One year ago, the Nevada Gaming Control Board (NGCB), challenged by Chairman Mark Lipparelli, began formally working on drafting regulations for interactive gaming. On Dec. 22, 2011, the Nevada Gaming Commission approved the regulations—the first United States gaming jurisdiction to do so. The move solidified Nevada’s position as a global gaming leader. The very next day, the Department of Justice (DoJ) issued a new legal opinion letter regarding the Wire Act of 1961. It appears the new opinion makes it possible for other states to benefit from the work being done in Nevada.
The work on interactive gaming legislation in Nevada actually began 10 years ago, when the topic was not such a hotly debated issue. There was not much of a legislative fight, Lipparelli recalls, when the legislation was initially passed. But the state still needed regulations, and the push for that came in 2010 as legislative leaders and Gov. Brian Sandoval made it clear that regulations should be a priority in the state.
“Following my election as governor, and in my state of the state address, I asked our gaming regulators to ensure that Nevada continues to set the gold standard for gaming regulation and entertainment,” Sandoval says. “While we are entering a new era in gaming, I am confident Nevada will continue to lead the industry as it evolves. Innovation is vitally important but thoughtful policy is also required, and in Nevada, we have both.”
“The motivation to take up the work of drafting regulations was driven by what appeared to be progress in Congress with national legislation,” Lipparelli recalls, “and it was important that if a bill was passed, that Nevada was prepared and able to support our industry licensees and newcomers with a proper regulatory framework.” So the work began. Each of the NGCB’s divisions were involved in the drafting process; audit, technology, enforcement and investigations all worked together, along with the attorney general’s office. In addition, NGCB staff gathered information from industry leaders and its regulatory colleagues around the world.
The NGCB spent much of 2011 circulating drafts, holding meetings, taking comments, making revisions and circulating once again. “It was a back and forth, give and take,” Lipparelli recalls.
By the time the commission meeting began in December, the issues had been hashed out. Chairman Peter Bernhard and the entire commission were ready to approve the regulations. The move was big news. “This is the first time in the U.S. that a regulatory body took up that effort and actually proposed and adopted a comprehensive set of regulations pointed at interactive gaming,” Lipparelli said.
Of course, online gaming has been up and running in Europe for years, and Lipparelli’s team has been watching and learning. Studying the existing global online gaming market helped NGCB staff come up with details included in the licensing process and technical requirements. Lipparelli says the team also did a substantial amount of in-depth research before drafting the regulations.
“The staff has had to expose themselves a great deal to the fast-changing elements in the Internet space. We interviewed several operators who are already a substantial part of the international business to understand how this business actually functions,” Lipparelli explained.
“Everyone figured out the main issues associated with Internet gaming were problem gaming, collusion, minors gambling and certification and licensing of the entities for the security of the patrons money,” Lipparelli added. The regulations take these issues head on.
Even with all of the work done behind the scenes in 2011, Lipparelli knows there will be elements or issues that come up in the future that will need to be addressed. “We’ll be revisiting the regulations from time to time to make sure that we tighten up where we need to tighten and ensure that we’re accommodating the industry where it’s appropriate,” he says. This could include statutory changes as well.
Dec. 22, 2011: Intrastate Interactive Gaming Regulations Approved
On Dec. 22, 2011—the day before a new Department of Justice interpretation of the Wire Act was released—Nevada was ready to move forward with intrastate Internet gaming, regardless of the Wire Act’s previous limitations. Everything could be done within the state of Nevada.
Following the adoption of regulations is the issuance of technical standards and internal controls. Of course, companies will also have to go through the licensing process. The NGCB will also evaluate the technology patrons would use to play Internet poker. Operators and innovators will have to demonstrate that each of the players on their network is playing from a location within the state. “If innovators are not able to provide a reasonable set of protections, the system likely wouldn’t be approved for deployment here,” Lipparelli adds. Payment processors would also have to establish the same kinds of requirements so that they could avoid any issues that would have been prohibited on a federal level.
Even with the new DoJ opinion, the same certification processes will apply. Lipparelli is concerned that people may have oversimplified the circumstances surrounding online gaming as a result of the DoJ letter. He explains: “We are not going to allow a license to a third-party Internet system’s provider and throw up a website and have everyone playing Internet poker. We do not and should not work that way. The systems have to go through certification to establish a basis for trusted play. While we will not expect protection, we all lose if that bar is set too low.”
Chairman Bernhard adds: “Our job as regulators is to protect the betting public, consistent with the requirements of law. Nevada is prepared to move ahead with appropriate consumer protections, while at the same time ensuring that Nevada’s licensees operate in accord with all federal and state requirements.”
Without any new staff members, the NGCB team will now begin processing applications. As of mid-January 2012, the following companies had applied for interactive gaming licenses in Nevada: 888 Holdings, Aristocrat Technologies, Bally Technologies, Cantor Gaming, IGT, Shuffle Master, South Point Casino and South Point Poker. Lipparelli says several existing gaming companies in Nevada began submitting their applications for interactive gaming in the fall of 2011. There are three classes of licenses: operator, manufacturer and service provider.
Manufacturers in the industry are applauding the state’s approval of regulations and many are looking forward to getting involved. “As the technology and content providers for online gaming, the suppliers that form the foundation of membership in the Association of Gaming Equipment Manufacturers (AGEM) applaud Chairman Lipparelli and Chairman Bernhard and the progressive thinking of both the Gaming Control Board and the Commission,” said Thomas Jingoli, president of AGEM and chief compliance officer at Konami Gaming. “It’s critical that Nevada maintains its leadership position on regulatory matters of all kinds for the benefit of gaming throughout the world.”
The timeline of when players in Nevada will be able to legally play poker online is not certain. Existing Nevada license holders who have pending applications will go through the process the fastest, as they are simply asking for an expansion of the license they already possess. Lipparelli expects these licenses may be approved by early summer. But, he clarifies: “Just because you are an existing licensee, doesn’t mean you can turn the switch on. A big factor will be the submission and certification of the technology.”
Service providers will have to submit their systems for technical approval. “It is difficult to estimate how quickly this could evolve but, with good preparation, you could see licenses issued in the spring and people running field trials as early as late summer,” Lipparelli says. But he reminds us that a number of variables can change those estimates, including the challenges associated with deploying new technologies and any major changes in state and national policy. On the more conservative side, he believes it’s plausible that we’ll see systems up and running near the end of 2012.
These timelines could drastically change if Congress moves on Internet gaming. “In that case, we would move with appropriate speed with as much focus and attention on integrity,” Lipparelli says. “As an agency, we have reacted to industry and market changes where we have allowed people to go live on a conditional basis to get them going faster.” But, because Nevada is the only jurisdiction in the U.S. that is currently working on approving interactive gaming applications, Lipparelli thinks they’re already ahead of the curve and may not need to rush.
Lipparelli is proud that Nevada is doing this right, in his opinion. “This is a measured, thoughtful, exhaustive process. Nevada has been a hallmark in the gaming industry. We have very good regulatory practices supported by the governor’s office and our legislative leaders.” Which he says will continue with interactive gaming.
Gaming companies already approved in Nevada will clearly have an easier time getting interactive gaming licenses. Other companies with licenses in other U.S. jurisdictions will be familiar with the licensing process. However, it will be interesting to watch foreign online gaming companies go through the in-depth investigation for the first time. This process will be like nothing they have ever experienced. “Online gaming, for the most part, emerged in unregulated markets, or markets that were not as traditionally regulated as what we would find in the U.S.,” Lipparelli reminds.
According to Lipparelli, as of January 2012, there were two to three companies from foreign markets applying for interactive gaming licenses in Nevada. The board staff will now have to walk them through the process. “They (the foreign companies) understand that going through a U.S. state regulatory process is more substantial than what they face in their own jurisdictions,” Lipparelli says. But he stands by the level of investigation and technical certification required. “Gaming licenses are a privilege and the burden is on the applicants to prove their suitability. As an industry, we have seen dramatic expansion in the past three decades while being nearly free of scandal. Sound regulatory policy has value.”
Lipparelli is proud that the regulations Nevada has enacted will continue to make it clear to operators that they have a responsibility to the player, to protect the player’s assets and give them a level of confidence that they’re getting a fair game. “All of those things, in some fashion, have to be reduced to a regulatory framework. I do not believe that’s happening in many markets throughout the world,” Lipparelli adds.
Some believe that Nevada’s regulations will add greater substance to regulatory policy in Internet gaming around the world. Lipparelli expects that the licensing process in Nevada will eventually lead to changing the processes in other markets. “Some jurisdictions may benefit from the work we have completed and talk more about a bankroll requirement, wagering accounts, system security and patron protections,” Lipparelli says. “Over the span of time, Nevada had to learn those lessons too. Despite our maturity, we are still refining.”
Dec. 23, 2011: A New Wire Act Opinion from the DoJ
As if game-changing news from Nevada wasn’t enough for the industry to analyze, the Department of Justice made its own game-changing announcement the very next day. Experts say the DoJ’s new legal opinion of the Wire Act essentially gives states the go-ahead to do what they want with Internet gaming, regardless of whether or not the financial transactions remain within the state.
The opinion was not made to create the impact it has. It was actually an answer to questions from Illinois and New York regarding the legality of selling lottery tickets to out-of-state residents using the Internet. The newly issued opinion letter stated that the Wire Act only applies to sport-related gambling activities in interstate and foreign commerce. Industry and legal experts interpret that as meaning interstate online poker is legal.
With the change, it makes perfect sense that states would team up to offer Internet gaming to a larger player base, as provinces in Canada are doing now. Lipparelli hopes this will be the final push opponents and proponents of regulating i-gaming in the U.S. will need to get something approved on a federal level. A federal regulatory framework, which would create a common set of standards and rules, is what leaders in Nevada would prefer to see.
Lipparelli says: “If you’re a congressional leader, I do not believe you can ignore the impact of the DoJ’s changed position. If you are on either side of the issue, I do not believe you blindly support unregulated and unmanaged opportunity for any of the states to do whatever they want in the area of Internet gaming which, by its nature, would ultimately cross state boundaries. As an industry, supporting a sensible national framework that gives appropriate control to states adds value to the industry overall.” Lipparelli believes that, without a national framework, the states are likely to be motivated to act on their own, in spite of the legal uncertainty that could follow.
Lipparelli tells us he has talked with a couple of state gaming directors who have expressed interest in accepting Nevada’s certifications because they are not structured to do the work on their own in a timely fashion. He says other states are considering a piece of legislation that would simply say it’s not against the law for a resident of their state to play an Internet poker site licensed by the state of Nevada. Lipparelli also says some larger states may see this as the easier, less controversial way into the Internet gaming market. He adds, “Politicians, if they can avoid some tough controversy, probably will.”
Are Nevada’s state and industry leaders interested in teaming up with other states for i-gaming? Lipparelli tells us it sounds appropriate, but the devil would be in the details. However, the state’s leaders would prefer legislation at a federal level, including the ability for states to opt in or opt out.
“We will assist and support a process that defines a national framework,” Lipparelli says. “Everyone understands that the business is ultimately driven off of liquidity and consistency in policy. While we passed a set of regulations, we’ve left it flexible enough to adapt into a piece of national legislation.”
Without a federal regulatory framework, the U.S. could end up with dozens or more states offering i-gaming under their own regulatory and technical structures. Lipparelli says: “That’s going to be complicated and probably not be the best, or even an attractive, outcome. Europe is facing this now.”
Until federal regulation is a reality, Nevada will proudly continue making interactive gaming possible for its residents and the companies that are interested by following the well-thought out regulations. “This has structure, it addresses a lot of the issues that have come up in other jurisdictions, and it creates a level playing field,” Lipparelli says. “I think we did it right.”
State leaders are analyzing what impacts the new DoJ opinion will have, but it is clear that what Nevada has in motion will continue. Now others may be able to take advantage of their work as well.
Sarah Klaphake is an Associate Editor for Casino Enterprise Management. She can be reached at editor3[at]aceme.org.
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