I wanted to sit down and pull together some thoughts on H.R. 1174 (The Internet Gambling Regulation, Consumer Protection, and Enforcement Act). This bill was introduced in the House of Representatives by Rep. John Campbell (R-CA) this past Thursday, has two Democrats and one Republican as co-sponsors, and has been referred to three House committees: Financial Services (on which Rep. Campbell and the co-sponsors all sit), Judiciary, and Energy and Commerce.
There\’s not a great deal that I can say about the substantive provisions of H.R. 1174 that has not already been said. I have read one version of the proposed new bill. As pointed out in the Financial Services Committee\’s press release, it\’s the same version as Rep. Barney Frank\’s (D-MA) H.R. 2267, as amended by that Committee last summer. Scarlet Robinson, Chris Krafcik, and Kevin Mathers, among others, have offered what I think are some very helpful opening comments on this measure. Chris has shrewdly pointed out that none of us should get too excited about H.R. 1174 because it has a long way to travel before becoming law if, indeed, it ever does become law in its current form (which I think is highly doubtful). This is a short post setting out some of the reasons for my thinking and setting up the Reid Bill from late last year as a comparison, where appropriate.
1. Federal Oversight – H.R. 1174 revives the concept of the Internet Gambling Licensing Program, which is to be overseen by the Secretary of the Treasury. The Secretary may both license and regulate applicants under the program and may, among other things, \”revoke, at any time and for any reason, the qualification of any State or tribal regulatory body to certify or to conduct any other regulatory or enforcement activity to carry out the purposes of this subchapter.\” The states, the various Native American tribes, and Sen. Harry Reid (D-NV) will resist this intrusion into the authority of the state and tribal gaming regulators. There is provision for powers to be \”delegated to qualified State and tribal regulatory bodies\” under H.R. 1174, but this won\’t be nearly strong enough for any number of constituencies given the authority vested in the Secretary, especially since the Secretary has the power to determine whether state and tribal regulators are \”qualfied\” to regulate Internet gaming in the first place. The Reid Bill suffered from the same conceptual defect on this score. In the Reid Bill, the Secretary of Commerce was supposed to exercise oversight over what were called \”Qualified Bodies\” and had the power to punish them if they weren\’t up to scratch – including, in principle, revoking a body\’s designation as a Qualified Body. Nevada (as only one, but probably the best, example) will abhor this kind of federal oversight of its Gaming Commission.
2. Opting Out – The Campbell Bill goes back to the opt-out principle, i.e., each state and Native American tribe that wants to opt out of the application of the measure needs to take affirmative steps to do so by giving notice to the Treasury Secretary. An opt-out provision is much less palatable to a number of the constituencies jockeying for position on regulated Internet gaming in the US than an opt-in provision, i.e., wherein each state or tribe affirmatively decides to put itself under the federal legislative umbrella on i-gaming. The Reid Bill took a more nuanced and practical approach by employing a combination opt-in/opt-out structure depending on the state. Many states, tribes, and commercial interests will not go for a blanket opt-out (as to the tribes, regardless of any \”meaningful consultation with Indian tribes regarding all aspects of this subchapter\”).
3. No Blackout – H.R. 1174 does not contain a so-called blackout period during which applicants (whether foreign Internet operators or otherwise) cannot be licensed. Remember that the Reid Bill had two blackout periods. The first blackout prohibited any licensure for 15 months post-enactment; that period applied to everyone. The second blackout was for at least two years post-issuance of the first licence. That second blackout period addressed the requirement under the Reid Bill that licensees had to be land-based casinos, racetracks, and equipment manufacturers; it was an open question whether the Secretary of Commerce was ever going to determine that any actors outside of that applicant class were \”appropriate\” for licensure. This provision in the Reid Bill received a lot of pushback from US players, who were justifiably concerned that they were going to be without a licensable online poker option for at least 15 months post-enactment. However, I don\’t think the American Gaming Association will stand for anything less than some kind of mandatory blackout period post-enactment of a federal measure. They will want time to get their offerings in order and to prohibit competition that could subsequently be licensed in the US. (I was also reliably informed last year that 15 months was as low as the land-based caisno interests were prepared to go on the blackout.) I understand US players\’ complaints and I agree with them in large measure, but a blackout period is a sine qua non of federal legislation. Interestingly, a lack of a mandated blackout – as under H.R. 1174 – may actually make it longer before anyone gets licensed. If there\’s no hard date specified in the legislation, the Secretary may face less pressure to get anyone licensed in short order.
4. Off-Shore Operators – The Campbell Bill goes back to putting up stiff barriers to current foreign operators entering a licensed US market. The bill provides that licence applicants \”may not be determined to be suitable for licensing within the meaning of this subchapter\” if they, among other things, knowingly participated in \”illegal Internet gambling activit[ies]\” post-UIGEA enactment or were owned, operated, or managed by a person who knowingly participated in such activities. This prohibition extends to a licence applicant that has purchased or \”otherwise obtained\” an entity that has accepted US bets or wagers in violation of US law (or a customer list or any part of the equipment or operations of such an entity). This reaches further than the Reid Bill, which appeared to allow for non-US operators to partner with approved entities that could themselves become licensed in the US. That is, provided that the foreign operators shut off the US market during the blackout, paid out their players, and satsified their tax liabilities, the Reid Bill provided a path to allow those operators to be acquired (in whole or in part) by US land-based gaming interests that could be licensed. Such a path doesn\’t appear to be available in H.R. 1174. If nothing else, it seems to me that the AGA will want at least the possibility to go into business with strong US-facing partners (provided they are suitably \’cleansed\’). I don\’t see these particularly high barriers to entry surviving any final push to federal regulation, although barriers of some kind will remain. (As with the Reid Bill, this point might be moot. Will a regulator – whether the NGC or the Treasury Secretary or someone else – actually license an entity that contains assets or corporations that currently conduct US-facing business? The answer remains to be seen.)
5. Poker v. Casino – H.R. 1174 goes back to a regime where more than just Internet poker would be legalized; other casino games (for example), but not sports betting, are allowed. The Reid Bill allowed for poker only. I\’m not clear that Sen. Reid or his constituents are ready for anything beyond Internet poker; I sense that facilitating contests between poker players with a rake and excluding house-banked games is as far as they are prepared to go right now.
Much more will be said and written about this bill, its prospects, its sponsors, and its detractors in the coming months. But no-one should expect a final law as passed by Congress – if anything is passed – to not have significant changes from the current draft of H.R. 1174; comparatively few actors in this drama want to go back to what came out of the Financial Services Committee last summer.
Stuart Hoegner is a gaming attorney and accountant in Toronto, Canada. He\’s a member of the International Masters of Gaming Law but would almost prefer the appellation \”International Gaming Law Maven.\” He tweets under the handle @GamingCounsel.