CRUNCH TIME for Web Gambling
by Chris Krafcik
October 1, 2010
With mid-terms looming, regulation faces a steep climb up Capitol Hill
Speaker of the House Nancy Pelosi
Amid the escalating electoral tension in Washington, the race is on to pass two Internet gambling regulatory bills during what few working days remain of the 111th Congress.
In the nation’s capital online gaming has spent the better part of 15 years on the political back burner, and though momentum is finally gathering behind legalization and taxation, supporters have had to fight tooth and nail for even the slightest of gains.
This summer, however, marked a turning point.
In July, a bill authorizing Internet gambling between and among participating states and Indian nations passed the House Financial Services Committee by a 41-to-22 vote.
Significantly, that vote was the first on any such bill in Congress — ever.
“The committee’s bipartisan vote to approve the legislation was nothing short of historic,” says Michael Waxman, spokesman for the Safe and Secure Internet Gambling Initiative, a U.S.-based public relations group financed by European online gaming interests.
The bill, HR 2267, is sponsored by Rep. Barney Frank (D-Mass.), who chairs the Financial Services Committee and counts many of the gambling industry’s top operators — from Harrah’s Entertainment to PokerStars — as campaign contributors. Frank’s legislation is companion to HR 4976, a separate bill sponsored by Rep. Jim McDermott (D-Wash.), that establishes tax-collection rules to which online gaming operators would have to adhere.
The bills have been under consideration in Congress since 2007, but as the recession has taken hold and lobbying spend from supporters has risen, Internet gambling has been treated increasingly as a multibillion-dollar job-generative reservoir just waiting to be tapped. Congress’ bean-counting agency, the Joint Committee on Taxation, has estimated online gaming could generate between $10 billion and $42 billion in new revenue by 2019, depending on the number of states and tribes that opt into a federal regulatory program.
“The best reason for these bills is the prospect of revenue that this country so desperately needs,” Rep. Brad Sherman (D-Calif.), who opposed Internet gambling regulation for many years but is now considering whether to endorse it, said at a hearing for Frank’s bill in July.
Although arguments about online gaming’s positive fiscal impact have won over more skeptical politicos than, say, Frank’s fiery soliloquies about personal freedom, the bills remain long shots to become law before Congress adjourns sometime this fall.
Perhaps the biggest challenge is time itself — or a lack thereof.
Congressman Barney Frank
The House and Senate reconvened on September 14 but were scheduled to break for the elections on October 8, leaving only a handful of regular-session days to shepherd HR 2267 and HR 4976 through both chambers.
“With the shortened calendar and tight electoral races, I really don’t know what’s going to happen,” says Frank Fahrenkopf, who heads the American Gaming Association, the federal lobbying arm of the U.S. commercial casino sector and the country’s most influential gambling industry group.
Fahrenkopf points out, moreover, that McDermott’s tax bill had still to clear the House Ways and Means Committee, and that a markup in that committee — where the bill, as well as proposed amendments, are voted on — had not been scheduled as of press time.
Sources close to McDermott’s office said the congressman would try to schedule something in late September. If his bill is approved in committee it may be brought before the full House, along with Frank’s, for a floor vote.
Frank has long expressed preference for the floor-vote route and has enthusiastically skewered Republican Party leaders for their role in attaching the Unlawful Internet Gambling Enforcement Act to an unrelated port-security bill just before the 2006 mid-term elections.
“I don’t believe in those shenanigans,” Frank said pointedly at a hearing for his bill in July. “This is much too controversial to slip through without a vote.”
Standing between those bills and a floor vote, some industry lobbyists say, is House Speaker Nancy Pelosi (D-Calif.), who is reluctant to schedule one for fear that it will place vulnerable members of her party squarely in the crosshairs of Republican mudslinging on the campaign trail.
“Speaker Pelosi is not very fond of Internet gaming,” says one consultant who is retained by commercial casino operators to lobby Internet gambling in Washington. “She won’t take up the bills until she sees that there’s enough support on the floor to pass them, and I don’t think we’re at that point yet.”
At present, Internet gambling supporters — which, according to federal lobbying expense reports, include a growing number of Las Vegas-based casino operators — find themselves between a rock and a hard place. On the one hand, little time remains to pass the bills by regular order, as Frank wishes; on the other, to wait until 2011 could mean dealing with a newly elected Republican majority in the House, Senate, or both. It should be noted that not all Republicans oppose Internet gambling regulation, but, historically, party leaders like Sen. Jon Kyl of Arizona have flogged the issue to win support from America’s increasingly large moral-conservative voting bloc.
Says Fahrenkopf, who once chaired the Republican National Committee: “If Frank’s and McDermott’s bills don’t pass this year and Republicans win back a majority in the House we’re not sure yet what will happen because a lot depends on who the newly elected members will be. We also don’t yet know what the need for new revenue is going to be. There’s a lot of economics in play here because of the dire financial situation that the country’s facing.”
One stratagem that has become a mainstay on the K Street rumor circuit, meanwhile, involves pushing the bills through a so-called lame-duck session, in which lawmakers meet after the November elections to consider various items of business. Washington consultants and the gambling industry clients that retain them, though, have provided frustratingly little detail on how this scenario would play out.
For the Senate, Majority Leader Harry Reid (D-Nev.), has penciled in lame-duck legislative hours during one week in mid-November and a period still to be determined in December. As of press time, no such plans had been publicized by House leaders.
THE 'FAIRNESS' ISSUE
Senate Majority Leader Harry Reid
Although the divisions between special interest groups are as numerous as they are complex, the dividing line falls principally between the two biggest-spending lobbying camps: Nevada-licensed land-based operators and online gaming companies domiciled in Europe and the Caribbean.
In Las Vegas, a coalition of major casino operators now supports legislation that authorizes online poker, exclusively, with federal and state officials sharing regulatory power, according to highly placed industry sources there. In addition, the coalition is seeking a “level playing field” with offshore operators like Full Tilt and Absolute Poker, which, since 2006, have had the U.S. Internet market largely to themselves. One idea being discussed, sources say, is a stand-down period during which offshore operators would be required to purge their U.S. customer data bases prior to lawfully re-entering the market — a policy France has undertaken to implement under its newly enacted online gaming regulatory framework.
Offshore operators, for their part, are hoping to secure a “pathway to citizenship” under the Frank and McDermott bills, one that allows them to make their case for licensure before a state or federal regulatory commission. Although Frank’s bill now includes language that would prohibit some offshore operators from securing licensure because they have accepted U.S. wagers — illegally, according to the U.S. Justice Department — it has not stopped others from taking a glass-half-full view of their chances. In a recent press release, PokerStars, which continues to accept American customers, said the bill’s language would not adversely its chances for licensure, adding that according to numerous legal opinions it has received, “Its activities in the [United States] are and at all times have been legal.”
“They don’t believe what they’re doing is illegal, and they’re ready and willing to make that argument before licensing commissions or courts,” says one lobbyist working for some of the top offshore operators in Washington.
If Nevada and offshore operators fail to broker a compromise — meaning that one side perceives the other is receiving too big of a competitive advantage — both camps possess the requisite lobbying capital and connections to derail Frank’s and McDermott’s bills.
The possibility of ongoing political gridlock over Internet gambling, therefore, remains very real.
“If you think of a scenario where an incumbent operator like PokerStars goes from illegal one day to legal the next, and gets to keep their U.S. customers, that’s not even worth doing,” says a high-level representative of one of Las Vegas’ most successful casino operators. “That’s unfair, and you’ll see most everybody in the traditional gambling industry go negative quick on Frank’s or any other bill.”
Further complicating matters is where Reid, who is running for re-election in November against a surprisingly strong challenge from a relatively unknown Republican, will land on the issue of Internet gambling regulation. A recent article in The Reno Gazette-Journal claims that Reid told casino executives in Northern Nevada that he supports legalizing Internet poker, only. That admission, the paper said, set off alarm bells among those executives over potential job losses and revenue cannibalization at their properties.
When contacted by Casino Journal, a spokesman for Reid neither confirmed nor denied that the senator had endorsed online poker.
“Senator Reid has been clear that he will fight any effort that threatens jobs in Nevada,” says Tom Brede, Reid’s press secretary in Nevada.
Because Reid, as majority leader, has the power to set the Senate’s legislative agenda, his support is considered imperative by all special interests currently lobbying Internet gambling in Washington, whether they be offshore or on. There are fears, however, that his rumored backing of online poker will be exploited to negative rhetorical effect by his electoral opponent, former Nevada Assemblywoman Sharon Angle, thus forcing him to drop that support and with it any hope for the Frank and McDermott bills in 2010.
Indeed, in comments to The Gazette-Journal, Jerry Stacy, a spokesman for Angle’s campaign, accused Reid of presiding over rising unemployment in Nevada and likened Internet gambling regulation to a “job-killing measure”.
One of Reid’s biggest political supporters, Harrah’s Entertainment — which is active in Internet gambling outside the United States and strongly supports U.S. regulation — has spoken out in his defense, albeit indirectly.
“We’ve done pages of studies, and what you see is that businesses that did not leverage the Internet are now out of business,” says Jan Jones, the company’s senior vice president of corporate communications and government relations. “Those casino executives from Northern Nevada had better be praying that this state and this industry takes Internet play away from foreign operators, because it’s going to be what protects our jobs and our future.”
For Internet gambling regulation to pass this year in the face of elections that could see substantial Republican gains in both the House and Senate, supporters will have to mount a full-court press with their political allies in Congress. To circumvent the difficulties posed by moving both bills by floor vote, there will undoubtedly be pressure from special interests to attach them to other legislation. That pressure, however, is likely to go unheeded without Frank’s blessing, which, to date, he has been unwilling to bestow.
Regardless, elbows will be twisted, horses traded, and political campaign contributions fattened, and just maybe, enough votes will be generated to see Frank’s and McDermott’s bills passed.
But with just one federal Internet gambling bill in 40 making it to passage in the last 15 years — and that one prohibitive — the waning months of 2010 offer little to be optimistic about but much about which to be curious.
Chris Krafcik is a St. Louis area-based consultant and researcher who writes about land-based and Internet gambling policy developments in the United States for Gambling Compliance and Spectrum Gaming Group.
Chris Krafcik is a St. Louis area-based consultant and researcher who writes about land-based and Internet gambling policy developments in the United States for Gambling Compliance and Spectrum Gaming Group
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