THE FIGHT: Ground Shifts Back to Bad Actors

They’re not slowing down in New Jersey. After last week’s landmark decision from Gov. Chris Christie conditionally vetoing A-2578, the state’s latest online gaming bill, the State Legislature got right to work amending the bill. By Monday, word came from Trenton that the Legislature is expected to vote on a new version of A-2578, with all the changes that Christie requested, as soon as February 26.

Other than that, most of the focus this week was back in Nevada. To date, the Silver State has authorized only online poker. All other forms of online gaming remain prohibited. Yet almost as soon as Gov. Christie indicated he would approve a broad-based online gaming bill, Nevada Gov. Brian Sandoval pressed legislators to amend Nevada gaming legislation to match suit.

Since online poker is already legal in Nevada, the most interesting feature of the new Nevada amendments for our purposes is the introduction of “bad actor” prohibitions. Essentially, in its current form, the Nevada bill would prohibit any operator who took bets from U.S. customers after December 31, 2006 from receiving an online gaming license. The prohibition would remain in effect for 10 years from the date of the bill’s enactment.

We’ve seen these types of clauses before. The first federal Reid bill had one, as did an early version of A-2578. They’re a shot across the bow of operators like PokerStars, intended to remove barriers to entry for existing gaming licensees in Nevada like Caesars and MGM.

It was never going to be easy for PokerStars to be licensed in Nevada. Online gaming licenses are only available to three types of licensees: in large-population counties, “resort hotels” (a term of art in Nevada gaming law) that hold an existing gaming license; in medium-population counties, establishments with 18,000 square feet of gaming space and a host of other requirements; and in small-population counties, establishments that have been licensed for brick-and-mortar gaming for at least 5 years at the time of application for an online gaming license.

These qualifications would require PokerStars to find a suitable acquisition candidate in a medium- or large-population county. While that’s unlikely, having seen PokerStars pull off that very feat in New Jersey with its anticipated purchase of the Atlantic Club, Nevada is not taking any chances.

Never mind the fact that “bad actor” clauses are probably unconstitutional. If the clause stays in the bill as currently drafted, it will take years of litigation to get it out. And it’s not clear how the presence of that clause, if it remains, would affect any reciprocal agreements that are negotiated between states for player sharing. Would Nevada insist that any non-Nevada licensee that wishes to share players with a Nevada licensee meet certain minimum Nevada suitability thresholds such as the “bad actor” clause?

There’s sure to be a fight to get the bad actor clause out of the Nevada bill, and any other state bill in which it appears in the future. The results of these fights in the next few months are going to shape the U.S. poker industry for years to come.

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Kevin McGrady

Legislative and Politics Beat Writer: Kevin McGrady practiced corporate law in New York City for eight years before moving to Las Vegas in 2008 to join the gaming industry. Kevin is a graduate of New York University and Columbia University School of Law.
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