State and Federal Internet Gaming Expansion

GamblingCompliance

Tribal iGaming Workshop| July 31, 2012

U.S. Office 1250 Connecticut Avenue NW Suite 200 Washington, D.C. 20036 T: +1 202 261 3567 F: +1 202 261 6583 info@gamblingcompliance.com

U.K. Office Suite 704, Capitol Tower 91 Waterloo Road London SE1 8RT T: +44 (0)207 921 9980 F: +44 (0)207 960 2885 info@gamblingcompliance.com

GamblingCompliance

GamblingCompliance

About us: GamblingCompliance provides government officials and gaming industry professionals with independent and timely regulatory, legal and policy analysis in one, fully-customizable online subscription service. Comprehensive analyses of regulatory changes and public policy discussions Monitoring Internet gaming legislation Off-reservation gaming and Carcieri Congressional hearings and conference reports Global market statistics via GamblingData

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Regulated

Expressly Prohibited

Pending Regulation

Failed Regulation

Formal/Information Discussions

2012: U.S. Internet Gambling Activity Map

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iGaming Regulated

iGaming Expressly

Prohibited

Pending Legislation to

Regulate iGaming

Failed iGaming Legislation (2012)

iGaming Legislation Repealed

Delaware Illinois California Hawaii Washington D.C.

Illinois Indiana Illinois Iowa

Nevada Louisiana New Jersey Massachusetts

Maine* Federal Govt Mississippi

Montana Pennsylvania

Nevada

Oregon

South Dakota

Washington

Utah*

2012: U.S. Internet Gambling Legislative Activity

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Nevada

Regulatory Structure: iGaming would be operated by Nevada casinos, but interactive gaming suppliers and third-party service providers need not be Nevada land-based gaming operators. Regulation would be through Nevada Gaming Commission and State Gaming Control Board. Games Offered: Poker only. Timeline: The Nevada Gaming Commission is currently processing license applications and intrastate Internet poker could go live in 2013. Meanwhile, the Nevada Gaming Policy Committee is due to complete a set of recommendations regarding interactive gaming by August. These recommendations are intended for use in drafting regulations and legislation.

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Delaware

Regulatory Structure: iGaming would be offered on a shared platform through the state’s three racetrack casinos, overseen by the lottery. This also would allow lottery ticket sales online directly through the lottery. Games Offered: Internet table games (i.e. Blackjack, poker, craps etc.), Internet video lottery (i.e. slot-type games), and Internet ticket games (i.e. Online/draw and instant ticket games). Timeline: HB333 was signed by Gov. Jack Markell on June 28, 2012. Draft regulations for the operation of iGaming are expected in early 2013.

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California

California is estimated to be the largest single market for online poker play, with more than 60% of the country’s players based in the state and more than

2 million residents playing online. Regulatory Structure: Internet poker may be offered for play by licensed card rooms, gaming tribes, racing, and ADW entities with oversight by the Gambling Control Commission and California Department of Justice. Games Offered: Poker only. Timeline: Senate Bill 1463, while still “pending,” is not set to advance before an Aug. 31 deadline.

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Illinois

Regulatory Structure: Would create the Division of Internet Gaming within the Lottery. Internet games would be presented via a single platform but can be offered through multiple affiliates. Division can license affiliates (casino and ADW operators) Games Offered: Casino games, including poker. Timeline: The 2012 legislative session formally closes Jan. 8, 2013. A veto session is currently scheduled for six days between Nov. 27 and Dec. 6.

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New Jersey

Regulatory Structure: Internet gaming operated by Atlantic City casinos and overseen by the New Jersey Casino Control Commission and Division of Gaming Enforcement. Games Offered: Casino games, including poker. Timeline: Of note, it is not an election year in New Jersey and the state legislature could consider the bill when it reconvenes in the fall. There remains a question as to whether a state-wide referendum is required before iGaming could be offered.

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Scope of Regime

• Poker only. • States may choose to opt-out (i.e. prohibit online poker in their jurisdictions). • Any state prohibition would not apply to tribal lands, if the tribe is otherwise permitted to conduct poker, unless tribe also opts out.

Regulatory Authority

• Regulatory authority shared between Dept. of Commerce and “qualified bodies” at the state and tribal levels. • Creates an Office of Internet Poker Oversight within Dept. of Commerce to license and regulate tribal online poker operations. NIGC would not regulate tribal operations. • A state or tribal regulatory body would automatically be considered a qualified body if it has regulated casino gaming for 5+ years and its regulated facilities accounted for at least 5% of total US casino gaming revenue prior to enactment. • Other state or tribal authorities may apply to become a qualified body, but only where they had regulated casino operations equivalent 0.3% of total US casino gaming revenue for 3 of 5 years prior to enactment.

Licensing • Tribal operators could apply for a license if they have operated a casino with at least 500 gaming machines. • Tribe cannot be both an operator and a regulator.

Taxes and Fees

• 16% of GGR (2% retained by federal government and 14% returned to state or tribal governments where players located and poker operators are regulated).

Effect on Compacts

• Draft states that it would have no impact on tribal-state compacts, or on any non-Internet gambling offered by tribes in accordance with IGRA.

• Required Dept. of Commerce to conduct ‘meaningful consultation’ with Indian Tribes.

December 2010 Reid Draft Internet Poker Bill

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Reid Draft v. Barton Bill

On June 24, 2011, Rep. Joe Barton (R-TX) introduced H.R. 2366: The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011. Although not identical, the Barton bill is philosophically similar to the draft Reid Bill.

Barton Bill Reid 711 Draft

Allows any state or tribe to become a qualified licensing agency upon review by the Dept. of Commerce of the qualified body’s experience regulating other forms of gambling, willingness to work with federal authorities and experience in conducting suitability reviews, among other factors.

A state or tribal regulatory body would be automatically considered a ‘qualified body’ if it has regulated casino gaming for 5+ years and its regulated facilities accounted for at least five percent of total U.S. casino gaming revenue prior to enactment. Other state or tribal authorities may apply to become a qualified body, but only where they had regulated casino operations equivalent to 0.3 percent of total U.S. casino gaming revenue for three of five years prior to enactment.

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A Reid-Kyl Lame Duck Bill? While the legislation still may be tweaked, Senate Majority Leader Harry Reid (D-NV) and Senate Minority Whip John Kyl (R-AZ) have reportedly agreed on a framework and are reaching out to members of the House and Senate for support.

Reid and Kyl are expected to try to attach their measure to broader legislation during the lame duck session of Congress following the November elections.

2012 v. 2013

Kyl is retiring this year and has expressed, multiple times, concerns over the proliferation of iGaming on a state-by-state basis.

Will the Senate retain its democratic majority in 2013?

AGA head Frank Fahrenkopf said there is a “tremendous sense of urgency” for Congress to pass an Internet gambling bill in the wake of a U.S. Department of Justice legal opinion released on Dec. 23.

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Spotlight on State Lotteries The December 2011 DoJ opinion gave the green light to states and lotteries wishing to offer ticket sales and gaming over the Internet. Since then there has been a significant uptick in state lotteries considering Internet offerings.

• Delaware, Georgia, Illinois, Maryland, Massachusetts, Missouri, New Jersey, New York, Washington D.C., West Virginia…

State lotteries could also potentially compact with other states to offer iGaming options, akin to the current system in Canada or multi-state lottery games such as Mega Millions and Powerball.

It is not yet certain how any federal bill, if one is introduced during the lame duck session of Congress, following the election, would address the lottery industry.

“It may be that will lead to the strange bedfellows, where tribes are going to have to work with commercial casino operators to limit what the lotteries can do.” -- John Tahsuda, a partner in Navigators Global, Capitol Hill government relations firm.

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State-by-State (California)

iGaming Legislation

v.

Federal iPoker Legislation

“Just looking at the math, very few tribes would benefit from a state-by state solution as opposed to a federal regulatory scheme that would allow all tribes to participate and potentially set up coalitions to share liquidity.” --Chuck Bunnell, chief of staff of the Mohegan Tribe. “Because tribes don’t really have a clear understanding of what is going on, the fallback is a federal scheme. It’s a gut-level reaction among tribes that if [Internet gaming] is run by the states, we’re going to get screwed.” --John Tahsuda, a partner in Navigators Global. “Some sort of regulation or deregulation...is going to happen. I don’t know whether it’s going to be the federal government...[or] the desperate legislature in Sacramento.... We need to be proactive...We can’t just sit on the sidelines and do nothing. Californians are spending hundreds of millions of dollars on Internet gambling; number two, not one Californian tribe or any business in this state is making any money off it....” -- Jacob Appelsmith, advisor to Gov. Brown of California

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Tribal Only

Tribal/Commercial

Commercial Only

Commercial/Tribal Pending

Land-Based Tribal and Commercial Gaming (July 2012)

How Will iGaming Affect Tribes?

How will tribal interests be treated under possible federal (or state) legislation?

What is the best way for tribes to participate in iGaming on a state or national level?

U.S. Office 1250 Connecticut Avenue NW Suite 200 Washington, D.C. 20036 T: +1 202 261 3567 F: +1 202 261 6583 info@gamblingcompliance.com

U.K. Office Suite 704, Capitol Tower 91 Waterloo Road London SE1 8RT T: +44 (0)207 921 9980 F: +44 (0)207 960 2885 info@gamblingcompliance.com

Thank You For Your Time!

Please feel free to contact me with any questions or comments through the means listed below.

Jennifer M. Webb, Esq. Regulatory & Legislative Manager Americas

T: +1 202 261 3542 E: jennifer@gamblingcompliance.com

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