Online Gaming Pressure Mounting on Feds

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Pressure is mounting on Congress to legalize and regulate online gaming in the very near future. But the pressure isn't coming from gaming companies or poker players. If Congress does act soon, it will be pressure from states that are working to regulate and tax online gaming themselves that forces it to act.

States vs. Feds
Right now states like Nevada, New Jersey, Iowa, and others are getting ready to pass legislation to legalize and regulate online poker and lotteries. With 51 (including Washington, DC) potential sets of rules and tax structures, the pressure is on Congress to pass a bill that would regulate gaming on a federal level.

This isn't the forum for a state versus federal jurisdiction debate, but I will take time to point out whom each side will benefit.

A Washington money grab
If the Feds end up regulating online gaming in some way nationwide, there's no question that the advantage goes to large gaming companies with the brand recognition and infrastructure to expand quickly into the new market. I have said that Caesars Entertainment and the partnership between MGM (NYSE: MGM  ) , Bwin.Party, and Boyd Gaming (NYSE: BYD  ) will take a lion's share of the play. The two gaming sites would be able to offer the best-known names in poker like the World Series of Poker, the Bellagio, and Caesar's Palace. They would also have the ability to quickly build a critical mass of players from a massive database of previous visitors.

Las Vegas giants Wynn Resorts (Nasdaq: WYNN  ) and Las Vegas Sands (NYSE: LVS  ) would be players as well but the impact won't be as big as companies with more casino offerings.

A free-for-all across the country
If the states win out the landscape becomes much more convoluted. It also opens the door for local casinos to capture a piece of the action. Ameristar Casinos (Nasdaq: ASCA  ) , Penn National, and Boyd Gaming all have casinos around the country and would stand a better chance against MGM and Caesars if states controlled licenses.

State regulation would also open up the business to new companies that could compete on a local level but not on the national level. The question then becomes: Who can build enough critical mass to build a strong business?

Online gaming is coming
No matter what happens, it appears the online gaming push is going to come to a head in the next few months. If Congress acts and passes regulation, the impact is fairly predictable, with major companies winning the race. But if states begin rolling out regulations the business may become a Wild West of operators.

Poll: Who will end up regulating online gaming?

  • A1: The Feds
  • A2: States
  • A3: I'm not getting my hopes up either way.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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