Nevada rolls the dice on Net gambling

The state legistature passed an Internet gambling bill but the law appears to be in conflict with a federal ban. Also, how do you keep minors from cutting the cards.

Falling into step with gambling interests, the Nevada Legislature approved a bill Monday to allow licensed operators to offer Internet gambling as soon as state regulators can offer "reasonable assurance" that minors and players in jurisdictions where such games are illegal can be excluded. Gov. Kenny Guinn is widely expected to sign the measure, which would make Nevada the first state to authorize online betting.

Final approval of the measure, which nearly died in the final week of the Legislature's meeting, came at midday Monday on a 17-4 vote in the state Senate. The Assembly approved it by voice vote on Sunday.

Guinn has 10 days to either sign or veto the measure, sponsored by Assemblywoman Merle Berman, R-Las Vegas, or it will become law without his signature.

Approval of the measure caps a remarkable turnaround by the Nevada Legislature, which several years ago was among the first in the nation to specifically ban Internet gambling. It mirrors a similar turnaround by the gambling industry itself, which until recently was a staunch supporter of a bill by U.S. Sen. Jon Kyl to impose a federal prohibition on Net betting.

The measure excludes betting on sports, including horse and dog racing, but otherwise broadly defines "interactive gaming."

The state will tax online revenues at the same level as those generated in brick-and-mortar establishments - 6.25 percent - and charge operators $500,000 every two years for the privilege of operating in cyberspace.

The bill relies on the state Gaming Commission and the Gaming Control Board to determine when - or if - the virtual gaming can begin.

First the regulators must be convinced that they can provide reasonable assurances that the games are fair, that operators can prevent minors from playing and that the games are conducted only where lawful.

Brian Sandoval, chairman of the Gaming Commission, said in advance of Monday's vote that it's not clear how long that process will take.

"That's the $64,000 question," he said. "It will take as long as it takes. We have to move very cautiously and explore all these issues before we go forward."

Few believe that, if everything goes smoothly, Nevada casinos could be taking bets online in less than a year. Others say 18 months to two years would still be optimistic given the comprehensive testing of software that would be necessary to meet the state regulators' standards, which are probably the most stringent in the world.

"The ball is in our court," Richard Fitzpatrick, president of the Internet Business Alliance of Nevada, told on Monday. "It's up to our companies to prove that they have the hardware and the software in place to allow the regulatory agencies to be comfortable."

Conflicting laws
The first step in the process will be for regulators to go to the Justice Department and see whether conducting Internet gambling would violate federal law, Sandoval said. That question is open to legal interpretation, but the Justice Department has prosecuted operators who have tried to conduct online gambling from the United States, as well as about 20 Americans involved in offshore operations.

Nevada regulators have on their side a recent U.S. District Court ruling that concluded that the Wire Communications Act, a 1960s law that bans the use of telephones to accept wagers on sporting events, doesn't apply to casino-style games played on the Internet.

The Justice Department, which will be confronting the issue for the first time since President Bush took office, did not return calls seeking comment on what it will tell the regulators.

If that hurdle is met, the regulators would turn to looking at a host of possible technological solutions aimed at preventing minors and residents of jurisdictions where online gambling is illegal from being able to play.

Anthony Cabot, a Las Vegas lawyer and author of "The Internet Gambling Report," said technical means exist to accomplish both goals, although the cost could be prohibitive.

"I think they're solvable, but the question becomes: Is the solution economically justifiable?" he said. Among the systems that could be used would be "biometrics" systems that would use unique physical characteristics like fingerprints to prevent minors from gambling, or global-positioning software that would pinpoint the location of a computer before allowing a gambling session to begin.

Starting almost from scratch
Even representatives of the online gambling industry say the challenges will be formidable.

"There are some systems that address those issues, but they are cumbersome ... and there's nothing out there that is 100 percent proven and accepted at this point," said Sue Schneider, chairwoman of the Interactive Gaming Council, a trade group. "I wish I could come up with it, because I think I'd be a rich person."

The other criterion--ensuring that the games were fair and honest - would be the easiest to cross off the list, most experts say, because the state could require that the gambling software log every transaction and enable real-time auditing.

While he agreed that meeting the criteria would be challenging, Sandoval, the gaming commission chairman, said last week that he was hopeful he would be given the task.

"I think it's an incredible challenge, but one that as a regulator I am looking forward to," he said. "I feel Nevada should be the one to take a hard look at it and determine whether it can be regulated properly."

If the big names of real-world gambling are given the go-ahead, they will quickly become the 800-pound gorillas of the online landscape as well, many observers believe.

Big players
"Once you get the MGMs, the Harrah's, the Trumps going online, you're going to find that they're attracting most of the players," said Frank Catania, a former New Jersey gambling regulator who is now a consultant to the gambling industry. "It's been proven that trust and comfort [on the Internet] really isn't that high unless you're shopping at a Macy's or a Nordstrom's, and the same thing will apply in gaming."

Whether or not Nevada eventually conducts Internet gambling, approval of the legislation itself represents a sharp shift in public policy toward online betting, which in recent years has been vilified as "the crack cocaine of gambling" by opponents like Kyl, R-Ariz., who failed in successive attempts to get a federal ban through Congress.

But with offshore gambling sites operating outside the reach of U.S. authorities and with state lotteries, horse racing interests and some casino operators working against a total ban, momentum appears to be shifting toward an "opt-in, opt-out" system under which the federal government will work to help states that don't want gambling keep it from electronically crossing their borders.

Rep. Robert Goodlatte, R-Va., who has taken the baton from Kyl on the issue, told last month that he intended to introduce legislation that would concentrate on cutting off the use of financial instruments, such as credit cards and money orders, by Web sites offering gambling in violation of U.S. laws.

"If a company is engaged in legal gambling, fine. ... But it's going to be misery for these illegal, unregulated, untaxed offshore gambling sites," he said.