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Online Gamblers Want to Get Feds Into the Action

Karen Bleier/AFP/Getty Images

Americans will soon be placing bets on U.S. gambling websites from the comfort of their living rooms, and Congress may have a hand in determining the winners and losers.

The Department of Justice ruled last December that the 1961 Wire Act bans only sports betting, not other forms of online wagering, reversing its position of many years. That cleared the way for cash-strapped states to explore offering online gambling to their residents.

The DOJ’s decision “has, in effect, opened up what I think could be the largest expansion of legal gambling in this nation’s history,” said Frank Fahrenkopf, president and CEO of the American Gaming Association, a trade group representing the casino industry.

Nevada is expected to start offering online poker to residents by early next year. Delaware plans on going further by also offering online casino-style table games and slots to residents. New Jersey’s legislature is also poised to act in the coming weeks, and more states could soon follow.

But the states are setting up a patchwork of rules, none of which allows playing across state lines, increasing pressure for federal action and legislation. Fahrenkopf, for one, is skeptical that states will be able to effectively regulate online gambling.

“There’s a big difference between regulating a lottery and regulating online gaming,” he said. “We need someone up to the job.”

Advocates of online poker, which the Justice Department moved aggressively to shut down in April 2011, tend to agree.

“Online poker is on track toward regulation in the U.S., whether it’s done on the federal level or through the states,” said John Pappas, executive director of the Poker Players Alliance, which represents more than 1 million online poker players.

“If states do this on a state-by-state basis, we’re going to move toward the balkanization of Internet poker, with 50 states having 50 different rules and regulations,” Pappas said. “That’s why we prefer the federal bill.”

Both the brick-and-mortar casino industry — which could perceive a threat from a sweeping expansion of its trade on the Web — and poker aficionados have thrown their support behind narrow legislation that would legalize just online poker while banning all other forms of Internet gambling.

Majority Leader Harry Reid, D-Nev., and Minority Whip Jon Kyl, R-Ariz., are working on such legislation in the Senate, and Rep. Joe L. Barton, R-Texas, backs that approach in the House.

The Poker Players Alliance and the American Gaming Association support the federal regulation of poker, in part, because poker is played against other players rather than against the casino, or “house,” necessitating a critical mass of players. If the websites are regulated by the states, then only residents of a particular state would be allowed to play against each other. Pappas said states such as Nevada could sustain an online poker industry, but he doubts that Delaware would be able to do the same.

Proponents also frame poker as a game of skill, hoping to differentiate it from casino-style games of chance such as roulette or blackjack.

The states, however, have labeled the Reid-Kyl bill as a payoff to Nevada’s casino industry. State lotteries and governors have argued vigorously that they shouldn’t be limited to offering only online poker to their residents.

Steven Grossman, the chairman of the Massachusetts State Lottery Commission, noted in an Oct. 31 letter to Reid and Kyl that the profits from online poker are minimal. He vowed that “attempts to wish the online gaming genie back into the bottle are doomed to fail,” especially given the easy accessibility of international gambling websites.

“Whether you like Internet poker or not, any American with an Internet connection can even today go online and play Internet poker, bet on sports or play Internet casino games,” Pappas said. “The only thing they can’t do is do that on a licensed U.S. site.”

But because the pending legislation would explicitly ban forms of online gambling aside from poker, it could potentially appease social conservatives in Congress who have traditionally opposed the legalization of gambling for religious or moral reasons.

House Majority Leader Eric Cantor, R-Va., is considered an opponent of online gambling, as is House Financial Services Chairman Spencer Bachus, R-Ala., who is stepping down from his post at the end of the year because of term limits.

Should proponents of the Reid-Kyl bill be able to sell it as a reduction — rather than an expansion — of online gambling, insiders believe that Speaker John A. Boehner, R-Ohio, could be amenable to a deal, provided that Reid is willing to negotiate on other issues.

Reid’s office has been careful to emphasize that the draft bill is not final and that he is still working with all stakeholders to address concerns.

Proponents hold out some hope for action during the lame-duck session, in part because Kyl’s pending retirement could add urgency to his advocacy. Reid could attempt to tie the online poker measure to the cybersecurity bill expected to hit the Senate floor during the lame duck, although the latter legislation is not expected to pass.

“We’re an industry that depends on luck,” Fahrenkopf said, “so we’re going to have to be lucky during this lame-duck session, because there are so many different things on the plate during the next two months.”

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