US opinion: On your marks, get set, go!

Regulated Internet poker is coming to the United States in one form (i.e. interstate under a federal scheme) or another (i.e. intrastate under separate state schemes). But, even under a federal scheme, state regulatory agencies will play a major role in licensing and regulating internet poker. This could go in a few directions.

It appeared headed toward a regulatory scheme where, at least for the first few years, the only state regulatory agencies that could license operators, service providers and manufacturers that were not associated with Native American interests would be the states with the longest history of regulating substantial casino industries ““ more specifically the regulators in Nevada and New Jersey.

Some reasoned that experienced regulators in Nevada and New Jersey deserved this favored status because they are natural choices to establish the best regulatory practices for the burgeoning industry. Others claim this is merely a preference given to favoured states that will allow them an advantage in establishing a new industry within their state under circumstances most favorable to their own existing industry players and their own state’s tax base.

Regardless of who is right there’s another issue to consider: As the number of regulatory agencies allowed to grant internet poker licences expands, there’s a real risk of a race to the bottom. In other words, some potential operators, service providers or manufacturers will strategically choose to be licensed in a state in which it is cheaper to be licensed or one that has lower licensing standards. For example, licensing costs are higher in Nevada than any other jurisdiction in the United States. If we suppose the reason for this is that Nevada conducts the more extensive investigation, companies that may not want to spend the money or perhaps want less licensing scrutiny may chose to apply elsewhere.

In practice, different regulatory agencies can ““ and often do ““ look at different facts in a licensing investigation and come to different conclusions. Some casino companies have been licensed in some states and denied in others. Likewise, in a high-profile case, a licensed casino company was approved by one state regulatory agency to enter a joint relationship in a foreign country but was denied by another. Therefore, if a company has a particular issue ““ suppose that it accepted US players either pre or post-UIGEA ““ and the company realises that this could be a licensing issue in one state but not another, it is obvious which state the company will choose to be licensed in.

Moreover, regulatory requirements regarding operations and cost of compliance often vary between state regulatory agencies. All other things being equal, cost of regulatory compliance including licensing fees plays a role in the decision on where the company will seek a license.

While US Congress is deciding the number or qualifications of the state regulatory authorities, the simple truth is that the more eligible state regulatory authorities, the greater the potential for a race to the bottom. But, policy really trumps politics.

Anthony N. Cabot is the gaming law practice group leader at Lewis and Roca, a full-service law firm with offices in Nevada and throughout the Southwest. He can be reached at acabot@LRLaw.com