Nevada i -Gaming

1. Nevada i-Gaming A Workshop

2. Nevada iGaming Greg Gemignani Lionel Sawyer & Collins +1 702 383 8989 grg@lionelsawyer.com

3. Agenda Topics • Clear some of the misconceptions regarding interactive gaming in Nevada • History of iGaming in Nevada • 2011 Legislative Session • AB258 • SB218 • AB213 • The Impact of the recent DOJ opinion

4. Nevada & Networked Gaming Activities in Nevada have caused some confusion in reporting and perception because of Nevada’s unique nomenclature and gaming history. Nevada uses a somewhat unique set of terms to describe different forms of networked gaming. These same terms are sometimes used in other jurisdictions, but do not always have the same meaning as they do in Nevada Additionally, Nevada’s sports wagering industry, which is unique in the U.S., adds to the confusion in understanding the of permitted sports wagering activities in the U.S.

5. Nevada & Networked Gaming • It all begins with the “Gaming Establishment” • A “gaming establishment” is any facility in which is approved for licensed restricted or non-restricted gaming. • The “gaming establishment” includes everything within the lot of the facility. • For large casino hotel resorts, this means everything within the boarders defined by the adjacent streets.

6. Nevada & Networked Gaming

7. Nevada & Networked Gaming • In Nevada “Mobile Gaming” is the term used to describe the use of portable devices to facilitate gaming within the gaming establishment. • The devices do not permit wagering outside of the gaming establishment • Currently, the devices used at a gaming establishment are only capable of being used to wager at that establishment and at no other gaming establishment. • In 2011, revisions to Nevada’s gaming statutes to permit mobile gaming devices to be used in more areas of the gaming establishment were often misreported as permitting wide area cellular phone wagering.

8. Nevada & Networked Gaming • Sports Wagering • PASPA prohibited any state or tribe from enacting or permitting sports wagering and prohibited anyone from relying on such enactment to engage in sports wagering. However there was an exemption for Nevada to continue sports wagering in a manner consistent with its conduct between September 1989 and October 1991. • Under the current DOJ interpretation, the Federal Wire Act prohibits the interstate and foreign transmission of sports bets and information assisting in the placement of sports bets.

9. Nevada & Networked Gaming

10. Nevada & Networked Gaming • Interactive Gaming or iGaming • In 2001, networked based gaming was in its infancy and was being conducted in various parts of the world on public and private networks • The Nevada legislature used the phrase “interactive gaming” to capture wide area network based gaming regardless of the type of network used as a medium. • Internet • Cable TV • Cell phone (non-internet)

11. Nevada & iGaming In 2001, the Nevada legislature enacted the first interactive/online gaming statutes in the U.S. The 2001 legislation envisioned an industry similar to terrestrial gaming, namely, one in which operators (casinos) and manufacturers (gaming device manufacturers) were the only licensed supply side participants. The 2001 legislation limited operator licenses to large casino operators.

12. Nevada & iGaming As part of the enabling legislation, the legislature required the Nevada Gaming Commission to make certain findings. Among those requirements was a requirement that the activity could be conducted in compliance with federal law. A letter from the Department of Justice in 2002 indicated that the U.S. DOJ believed that the conduct of interactive gaming would violate one or more federal laws, including the Federal Wire Act. This ended the regulatory activities related to iGaming in Nevada in 2002.

13. Nevada & iGaming • In 2006, the U.S. Congress enacted the Unlawful Internet Gambling Enforcement Act (UIGEA) • The UIGEA specifically exempted intrastate wagering from its definition of “unlawful internet wagering” • This was viewed by many states as a federal expression that intrastate gaming activities sanctioned by a state were not the subject of federal regulation or prohibition. • In 2009, Illinois and New York sent letters to the DOJ asking for guidance regarding their proposed intrastate online lottery products. • The DOJ did not respond before the proposed start date and these states began offering online intrastate lottery products.

14. Nevada 2011 Legislation • In 2011, three bills were introduced to promote interactive gaming within Nevada • AB258 – The Poker Bill • SB218 – The Omnibus Gaming Bill • AB213 – The Preliminary Finding of Suitability Bill • Each of these bills plays a role in promoting the regulation of interactive gaming and the use of interactive gaming technologies in Nevada

15. Nevada AB258 • AB258 did the following: • It removed the requirements that the Commission make the findings required in 2001 • It required the Board to draft and the Commission to adopt regulations regarding online poker, but not on an interstate basis • It allowed the Commission to issue licenses in compliance with federal law, should federal law change. • It allowed the Commission to issue interstate licenses upon a change in federal law or a change in the U.S. DOJ’s interpretation of federal law that such interstate activity can be conducted in compliance with federal law.

16. Nevada SB218 SB218 was the final bill that included concepts from other bills and was the bi-annual omnibus gaming bill. SB218 recognized that the licensed operator and manufacturer model of iGaming expressed in the 2001 legislation was an outdated concept. In response SB218 introduced the concept of a “service provider” as a licensed or licensable activity.

17. Nevada SB218 • “Service Providers” are anyone, in conduction with a licensed interactive gaming operator engage in any of the following: • Manages, administers or controls wagers that are initiated, received or made on an interactive gaming system; • Manages, administers or controls the games with which wagers that are initiated, received or made on an interactive gaming system are associated; • Maintains or operates the software or hardware of an interactive gaming system; • Provides the trademarks, trade names, service marks or similar intellectual property under which an establishment licensed to operate interactive gaming identifies its interactive gaming system to patrons; • Provides information regarding persons to an establishment licensed to operate interactive gaming via a database or customer list; or • Provides products, services, information or assets to an establishment licensed to operate interactive gaming and receives therefor a percentage of gaming revenue from the establishment’s interactive gaming system.

18. Nevada SB213 For the first time in Nevada history, a gaming investigation could begin without the applicant having first executing an agreement or initiating an activity that requires licensing. Provides assurance to licensees that an applicant is suitable. Allows for appropriate risk planning prior to expending deal making, financing or purchasing efforts.

19. New DOJ Opinion • Prior to December 23, 2011, the DOJ consistently opined, testified and reaffirmed that it interpreted the Federal Wire Act to cover all forms of wagering. • This was based on the DOJ’s view that the language of the act prohibiting the transmission of bets on any sporting events or contest covered both sporting events and contests. Also that the remaining prohibitions against information regarding winnings and information assisting in the placement never mentioned sporting events or contests. • The 5th circuit court of appeals disagreed with the DOJ regarding the interpretation of sporting event or contest, stating that sporting modifies both event and contest. • A subsequent court in Utah opined that even if the 5th circuit was right, something the court did not concede, the remaining prohibitions applied without any references to sports and were thus not limited to sports wagering.

20. New DOJ Opinion In July 2011, Senator’s Kyl and Reid, in response to the intrastate lottery activities of Illinois and New York, asked the DOJ to once again affirm its opinion that the federal wire act applied to all forms of wagering. On December 23, 2011, the DOJ issued an opinion that it now interprets all of the Federal Wire Act prohibitions to apply solely to sports wagering. Therefore the intrastate activities of the Illinois and New York lotteries were outside the scope of the Federal Wire Act.

21. New DOJ Opinion – What it is… The opinion is just that, it is the DOJ’s current opinion. A future DOJ may rescind or reverse the Obama DOJ opinion just as the Obama DOJ opinion reversed opinions of the Clinton and Bush eras. It mitigates, and during the Obama administration eliminates, the risk of federal prosecution of gambling activities under the Federal Wire Act for anything other than sports wagering.

22. New DOJ Opinion – What it is not… • It is not an opinion that online gambling is not subject to federal prosecution. • The Federal Wire Act is not the only federal gambling statute • Note Poker Stars, Full Tilt and Absolute were charged with Illegal Gambling Business Act violations not Federal Wire Act violations. • It is not a new statute or court opinion and thus does not have the force of law.

23. Questions