PRV 1062810.1

Update on U.S. Internet Gambling: New and Pending Federal and State

Legislation and Regulation

by

Mark Hichar

Partner, Edwards Angell Palmer & Dodge

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Pending Federal iGaming Legislation:

1. The "Frank Bill" Rep. Barney Frank (D-MA) - May, 2009

Companion Tax BillRep. Jim McDermott (D-WA) – May, 2009

2. Bill to Delay the UIGEA RegulationsRep. Frank - May, 2009

3. "The Menendez Bill“Sen. Bob Menendez (D-NJ) - August, 2009

4. Tax Reform Legislation Including iGamingSen. Ron Wyden (D-OR) and Sen. Judd Gregg (R-NH) - February, 2010

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The Frank Bill (H. 2267) Licensing Requirements for iGaming operators

– all types of games, except sports-betting – 5 year license term, renewable

Only licensed operators could accept bets from persons in the U.S. (Treasury would be licensing authority)

Vendors managing or controlling bets would have to meet the same suitability criteria as licensees

States and Indian tribal authorities could "opt-out"

Payment processors not liable if following State law

Status: 66 Co-sponsors as of March 15, 2010 Committee Hearing Held December 3, 2009 Now with Subcommittee of House Judiciary

Committee

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McDermott Bill (H. 2268)

License fee due from iGaming operators – 2% of amounts deposited per month

Fee for allowing unauthorized wagering accounts – 50% of the amounts deposited

iGaming operators required to file returns identifying players, their gross and net winnings, and gross wagers

Withholding of taxes on net iGaming winnings

Status: Had 5 Co-sponsors as of March 15, 2010 No Hearings or other actions.

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The Bill to Delay the UIGEA Regs (H. 2266)

Would extend from December 1, 2009, to December 1, 2010, the deadline for compliance with UIGEA regs

Status: 55 Co-sponsors as of March 15, 2010 Committee Hearing Held December 3, 2009 No subsequent action Probably obsolete in light of 6-month delay granted

No further delays expected

UIGEA Regs to take effect June 1, 2010

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The Menendez Bill (S. 1597)

Licensing Requirements for iGaming operators – Only covers skill games. Sports betting excluded. – 5 year license term, renewable

Peer-to-peer poker only

Only licensed operators could accept bets from persons in the U.S. (Treasury would be licensing authority)

Monthly Fee – 10% of funds deposited for wagering -- ½ to Fed Gov’t; ½ to participating States and Tribes

States and Tribes could "opt-out"

Requires creation of a list of unlawful iGaming operators

Status: No action taken – No sponsors

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The Wyden/Gregg Bill (S. 3018)

Similar to Frank/McDermott but not stand-alone License fee same – 2% of wagering sums deposited Reporting the same Licensing requirements the same License term the same – 5 year, subject to renewal Same suitability requirements Similar requirement to address problem gambling Similar “opt-out” right for states and tribes

Status: Bill Has 2 Co-sponsors as of March 15, 2010 No Major Actions.

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UIGEA Developments

The UIGEA Regulations: were to take effect December 1, 2009 delayed until June 1, 2010 (on Nov. 27, 2009) fulfill the UIGEA's requirement that banks and

transaction processors establish procedures to permit identification of restricted transactions to decline or block those transactions

Mid-November, 2009: MasterCard changed its Rules

Required card issuers (banks) to decline ALL iGaming payment transactions

MasterCard has issued new Card Acceptor Business Code: MC 9754 (Gambling – Horse Racing, Dog Racing and State Lotteries) – effective June 1, 2010

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iGaming Activity in Certain States

New Jersey Bill Pending

Florida Bill Pending

California Activity

Illinois recently-enacted legislation

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New Jersey Poker Bill filed January, 2010

Atlantic City casinos could be additionally licensed to offer iGaming intrastate to NJ residents -- all games except sports wagering

Licenses valid for one-year, subject to renewal

Annual taxes 20% of gross wagering revenue

Licensing fees $200k initially, $200k/yr thereafter

All gaming-related equipment would be required to be located within Atlantic County, NJ

iGaming terminals (could be identical to slot machines) could be placed at tracks – with tracks’ agreement

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Pending Florida Poker Bill – February, 2010

Internet hub operators licensed to run poker sites for offering peer-to-peer (“unbanked”) intrastate poker

Hub Operator Fees/Taxes $500k initial license application fee10% of monthly gross receipts feeTax of 20% of monthly gross receipts from play 

“Cardroom Affiliates” additionally licensed to provide portals to poker network – fee 4% of gross receipts

Players’ per hand fee: flat, hourly, or % of pot

Hub Operator Required Qualifications include:licensed to operate gaming or lottery in the U.S. licensed to conduct iGaming where legal in one or more jurisdictions outside the U.S.

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California iGaming Activity

California lawmakers considering legalizing Internet poker to raise revenue

Morongo Band of Mission Indians in favor of their proposal

Other California Tribes are opposed

Believe fewer will visit brick-and-mortar casinos Argue iGaming would violate tribal compacts

A California Senate committee held an informational hearing in February, 2010, but no formal Bill yet

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Illinois Law Enacted and Amended in 2009

Contemplates a pilot program whereby Illinois lottery games would be sold intrastate via the Internet

Requires DoJ review of the implementation plan

Plan will go forward only if the DoJ “does not object . . . within a reasonable period of time after its review.”

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THANK YOU

Mark Hichar, PartnerEdwards Angell Palmer & Dodge, LLPtel: +1 401 276 6588 fax: +1 401 276 6611mhichar@eapdlaw.com

111 Huntington Avenue 2800 Financial PlazaBoston, Massachusetts 02199-7613 USA Providence, Rhode Island 02903 USA