Details of proposed online gaming bill emerge

WASHINGTON - A bill being drafted by key senators would reshape online gaming, legalizing poker over the Internet but outlawing most other forms of gambling on the Web, according to a summary circulating on and off Capitol Hill.

The bill has yet to be finalized and formally introduced, but it faces long odds of passing Congress in an upcoming lame duck session. Other bills that seek to legalize Internet poker similarly have stalled.

The outlines of this latest push have been known for some time, but a four-page document obtained this week fills in details, including its creation of the Office of Online Poker Oversight, which would set standards to guard against cheaters and shield minors and problem gamblers.

The draft also proposes a 16 percent "online poker activity fee" that would be paid monthly by licensed operators, with most of the proceeds funneled to states and Indian tribes.

States and tribes would have to "opt in" to allow their residents to play poker online. The government would designate at least three entities, one of them probably the Nevada Gaming Control Board, to share initial regulation powers with the new federal office.

In another probable nod to Nevada, licenses for the first two years would be granted to already-regulated operators of land-based casinos "of a certain size and type," or manufacturers of regulated gaming devices.

But no operator could get started for at least 15 months to ensure a level playing field.

"Internet poker cafes" or other shops created solely for players to congregate would be prohibited.

The effort by Senate Majority Leader Harry Reid, D-Nev., with Sen. Jon Kyl, R-Ariz., and Sen. Dean Heller, R-Nev., has cheered poker enthusiasts and casino corporations eager to tap into the billions of dollars already being wagered by players at offshore websites.

At the same time, it has caused trepidation among states wary of a federal power grab and among tribal leaders suspicious that any bid to legalize online gaming would tilt to Las Vegas and away from their reservations.

Gaming consultant Joseph Kelly, a business law professor at State University of New York College at Buffalo, said the summary confirms the views of both promoters and critics.

"The draft seems to be very far reaching. It's very comprehensive," he said.

But Kelly added, "It needs an awful lot of work and an awful lot of discussion. All the state entities that now are frowning on federal regulation, this will get them even angrier.

"They want Internet gaming to be a state matter," Kelly said. "This almost does the exact opposite."

While legalizing Internet poker, the measure would reverse a December reinterpretation by the Justice Department that the 1961 Wire Act, which had prohibited gambling over "wires," applied only to sports betting and not other forms of online gaming.

Because of the reinterpretation, 16 states are moving on their own to legalize online gambling within their borders, including expansions of lottery-style games.

The Reid-Kyl bill could stop those efforts because their plan declares all Internet gambling to be prohibited, except for off-track horse-race wagering and licensed poker.

The bill imposes limitations on online lotteries. While states would be able to sell tickets online for daily lotteries, they would be prohibited from developing lottery games that could mimic slot machines.

Advocates of a national approach argue that a patchwork of state laws and regulations would stymie online gaming.

"The overall effect of the bill is to strengthen federal prohibitions on Internet gaming by expanding those prohibitions to include the vast majority of the expansive Internet gambling that the ... legal opinion effectively permits," according to the bill summary.

According to the bill summary, online gaming authorized, licensed and regulated by states as of May 1 would be preserved. Kelly noted Delaware became the first state to allow full online gambling but didn't do so until June.

The legislation developed from an agreement between Reid and Kyl, who long has warned against growth in online gaming and believes the Justice Department opinion must be reversed.

The bill has drawn new attention after Reid and Heller got into a dispute this week over the strategy to get the legislation passed.

With Congress expected to recess next week for the November elections, a postelection lame duck session would provide the final opportunity to move gaming legislation this year.

Hopes for a bill "have become slimmer than a model on the Atkins Diet," poker blogger Jamie Hinks wrote on Thursday.

Contact Stephens Washington Bureau Chief Steve Tetreault at stetreault@stephensmedia.com or 202-783-1760. Follow him on Twitter @STetreaultDC.