THE FIGHT: Licensing Issues Raised Again

This time last week, New Jersey gaming regulators had issued only one online gaming license. Today, that number is up to five. Golden Nugget, Trump Plaza, Trump Taj Mahal and Tropicana all passed regulatory muster in the last week, joining Borgata in New Jersey’s online gaming Promised Land.

For the moment, that leaves Resorts and the four Caesars properties on the outside looking in.

Caesars had itself something of a lost weekend. The big blow came on Friday, when Massachusetts gaming regulators issued a report indicating that Caesars would not be found suitable for a gaming license in connection with a Boston casino proposal. The report cited the company’s precarious financial condition ($23.5 billion in debt); purported ties with organized crime of an investor in Gansevoort, with whom Caesars was partnered (until Saturday) for a Las Vegas Strip boutique hotel; and concerns about the pre-UIGEA activities of Caesars Interactive CEO Mitch Garber.

Caesars Interactive CEO Mitch Garber

Caesars Interactive CEO Mitch Garber

Garber was appointed CEO of then-Party Gaming in April 2006, just in time for the UIGEA hammer-fall in October of that year, and continued in that role for 2 years. Although Party immediately withdrew from the U.S. after the UIGEA was enacted, the company later negotiated a non-prosecution agreement with the Feds in which it admitted to violating U.S. criminal law during those halcyon “poker boom” days. The buck had to stop somewhere with regard to those admissions; it seems Massachusetts regulators felt that it should stop with Garber.

Is this a case of a state that is new to gaming being overzealous with its suitability standards? Or are Massachusetts regulators flagging exactly the types of issues they’re supposed to?

Caesars did not appear to have any issue being licensed for online gaming in Nevada, where the company launched the real-money poker site last month. That precedent suggests that New Jersey, another “gaming” state, should license one or more of the Caesars’ New Jersey properties any day now.

But the report from Massachusetts may at least give New Jersey regulators pause – and it raises the larger question of what Caesars can expect going forward as more states decide to legalize and regulate online poker. California seems like a good bet for 2014 and several other states like Pennsylvania are sure to give online gaming a long, hard look. What view will they take of executives like Garber and Rational Group head Mark Scheinberg?

Meanwhile, back in New Jersey, none of the companies that will provide the online gaming software or systems, and none of the companies providing ancillary services like identity verification, have been licensed yet.  Division of Gaming Enforcement officials reportedly traveled to Gibraltar last week to visit the offices of several applicants and claim to be working seven days a week to get all the applications processed but simply put they’re running out of time. With one month to go before the scheduled “soft launch” of online gaming, we could be looking at a situation where DGE starts issuing “transactional waivers” to companies while it continues to vet their license applications.

A transactional waiver is a type of temporary pass that allows a license applicant to start operating prior to obtaining its license. While transactional waivers aren’t issued in a vacuum – regulators usually have an inkling about the suitability of the applicant when the transactional waiver is granted – the risk of a transactional waiver is that if DGE later decides not to issue a license to the applicant, the applicant has to stop operating. That could be quite a mess.

Industry opinion is all over the map on whether the DGE will grant licenses to companies that have had prior U.S. dealings (pre- or post-UIGEA). Some think it’s ridiculous that these companies wouldn’t be licensed; others think it would be ridiculous if they were licensed.

And don’t forget about Delaware. At the World Regulatory Briefing 2013 in Philadelphia this morning, Ed Sutor, CEO of Dover Downs Hotel and Casino, confirmed that Delaware will launch its own intrastate online gaming on October 31.

Hang on to your hats. The end of the year is shaping up to be very interesting, indeed.

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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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