The big freeze

Earlier this year, there was considerable optimism in the gaming world that some states would finally legalise some form of online gambling, such as poker. New Jersey’s legislature was the first state to pass such a bill, but the bill was eventually vetoed by Governor Chris Christie and did not become law.

However, momentum was still building as legislators in other states continued to propose bills that attracted significant support in an era of economic hardship and budget shortfalls that appeared to make the additional taxation revenue from online gaming even more attractive.

Although the federal Unlawful Internet Gambling Enforcement Act (UIGEA) prohibits gambling-related financial transactions, it explicitly permits the states to pass legislation to permit intrastate gambling. We thought it was not surprising therefore that several states appeared eager to enact online gaming legislation.

Thus,

• Nevada was considering a bill that would permit intrastate gambling that would even have permitted online gaming licenses to be granted to companies that had already operated in Nevada without a license.
• Iowa and Florida were both considering bills that would have permitted intrastate online gambling.
• New Jersey responded to the governor’s veto by engaging in a serious effort to present a revised bill that would have been more palatable to the governor.

But this was all before Black Friday. On 15 April, 2011, the US Attorney’s Office for the Southern District of New York indicted individuals associated with some of the major US-facing online poker operators. The indictment was based on alleged violations of New York state laws that prohibit games of chance. In principle, nothing about this case should have any impact on the legislative efforts in other state, since UIGEA explicitly permits each state to pass laws allowing intrastate online gambling.

As it has happened, however, the indictments have created what some involved in the process refer to as an arctic freeze of the legislative progress in the states that have had bills in the hopper.

In Nevada, the current draft of the online gaming bill has been amended to provide that any license issued by the Nevada Gaming Commission to operate interactive gaming will not become effective until (1) federal legislation is passed that authorises the specific type of interactive gaming for which the license was issued, or (2) the Department of Justice provides written notification to the Nevada Gaming Commission that the specific type of interactive gaming covered by the licence is permissible under federal law. Essentially, under this draft, the granting of a Nevada license would be completely dependent on the viewpoint of the US Department of Justice, whose viewpoint would control the state’s actions.

Likewise, in Iowa, instead of considering the draft bill that would have legalised online gaming, the governor instead appointed a study commission to analyse the ramifications of an online gaming bill. In other words, Iowa is now back to square one and is merely analyzing the costs and benefits of legalization.

Finally, in Florida, no progress has been made since 16 April, and in New Jersey, according to state lobbyists involved in the push to legalise online gaming, all their previously scheduled meetings with Governor Christie have been postponed indefinitely.

This chilling effect on the state legislative process because of the actions of one US Attorney’s Office is quite disturbing. Further, it is even more puzzling when one considers that UIGEA explicitly permits the individual states to permit online gaming. Why should an action that is based on the views of one federal prosecutor In New York have any effect on the legislative processes of other states? That is the key question at this point.

Jeff Ifrah is a founding partner at Ifrah Law PLLC, a law firm based in Washington DC.