Online Gambling Is No Sure Bet For States Even With DOJ Ruling

The Justice Department may have paved the way for Internet gambling, but that doesn't mean everything will come up aces for online poker players. Those envisioning a boom in virtual casinos and card rooms can expect several obstacles.

That's the word from legal experts following the department's about-face announcement Dec. 23. The DOJ said it was reversing its stance that the Wire Act of 1961 prevents online lottery sales and, by implication, other Internet gambling except sports betting. The move could allow states to implement their own intrastate virtual casinos and card rooms, tapping yet another gambling revenue stream in a stale economy. With states desperate to close a combined $95 billion 2012 deficit, gambling has emerged as a possible quick fix. The payoff from Internet casinos, however, won't be automatic.

"No one can assume that it's a free ride to Internet poker, said attorney Anthony Cabot, a gaming specialist at the Lewis and Roca firm in Las Vegas.

Among the hurdles:

Sparsely populated states may lack enough gamblers: Most states are too small to support an in-state online casino. The cost of software and monitoring is too great for less-populated states to justify Internet casino play, especially poker, which requires a certain amount of players at the "table." "You have to have enough players to populate that ecosphere," Cabot said. "Little states don't have enough to make it work." Cabot wondered whether his state, the nation's casino capital, would have enough resident gamblers to support a virtual gaming site. Both the casino-affiliated computer servers and players presumably would have to be inside the state for any transactions to be legal, so states must be staked with a sufficient pool of gamblers, he said. One state could team with another to form a larger casino entity, according to authorities. Games played against the house, such as blackjack and roulette, wouldn't be a problem for smaller states, others said.

Who gets the money? Lotteries, Native American-run casinos and brick-and-mortar card rooms will all be vying for a share of the profits. In California, all three are in the mix. I. Nelson Rose, a Whittier College law professor who specializes in gambling, predicted that California would issue as many as three licenses to keep all parties happy. But he added that the lottery would likely be the loser in this scenario, with powerful Indian interests getting a hefty chunk of the action. "The tribes see [online gambling] as inevitable and something that must be shared," he said.

Online gambling hasn't been approved in most states. Only Nevada and the District of Columbia already have legalized (but do not yet host) intra-regional casinos online, leaving 49 states to push through an online gambling law if they want it. That's no sure thing, according to attorney Stephen Schrier, head of the gaming practice at the law firm Blank Rome and a former regulator for the New Jersey Division of Gaming Enforcement. Schrier said it's possible that at least one state will implement online gaming this year -- most likely Nevada as it already is entertaining bids from software makers and operators.

New Jersey could be next if an aggressive campaign by State Sen. Raymond Lesniak (D) succeeds in pushing through a bill before the Jersey legislature adjourns Jan. 9.

Another early adopter could be Iowa, a relatively prosperous state that has eyed online gambling for years. One study determined the state could net as much as $13 million in tax revenue annually as a result. Iowa began the riverboat casino trend in 1991. "Iowa likes being the first on these things," Rose said.

Nuances could be a nuisance. Every state will have issues interpreting the legalities. In Jersey, for instance, an existing law permits casino gambling only within Atlantic City, Schrier pointed out. So the conundrum is: If the computer server is in Atlantic City but the online gambler is in Trenton, where is the betting taking place? Jersey's most recent bill has decided it's where the server is. Stay tuned.

Other states might also wrestle with what constitutes an in-state gambler. Software can already let the host and law enforcement know whether a player is actually in the approved state at the time, Schrier said. A smartphone application, for example, could cut off a gambler in New Jersey as soon as he or she steps into New York. And if the host should misinterpret the law or be lax in applying it, a slew of other federal statutes, including the Travel Act, are still on the books, according to legal eagles.

While authorities agree that the Justice Department's decision is significant, it is a mere first step on the road toward legalizing casino gambling in cyberspace. This opinion could even be challenged or jettisoned, as Howard Stutz of the Las Vegas Review-Journal observed. Rose called the development a gift from the Obama administration to debt-ridden states. But it might not be a gift that starts giving as fast as many might hope.