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December 23, 2011

Nevada Online Poker: What Just Happened?

Posted by daveschwartz

Yesterday, the Nevada Gaming Commission adopted regulations that will pave the way for online poker play--for real money--in the state. After the jump, I'll break down exactly what the Commission passed and what it means for gambling, both in casinos and online, in the state of Nevada.

I spent most of this morning writing a detailed Center for Gaming Research Report that explains the nature of the regulatory changes. Here's the executive summary if you want the...executive summary:

On December 22, 2011, the Nevada Gaming Commission adopted amendments to its regulations that make possible the licensing and operation of online gambling operations within the state. Specifically, these regulations were amended:
• Regulation 3 (Licensing): Adds "operator of interactive gaming" and "service provider" to the list of entities that have to report "qualifying employees" to the Board.
• Regulation 4 (Applications): Creates three new categories of gaming license: manufacturer of interactive gaming systems, operator of interactive gaming, and service provider.
• Regulation 5 (Operations): Adds a new section, 5.240 Service Providers, to the regulations that currently govern the gaming operations; creates classes of service providers, defines them, and elucidates the disciplinary framework
• Regulation 5A (Operations): A new regulation that outlines exactly how online gaming will be conducted in Nevada.
• Regulation 8 (Ownership): Adds "operator of interactive gaming license, or a service provider license" to the list of licensees who must report loan/lease transactions to the Board.
• Regulation 14 (Manufacturers, Distributors, Operators): Adds language about interactive gaming systems to the devices covered and mandates that games display the rake and wagering limits.

So what does all this mean? Basically, that Nevada casinos will be able to start offering online poker as soon as they can get their systems together and get them approved by regulators.

How is all of this going to happen? There are going to be two ways casinos will offer online poker:

1. By building (or buying, or partnering with the supplier of) an "interactive gaming system" themselves. They would own it outright and run it.

2. By contracting with an "interactive service provider" to do the same.

Reason number two is why companies like Cantor Gaming have applied for licenses. They don't want to go into business for themselves--they want to operate interactive poker sites for casinos, just like the do with sportsbooks. Slot manufacturers like Bally and IGT are also looking to get into this game, though I'm not 100% sure whether their primary focus will be selling systems or providing a "turnkey solution" for casinos, where the casinos just have to get the paperwork together and can then sub-contract the operation of the online poker rooms to the manufacturers. Since this isn't the best day to get in touch with slot executives, learning that will be a job for another day.

The big question is, what does this legalization--which under current US law cannot cross state borders--do for poker? Some have speculated that it would be impossible to run online poker rooms that are accessible only to those in Nevada. I beg to differ. Currently, Nevada has 97 locations licensed to offer poker. Each of them requires people to get dressed, leave home, and drive down to them. I'd imagine that a few--probably not more than a dozen--online poker rooms could work. They wouldn't have nearly the level of action as circa 2006 Poker Stars or Party Poker, but they'd do some business. There are enough good players who would want to play in multiple games simultaneously to stock them. The big question is, where are the casual players, who would usually be feasted on by those seasoned players, going to come from?

Things will get interesting when New Jersey or California decides they also want to legalize online poker and work out a (tax) revenue-sharing agreement with Nevada and create a regulatory framework for operators (which might look just like Nevada's, and will probably favor reciprocal licensing agreements). If it's legal to accept the bet in Nevada and to place it in the other state, it's no longer unlawful internet gambling. In that case, does UIGEA really apply? You could probably ask five different attorneys and get ten different answers, but with so much money at stake, it's a question that should be asked.

It's also interesting to see what they've built into the regulations. Self-exclusion for problems gamblers is in, as is language saying that casinos have to have "robust and redundant" identification verification procedures to ensure no one who isn't supposed to gamble opens an account. Some of the burden of that will be on the account holders: they have to affirm that they won't let anyone else, presumably including minors, access their account. There's also a requirement that operators maintain, at all times,a cash, credit, or bond reserve equivalent to the sum total of all the deposited player funds. That means no Full Tilt-style fiasco, where the players' money just can't be found.

There are significant barriers to entry--it will be much easier for those who have already been through the regulatory process to get licenses quickly. But it seems like an equitable system.

Bottom line: this is good news for gamblers who want to play poker online; if they live in Nevada, they'll be able to play online in a few months. It's good news for casinos and slot manufacturers, who get a nice sandbox to test their online systems in. And it's good news for Nevada, which now establishes itself as the leader in U.S. online gaming regulation.


Read archived comments (3 so far)
December 26, 2011 4:40 AM Posted by socalduck

While poker seems to be the primary draw, is there anything in these new regs that would prohibit other online gaming from being offered, e.g., blackjack?

December 27, 2011 2:46 AM Posted by Dr.Dave

Reg 5A specifically says poker only. It would take another reg change to add the other games, which will probably happen someday.

January 16, 2012 3:20 PM Posted by Vegas Pundit

Thanks for the very in-depth analysis.

Everyone in the online casino affiliate industry - who were so unceremoniously thrown out of the US market a few years back - are chomping at the bit to get back into the biggest market in the world.