Governors: Leave Online Gaming Regs to States

  • October 26, 2012
  • By Jim Malewitz

U.S. governors are concerned about federal efforts to regulate Internet gambling, an industry some are hoping will help plug state budget gaps.

In a letter sent to Congressional leaders on Thursday (October 25), the National Governors Association criticized draft legislation proposed by U.S. Senators Harry Reid and Jon Kyl that would bar all types of Internet gambling except off-track horse wagers and licensed online poker, while also allowing states to sell lottery tickets online.

“As you know, states that authorize gaming in whatever form derive significant revenues critical to help fund programs for education, senior citizens, military veterans, and other important services,” said the letter, signed by Pennsylvania Governor Tom Corbett and Kentucky Governor Steven Beshear. “We urge Congress to engage with us during the entire legislative process on matters like this that could preempt or otherwise alter the authority of states.”

The Congressional push to regulate online gaming follows the U.S. Department of Justice's announcement last December that the Wire Act, which prohibits types of interstate wagering, applies only to a “sporting event or contest.” Other types of gambling, such as online poker — previously thought to be illegal — would fall outside its scope.

That ruling spurred many states to consider authorizing and regulating online gambling. Only Delaware and Nevada have legalized it, but lawmakers in six other states have proposed legislation, according to the National Conference of State Legislatures (NCSL). Utah, on the other hand, has passed legislation prohibiting online gambling.

It's not clear how much revenue online gambling would yield for each state. Delaware projects it could take in $3.75 million in its first half year. In Iowa, a state study found annual revenues could range from $3 million to $13 million. 

Congress' draft bill, which Reid told The Hill is still a work in progress, would let states decide whether to opt in to the federal structure. The legislation would tax revenue from online gambling at 16 percent — 70 percent of which would go to the state or tribal governments where the game was played, while 30 percent would go to the state that issued the license to the site.

But many state officials are frustrated with the proposal, seeing it as a federal power play that could restrict revenues. The bill would bar states from creating a broad category of online games imitating those found in casinos, such as slot machines.

“It's frustrating because (states) are overseeing a successful stewardship of the gaming industry,” NCSL's James Ward told The Hill. “It's not clear why any federal intervention is necessary. ...It's a sensitive topic for the states any time you talk about preemption.”

But not every governor is shooting down the legislation. Nevada Governor Brian Sandoval wrote his own letter to Congressional leaders, this one calling it a “sensible approach,” the Los Vegas Review-Journal reports.  

States have proven they can regulate brick-and-mortar gaming, but the Web “has introduced a borderless element that state regulation alone cannot address,” the governor wrote.

As the Review-Journal notes, Nevada stands to gain the most from the Reid-Kyl bill. That's because the state has already begun regulating the industry, and it has granted licenses to operators, setting it up to receive a chunk of the revenue specified in the bill.