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The State of Online Gaming

By Jeff Hwang - Updated Apr 5, 2017 at 5:02PM

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An update on the state of online gaming from last week's Global Gaming Expo in Las Vegas.

"I have to deal with 535 people every day who think they are smart enough to be President of the United States."
-- Frank Fahrenkopf, President and CEO, American Gaming Association

The state of online gaming legislation in the U.S. was one of the hot topics at this month's Global Gaming Expo (G2E) in Las Vegas.

Last October, Congress passed the Safe Port Act, a no-brainer bill to improve port security. However, attached to that no-brainer bill was the completely unrelated Unlawful Internet Gaming Enforcement Act of 2006 (UIGEA), which effectively outlawed online gaming in the U.S. by making it illegal for banks and credit card companies to transfer money from U.S. customers to online gaming sites.

Oddly, the bill specifically protects state-run lotteries and horse racing, but not poker. And as a result, the legislation instantly devalued the stocks of foreign-based online gaming companies operating in the U.S., including Party Gaming, 888 Holdings, and CryptoLogic (NASDAQ:CRYP).

In the aftermath, the World Trade Organization has sided with the tiny Caribbean island nation of Antigua and Barbuda in a dispute against the U.S. claiming that UIGEA puts the U.S. directly in violation of its WTO commitments under the General Agreement on Trades and Services (GATS) by unfairly prohibiting foreign Internet gaming operators from accessing the U.S. market.

The short of it is, if the U.S. wants to withdraw from its GATS obligations and keep foreign-based online gaming operators out, it could owe in excess of $100 billion in damages to a collection of WTO member nations that includes Antigua, the European Union, India, Canada, and Japan.

Alternatively, the U.S. could comply by legalizing and regulating online gaming in the United States, which would allow the U.S. to retain gaming tax dollars that Americans will deposit elsewhere anyway.

Against that backdrop, last week during G2E, Frank Fahrenkopf (president and CEO of the American Gaming Association, the D.C.-based lobbying outfit representing casino operators such as MGM Mirage (NYSE:MGM), Harrah's Entertainment (NYSE:HET), Wynn Resorts (NYSE:WYNN), and Ameristar Casinos (NASDAQ:ASCA), as well as equipment manufacturers International Game Technology (NYSE:IGT) and Shuffle Master (NASDAQ:SHFL)) outlined the three bills currently in play to address that problem. The Poker Players Alliance (PPA), led by former U.S. Sen. Alfonse D'Amato, is in support of all three bills.

The Frank Bill (IGREA)
Rep. Barney Frank (D-Mass.) has introduced the Internet Gaming Regulation and Enforcement Act (IGREA), a bill that would legalize and regulate Internet gaming at the federal level. The bill has 40 co-sponsors. In addition, Rep. Jim McDermott (D-Wash.) has introduced a bill tied to the Frank bill that would set up a system for the taxation of Internet gaming at the federal level; this bill currently has one co-sponsor. The AGA, however, is fundamentally opposed to the taxation of gaming at the federal level.

The Wexler "Poker" Bill
Rep. Robert Wexler (D-Fla.) has introduced a bill that would exempt poker from restriction on the grounds that poker is a game of skill rather than a game of chance. This bill has 18 co-sponsors.

The Berkley-Porter Bill
Shelley Berkley (D-Nev.) and Jon Porter (R-Nev.) have introduced a bill that calls for a study by the National Academy of Sciences to determine whether the technology exists to legalize, regulate, and tax Internet gambling. The main issues are whether the technology exists to determine where the bets are coming from (jurisdiction), who is doing the betting (ID and age verification), and to address problem gambling. The AGA supports the Berkley-Porter bill, which currently has 66 co-sponsors.

Incidentally, on Nov. 14 (during G2E), a Judiciary Committee hearing on Internet gaming related to the Berkley-Porter bill was held in Washington. Testifiers included professional poker player Annie Duke on behalf of the PPA, an expert in international trade laws, a representative from Aristotle (an age verification site), and a problem-gaming expert.

While that was going on in Washington, Fahrenkopf moderated a keynote panel at G2E to discuss the Internet gaming issue. The panel featured Harrah CEO Gary Loveman, MGM Mirage CEO Terry Lanni, and D'Amato. For notes from the keynote, click here.

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Stocks Mentioned

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