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Effort to legalize online gambling may benefit from deficit debate

Washington - Ever since the U.S. Justice Department reinterpreted the scope of the 1961 Wire Act one year ago, advocates of online gambling have hoped the decision would provide them with a path to legitimacy.

But the political imperative of reducing the federal deficit - in part by identifying new sources of revenue - is what ultimately may give them an opening.

Legislation that would legalize some forms of online gaming, while increasing oversight of the industry, was drafted last fall by Senate Majority Leader Harry Reid, D-Nev., and retiring Senate Minority Whip Jon Kyl, R-Ariz. Debate on the proposal is expected to resume when the new Congress reconvenes this month.

The interest in federal legislation comes at a time when discussions in Connecticut about legalizing Internet gambling at the state level appear to be at a standstill.

A year ago, Gov. Dannel P. Malloy began talks with the state's two major casinos about such a move. The talks stalled, and state legislators - amid lobbying by the Connecticut Council on Problem Gambling - failed to take up the issue. A Malloy spokesman said recently that the governor currently "has no interesting pursuing Internet gambling."

This has left Connecticut, with the fifth-highest-grossing casino market in the U.S., lagging behind states such as Nevada and Delaware, which already have legalized certain forms of online gambling. Other states, including New Jersey, are aggressively pursuing the issue.

Meanwhile, the National Governors Association and National Conference of State Legislatures have expressed concerns that action in Congress could pre-empt state prerogatives with regard to online gambling.

The proposal by Reid and Kyl is to loosen the ban on online gambling passed in 2006 with legislation that would keep most forms of online gambling illegal, but carve out a place for legal Internet poker.

If Internet gaming were legalized under the terms of the Reid-Kyl bill in all 50 states, its market would be around $2.82 billion in the first year and $4.57 billion by the third year, estimates British consulting firm H2 Gambling Capital. A market of this size would translate into more than $91 million in new federal taxes by the third year, although that could shrink, depending on how many states took advantage of a provision in the bill to opt out of online gambling.

Kyl was among the supporters of the Unlawful Internet Gambling Enforcement Act of 2006, a ban on Internet gambling that was attached to legislation regulating port security and passed with large majorities in both houses of Congress.

Proponents of the ban cited the Wire Act as justification; the Justice Department previously had used the Wire Act to prosecute online gambling sites, shutting down such popular foreign-based poker websites as Poker Stars and Full Tilt.

But last year, following a request for clarification by New York and Illinois state lotteries, the Justice Department reinterpreted the ban on wagers across state or international borders to include only sporting events. The ruling called the ban on online gambling into question, and has prompted several states to pursue their own legislation to legalize the practice.

Efforts to legalize Internet gambling at the federal level have been in the works since 2007. In 2010, the House Financial Services Committee approved a measure sponsored by its then-chairman, Rep. Barney Frank, D-Mass., who is retiring from Congress. That bill, which never made it before the full House, would have established a program for licensing Internet gambling, while subjecting the practice to taxation.

A draft version of the Reid-Kyl proposal would allow off-track horse-race wagering, licensed poker and online lottery ticket sales, but only in states or tribal lands that opt into the bill's regulatory framework. If it becomes law, online poker would not be legal until 15 months after passage.

The Mohegan Sun casino strongly supports the legalization of online poker. Tribal Council Chairman Bruce Bozsum has testified twice before Congress on the matter.

Chuck Bunnell, chief of staff for the tribe, said the group approves of the Reid-Kyl bill's restrictions on other forms of online gaming - provisions designed to protect brick-and-mortar casinos.

"We believe in poker only, and having people play slot machines online at home is not the business that we're in," Bunnell explained. "We're in the business of creating a resort entertainment experience, not that in-home full gaming experience that we think would be detrimental to the men and women that count on the tribe for their employment and certainly for the tribe and providing services to its membership."

The trade association for the nation's casinos also supports the provisions in the drafted legislation.

"It is urgent that Congress act now to pass federal legislation to address these matters," American Gaming Association President Frank Fahrenkopf said. "Failure to act at the federal level will result in a patchwork quilt of rules and regulations as states legalize various forms of online gambling one-by-one, making effective regulatory and law enforcement oversight extremely difficult and putting consumers at risk."

Under the Reid-Kyl proposal, only operators that have already done business in a regulated environment, such as brick-and-mortar casinos, could receive a license in the first two years following enactment. Establishments that began operating after the 2006 ban on Internet gambling would have to wait five years before applying for a license unless they could prove that they have not broken any U.S. law.

Many state lotteries are opposed to the legislation because it would prevent the lotteries from offering full gaming online.

Despite its support for the bill, the Mohegan Tribe objects to a portion of the draft mandating that "if the lands of an Indian tribe are located in a state that is considered not to have opted-in under this section, the Indian tribe shall also be considered not to have opted-in under this section."

The tribe found this language "very concerning," Bunnell said, because states do not have the authority to say what federally recognized tribes can do with their land. However, Bunnell said, the tribe has been in communication with the sponsors and "both of the offices indicated that they had no desire to undermine tribal sovereignty and that they will work with us."


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