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Internet Experts Slam Justice Dept Letter

3 September 2002

by Jeff Simpson

LAS VEGAS -- Internet gambling experts on Tuesday criticized a recent Bush Administration decision that would severely limit the ability of Nevada companies to cash in on the booming Internet wagering business.

Assistant Attorney General Michael Chertoff's Aug. 23 letter to Nevada Gaming Control Board Chairman Dennis Neilander ended industry hopes that the Bush Administration would reverse the Clinton administration's opinion that federal laws bar Internet casino gambling as well as sports betting.

"Until a court rules differently or Congress changes federal law, the (Justice Department) letter will likely prevent Nevada regulators from writing rules allowing interactive gaming from outside the state," Internet casino expert and Las Vegas lawyer Tony Cabot said Tuesday.

"As set forth in prior congressional testimony, the Department of Justice believes that federal law prohibits gambling over the Internet, including casino-style gambling," Chertoff wrote.

Cabot and two other Internet casino experts said they were dismayed by the Justice Department letter.

Cabot was disappointed that Chertoff didn't explain the rationale behind the announcement that all interstate Internet gambling is illegal.

"It was a bald conclusion," Cabot said. "There's no good legal analysis to support the decision."

River City Group President Sue Schneider, a St. Louis-based Internet casino expert, noted that Chertoff's letter ignored a New Orleans District Court decision that said an obscure 1961 law written to target sports betting, the Wire Act, only applied to sports betting operations, not other gambling activities.

"The letter sort of negates some of the case law people are looking at," Schneider said. "There had been total silence from the Bush administration, and I think some people were surprised they took a position."

Chicago-based Internet gambling law expert Cory Aronowitz was even more blunt.

"The DOJ needs to read the published opinions of the federal courts," Aronowitz said. "For the DOJ to say that the Wire Act applies, they have to ignore opinions that say otherwise. If the Wire Act does apply, then why aren't they prosecuting Internet casino sites? We haven't seen prosecutions of anything besides online sports betting. The DOJ can send a letter, but they're not following through with prosecutions."

But for Nevada regulators, charged by state lawmakers to make sure Internet betting complies with federal law, the Justice Department opinion effectively bans all Internet wagering that crosses state lines and restricts Nevada's Internet casino business to taking bets from in-state customers.

"At least we have some clarity from the federal government," Neilander said last week. "They said any kind of betting, whether it is sports or casino-style, violates the Wire Act and other federal laws."

Internet gambling sites, including sports betting, casino, bingo and lottery sites, are expected to win an estimated $6 billion from bettors next year, up from $4.1 billion this year and $3 billion last year, according to newly revised figures from Christiansen Capital advisors.

Between 50 percent and 65 percent of that total amount, or $2.1 billion to $2.7 billion, is wagered from the United States, Schneider said. The recent Justice Department advisory opinion makes it highly unlikely state casinos will be able to operate Nevada-regulated Internet casinos that take bets from anywhere outside Nevada, including international jurisdictions.

That leaves only Nevada as a possible market, less than 1 percent of the worldwide online betting market.

Now Nevada regulators have to decide if it makes sense to regulate interactive betting within the state, and they want public input to help make the decision.

The Nevada Gaming Commission has requested those interested in commenting on interactive gaming regulation to appear at the panel's next three meetings, on Sept. 26 and Nov. 21 in Las Vegas and Oct. 24 in Carson City.

Two things may happen that could open the U.S. and international markets to Nevada-regulated Internet casinos, Cabot said.

First, federal courts could rule that the Wire Act and other federal laws apply to sports betting and not to other gambling activities. A pending case before the 5th U.S. Circuit Court of Appeals gives the judiciary a chance to do just that, he said.

Second, federal lawmakers could write new laws that allow states to regulate Internet casinos and permit bets between regulated states.

Without those changes, the prospect of a Nevada-only market isn't all that appealing, Cabot said.

"Nevada isn't that big of a state, and the state's already pretty saturated with gambling," Cabot said.

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