sense, Lipparelli said.

PokerStars expects to answer that as soon as this week when it presents tax and job estimates to Nevada officials.

Although PokerStars’ earnings aren’t public, the decade-old company controls about half of the global online poker market, with at least 36 million player accounts worldwide. Licensed in the Isle of Man and a growing number of European countries that have developed regulations, PokerStars does business in places that haven’t taken a position on Internet gambling. Some growth has come because competitors dropped out of the U.S. market after Congress in 2006 outlawed processing online wagers. By flouting the federal ban, calling it legally flawed, PokerStars grew its U.S. business into a brand advertised on television and endorsed by celebrities.

Sidelined casinos call that unfair, although some have discussed with PokerStars and other Internet gambling companies how to profit from the company’s technology, said Richard Perkins, a former Nevada Assembly speaker lobbying for the bill.

U.S. Sen. Harry Reid’s short-lived bill in Congress last year to legalize Internet poker reflected something of a compromise. Reid’s bill would have subjected companies already accepting U.S. wagers to a waiting period on licenses to give American casino companies time to catch up to their Web-based counterparts in technology, infrastructure and customers.

If passed, the Nevada bill could roll out the welcome mat for PokerStars.

It would require regulators to establish Internet poker regulations and would also prevent regulators from shooting down PokerStars and other Internet gambling companies for a license simply because they take bets from Americans.

PokerStars would pay a 6.75 percent tax on the so-called rake that poker rooms collect from the pot for hosting the games. That’s the same percentage Nevada casinos pay on gross gambling revenue, before expenses, and could yield a “significant amount of money” for a state in financial straits, Perkins said.

Poker makes little money for casinos, although it attracts gamblers who often wager on more profitable casino games such as blackjack. Thus, a bigger carrot for lawmakers: For the privilege of hosting online poker games for Nevadans, PokerStars is offering to pay a 4 percent tax in Nevada on the rake collected from the rest of its customers around the world.

Lipparelli wouldn’t take a position on the bill. The Control Board, though, would probably fight any provision that restricts regulatory discretion on a subject as crucial as issuing gaming licenses, he said.

Meanwhile, Internet gambling critics point to an industry that has been tarnished by well-publicized incidents of player collusion and fraud online.

Such concerns are overblown, as live casino poker games also are at risk for colluding players, Perkins said. Unlike land-based games, companies like PokerStars have a record of every poker hand and can more effectively compensate players who have been cheated, he added.

Nevada regulations could be a first step toward interstate agreements between regulated Internet gambling states that can share gamblers and revenue, much like the decades-old industry of simulcast horse racing, Perkins said.

“We can show the feds that this is a product that can work in the U.S.,” he said, “that it’s not the big taboo, mysterious, ‘Wizard of Oz’ approach to gaming that the feds have made it out to be.”