>> NEW DEVELOPMENTS IN JURISDICTIONS: ONLINE GAMING

UNITED STATES iGaming Developments in the Northeast By Patrick Madamba, Jr.

n December 201 1, the U.S. In the DGCA, the techni - Department of Justice (the cal term for Internet gaming is “DOJ”) publicly revealed that the “Internet Lottery,” which is Ithe DOJ had abandoned its long- defined as: held position that the Wire Act of 1961 . . . all lottery games in which prohibitions extend to Interstate transmissions of the player’s interaction with the game operated by the [Lot - wire communications relating to most forms of Internet tery] Office occurs over the In - gaming . In an opinion regarding proposals by the New York and Illinois ternet (which, for purposes of lotteries, the DOJ’s Office of Legal Counsel concluded that: [I]nterstate this chapter, shall include any transmissions of wire communications that do not relate to a ‘sporting public or private computer or event or contest ’ . . . fall outside of the reach of the Wire Act. ” In terminal network, whether linked electronically, wirelessly, other words, the Wire Act’s prohibitions apply to only sports betting. through optical networking The DOJ’s clear departure from its prior position led Internet gaming technology or other means), in - advocates and many state lawmakers to predict an onslaught of state cluding Internet ticket games, legislative initiatives legalizing Internet gaming. More than six months the Internet video lottery and 1 later, however, only tiny Delaware – whose official slogan is “The First Internet table games . State” – has enacted legislation legalizing intrastate Internet gaming . The term “Internet ticket games” Other initiatives in the Northeast have not, as yet, succeeded. refers to the sale of tickets for tradi - tional lottery games over the Internet by the Lottery. 2 The real “meat and DELAWARE potatoes” of the DGCA lies in its On June 28, 2012, the Delaware Gam - versions of table games and video lot - authorization of the “Internet video ing Competitiveness Act of 2012 (the tery (slot) offerings. Currently, the lottery” and “Internet table games.” “DGCA”) was signed into law. The state’s three video lottery agents op - The term “Internet video lottery” DGCA authorizes the Delaware erate Delaware’s “brick and mortar ” is defined as: Lottery Office to conduct traditional , i.e., Delaware Park, Dover . . . a lottery game in which lottery games over the Internet and Downs and Harrington Raceway & the player’s interaction with the also operate the existing sports lottery . With passage of the DGCA, game operated by the [Lottery] at venues other than those of video operators will be able to offer Office occurs over the Internet lottery agents, such as bars or conven - online versions of their table games through a website or network of ience stores. In conjunction with the and slot machine offerings which will a video lottery agent, rather than Lottery, the DGCA also authorizes be accessible through each racino’s at a video lottery machine in a Delaware’s video lottery agents to website and controlled centrally by video lottery facility, and in offer through their websites Internet the lottery. which the game is an Internet

6 CASINO LAWYER • FALL 2012 variation of a video lottery game, and leave the door open for persons outside the state which shall not include keno, table games, also to participate in Delaware online gaming . It and other forms of the Internet lottery. 3 excludes from the Delaware territorial limita - tion: (1) Internet gaming conducted pursuant to Patrick Madamba, Jr. The term “Internet table games” is defined as: an interstate compact to which the state is a [email protected] . . . a lottery game in which the player’s party; and (2) Internet gaming which is “not in - interaction with the game operated by the consistent with federal law and the law of the Patrick Madamba, Jr. , serves as [Lottery] Office occurs over the Internet jurisdiction in which the person is physically Counsel at Fox Rothschild, through a website or network of a video present.” 8 LLP, a national law firm with lottery agent, rather than at a The DGCA requires the Lottery Director offices coast to coast. The firm in a video lottery facility, and in which the to promulgate rules to initiate Internet gaming has one of the largest gaming game is an Internet variation or compila - “at the earliest feasible time” and “in a manner practices in the world, represent - tion of a table game or table games, pro - that provides for the security and effective ad - ing , manufacturers of vided that the game is expressly authorized ministration of such gam[ing].” 9 The Director gaming equipment, and private by rule of the Director. 4 is expected to initiate the rulemaking process in equity firms and other investors. the next few months to set-out the details for Pat has practiced in gaming law Taken together, the broadly worded defini - the DGCA’s implementation . for almost two decades in both tions for the terms “Internet video lottery” and Revenues from Internet gaming are to be private practice and in-house as “Internet table game” encompass online versions distributed generally pursuant to the pre-exist - the general counsel, chief of all traditional casino style games currently ing formulae applicable to the non-Internet ver - compliance officer and secretary played in Delaware’s “brick and mortar” racino sions of the games currently offered in the of a publicly traded gaming facilities, including slot machines, , black - racinos’ “brick and mortar” facilities, with the company , and as regulatory jack, roulette, craps, baccarat and poker. exception that the first $3.75 million of pro - affairs manager to a privately Persons twenty-one years of age and older ceeds from Internet gaming in each state fiscal held gaming company. Over the who are physically present in Delaware are per - year is to be retained by the Lottery. Under the course of Pat’s career, he has mitted to participate in Internet gaming. 5 As pre-existing formulae, Delaware racinos re - handled casino regulatory noted in the official synopsis, Delaware’s legal - tained approximately 43.89 percent of casino matters in numerous ization of Internet gaming “capitalize[s] on a revenues generated in 2011. 10 jurisdictions, including recent DOJ ruling clarifying that wagering The Lottery is expected to conduct a New Jersey, Illinois, Indiana, within a state’s boundaries does not violate fed - Request for Proposals competitive public bid - Louisiana, Missouri, Nevada, eral law.” 6 To ensure compliance with federal ding process (“RFP”) to award the contract for and Macau SAR, China. law, the DGCA expressly requires that the the host/operator of the central server to con - equipment utilized to conduct Internet gaming duct Internet gaming. T he RFP is expected is capable of verifying that the player is physi - to require a “white label system” usable by all cally present in the state at the time they engage three Delaware racinos for the offering of in such gaming. 7 The DGCA does Internet gaming.

With passage of the DGCA, racino operators will be “able to offer online versions of their table games and slot machine offerings which will be accessible through each racino’s website and controlled centrally by the lottery. ”

CASINO LAWYER • FALL 2012 7 >> NEW DEVELOPMENTS IN JURISDICTIONS: ONLINE GAMING

NEW JERSEY Internet gaming legislation continues to wend its way through the legislative process in New Jersey Internet gaming legislation “ continues to wend its way even though questions remain as to whether Governor through the legislative process Christie will sign the legislation into law if it musters in New Jersey even though ques - sufficient votes in the Legislature for passage. tions remain as to whether Governor Christie will sign ” the legislation into law if it musters sufficient votes foreign law. Casino licensees “brick and mortar” casino to apply to in the Legislature for pas - would be allowed to offer online open an account. However, the equip - sage. Last time around, in versions of all games authorized ment used to conduct Internet gaming March 2011, Governor Christie under the New Jersey Casino Control must be capable of verifying that the cited state constitutional concerns Act, including slot machines, poker, player placing a wager is physically when vetoing a bill permitting New roulette, baccarat, blackjack, craps, big present in New Jersey . Additionally, if Jersey’s casinos to offer intrastate on - six and other games. a casino licensee violates the underage line gaming. Supporters of the cur - Internet gaming prohibition more rent bills pending in the New Jersey Internet Gaming Permit Costs than once, its permit is to be revoked . Senate (S1565) and Assembly (A2578) and Taxation: assert that they have addressed Gov - A casino licensee must first obtain an Internet Gaming Service ernor Christie’s concerns and predict Internet gaming permit from the Providers: that the legislation will be acted upon NJDGE to offer Internet gaming . The Third party companies may provide by the Legislature this fall. Unlike minimum permit issuance and renewal services to casino licensees to facilitate Delaware’s legislation that provides fees are $200,000 and $100,000, re - the conduct of Internet gaming, in - only a skeletal framework for the con - spectively . The NJDGE is to establish cluding website hosting, electronic duct of Internet gaming and leaves the specific amount of such fees above commerce capabilities related to Inter - the details to the Lottery Director, the minimums. net gaming, and the provision of game New Jersey’s proposed legislation is The annual tax rate on Internet content. Revenue sharing between a lengthy and detailed. gaming gross revenue would be 20 per - casino licensee and a licensed Internet cent. Additionally, casino licensees gaming service provider is permitted . General Overview: must either pay an additional 10 per - However, an Internet gaming service Under the proposed legislation, Inter - cent investment alternative tax or par - provider must first obtain a casino net wagering sites could be hosted only ticipate in investments administered by service industry (“CSI”) enterprise by New Jersey casino licensees. All the Casino Reinvestment Development license from the NJDGE before trans - equipment used by casino licensees to Authority through payments equaling acting business with a casino licensee. conduct Internet gaming must be lo - 5 percent of a casino licensee’s Inter - Companies seeking such licensure cated within a casino licensee’s casino net gaming gross revenue. would be responsible for the full cost hotel facility in Atlantic City. Individ - of their licensure, including any inves - uals who are physically present in New Internet Gaming Accounts: tigative costs. Jersey would be able to log on to the There are strict requirements for es - The proposed legislation prohibits sites from anywhere in the State and tablishing an Internet gaming account. CSI enterprise licensure of anyone participate in Internet gaming. Addi - A person (twenty-one years of age or who has, either directly or indirectly, tionally, wagers could be accepted from older) must submit an application form knowingly and willfully committed or persons from other states and foreign approved by the NJDGE along with facilitated conduct potentially violating countries if the New Jersey Division of proof of age. The NJDGE is to spec - the Unlawful Internet Gaming Enforcement (the “NJDGE”) ify by regulation what types of proof Enforcement Act of 2006 (“UIGEA determines that such wagering does are sufficient to authenticate age . A violator”) . The licensure prohibition not violate applicable federal, state or person is not required to visit the also extends to anyone who has

8 CASINO LAWYER • FALL 2012 acquired a “significant part” of an UIGEA violator or the tainted assets of an UIGEA violator, and intends to use the UIEGA violator or tainted assets in connection with Internet gaming in New Jersey . Waiver of the licensure prohibition is, however, available. To obtain a waiver, the license applicant must demon - strate by clear and convincing evidence that the subject conduct was not unlawful.

CONNECTICUT While there was much favorable public discussion regarding Internet gaming by Gover - nor Malloy and some legis - lators in January of this Help Us Shape year , those discussions quickly While “there was fizzled out. By February, both the much favorable The Future Of Governor and the co-chair of the public discussion General Assembly’s committee tra - regarding Internet Gaming Law ditionally responsible for overseeing gaming by Governor gaming legislation publicly stated Malloy and some that they did not intend to introduce legislators in January Internet gaming legislation in the of this year, those Become A Member Of The 2012 regular legislative session . discussions quickly International Masters Notably, the Governor, even when fizzled out. of Gaming Law expressing his support , made clear that his support was limited to per - mitting the Mohegan Tribe and ” Mashantucket Pequot Tribe to offer For more information on Internet gaming. membership, visit OTHER STATES IN THE NORTHEAST www.gaminglawmasters.com While there has been some public discussion of legalizing Internet gaming by members of the legislatures of Maine, or email Melissa Lurie at Rhode Island, New York and Pennsylvania, Internet gaming [email protected] for the p legislation is not currently pending in any of these states . membership requirements and

1 a copy of the application 29 Del. C. §4803(i) (Emphasis added ). 2 29 Del. C. §4803(k). 3 29 Del. C. §4803(l). 4 29 Del. C. §4803(j). 5 29 Del. C. §§ 4805(b)(19), 4810(a) and 4826(b). 6 DGCA, Synopsis . 7 29 Del. C. §4826(b). 8 29 Del. C. §4826(b). 9 29 Del. C. §4826(c). INTERNATIONAL MASTERS OF GAMING LAW 10 See “2012 State of the States, AGA Survey of Casino Entertainment” http://www.americangaming.org/files/aga/uploads/docs/sos/aga_sos_2012_web.pdf . www.gaminglawmasters.com

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