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Gaming Guru

Howard Stutz

Moody's believes states will be first to legalize online poker

29 April 2011

LAS VEGAS, Nevada -- A Wall Street ratings service believes the recent government crackdown on Internet poker could open the door for individual states to grab a piece of the action by legalizing the activity within their borders.

Analysts for Moody's Investors Service said in a report Wednesday there is still a chance online poker will be legalized federally in the United States, but it will take several years before the first wager is accepted.

Moody's also told investors online gambling was not a threat to land-based casinos.

The report comes in the wake of the U.S. Department of Justice's shutdown on April 15 of PokerStars, Full Tilt Poker and Absolute Poker. Federal prosecutors charged 11 individuals, including the websites' founders, with fraud and money laundering.

Peggy Holloway, a vice president with Moody's, said the government crackdown halted federal attempts to legalize Internet gambling.

"However, we believe states may view this as an opportunity and step up their efforts to legalize intrastate online gambling, particularly Internet poker, on their own," Holloway said.

Online poker is estimated to be a $4 billion-to-$6 billion-a-year business. Moody's said the casino industry views the activity as a way to grow its customer base by attracting younger gamblers.

If states were to get into the action, casino companies could benefit.

Moody's suggested that Caesars Entertainment Corp., which operates the World Series of Poker, "would have the upper hand" because of the well-known brand. Caesars is already in partnership with British online gaming company 888 on World Series of Poker Internet gaming sites in England, Italy and France.

On Tuesday, Caesars Chief Executive Officer Gary Loveman wrote in an opinion piece for that the legal actions against the online poker websites could lead to legalization and regulation of the activity.

Loveman said the shutdowns won't change the desire of millions of Americans to play online poker.

"Instead, the question is this: Should we seize the moment to legalize online poker, permit a safe and legitimate industry in the U.S., and bring these jobs and revenues home?" Loveman said. "Unequivocally, the answer is yes."

Holloway told Moody's clients legalizing and implementing online gaming was an uphill battle.

"Some politicians oppose it, some states have laws prohibiting it, regulators are concerned about monitoring it, and the Department of Justice has taken a hard line," Holloway said. "However, there appears to be enough ambiguities in the federal law that many legislators and casino operators are convinced that online gambling legislation can be successfully implemented."

With many states trying to close large budget deficits, tax revenues from legalized gambling may be too lucrative to ignore, according to Moody's.

Nevada lawmakers are still considering Assembly Bill 258, which was backed by PokerStars. The bill was originally written to authorize Internet poker in the state. Since the indictments, the bill was watered down to say Internet poker can only be legalized in Nevada once the activity gains federal approval.

"Many cash-strapped states see it as an opportunity for new revenue streams and have proposed legislation," Holloway said.
Moody's believes states will be first to legalize online poker is republished from