Official: WTO ruling on Internet gaming doesn't affect Nevada

By Liz Benston and Richard N. Velotta
Las Vegas Sun
April 08, 2005

A Thursday ruling by a World Trade Organization appeals panel on Internet gambling won't weaken Nevada's right to regulate its own gambling industry or change the state's ban on online betting, a state official said.

It also isn't likely to affect the nation's commercial casino business and instead will more narrowly impact the horse racing industry, which is regulated by a federal law at issue in the WTO dispute, a casino industry trade group said.

In 2003 the government of Antigua and Barbuda filed a complaint with the WTO, claiming the U.S. government's actions to prohibit Internet gambling hurt its burgeoning economy as a haven for offshore betting sites and violated free trade agreements the United States made when it joined the WTO in 1995. A WTO panel initially ruled in Antigua's favor but the U.S. appealed, resulting in a final decision Thursday.

The ruling "is directed at the federal government's position that the federal government makes it illegal to gamble on the Internet," Nevada Senior Deputy Attorney General Toni Cowan said.

"What happens (within Nevada) is different," she said. "Nevada went out of its way to enable bettors to wager within the borders of Nevada."

Nevada law prohibits Internet gambling and Nevada regulators have shied away from loosening those rules since at least 2002 when the U.S. Justice Department notified regulators that betting across state lines is illegal. The state passed Internet gambling legislation in 2001 but regulators have yet to approve any regulations, saying they would be too difficult to enforce.

The ruling, at least in the short term, "doesn't mean a heck of a lot" for the commercial casinos now operating in 11 states, said Frank Fahrenkopf, president and chief executive officer of the American Gaming Association.

Nontribal casinos, a roughly $30 billion industry, have largely avoided exploring Internet gambling so as not to run afoul of regulators.

"We didn't really have a dog in this fight," Fahrenkopf said.

Antigua and the United States are far apart in their interpretation of the WTO ruling. Attorneys for the Caribbean nation said they believed the ruling would force the United States to allow Antiguan betting sites to do business with American gamblers alongside this country's casinos, opening the door to Internet gambling.

But the U.S. Trade Representative said Congress need only clarify of a single federal law for the United States to maintain a wide-ranging prohibition on Internet gambling.

That law is the Interstate Horseracing Act, a little-known federal rule that was amended in 2000 to pave the way for states to legalize Internet gambling on pari-mutuel events such as horse races. The service has emerged in several states nationwide, including California, boosting the falling fortunes of the racing industry. The WTO appeals panel said that law is inconsistent with other federal gambling laws that criminalize Internet gambling in order to maintain public safety.

Attorneys say the United States has a few options, including having Congress tighten the law to limit or forbid horse wagering on the Internet or to open the service to foreign competition. A more drastic and arduous approach would be for the United States to renegotiate its original trade agreement with the WTO.

Removing the ability to take Internet and telephone bets could have severe implications for the horse racing industry, said I. Nelson Rose, a professor of gambling law at Whittier Law School in Costa Mesa, Calif.

"The horseracing industry is too politically powerful and there are too many jobs at stake," Rose said. "Tens of thousands of people would be unemployed."

In Nevada, regulations are under way that would open the state to Internet gambling on horse races. Called account wagering, the process allows gamblers to first deposit money to set up Internet or phone-betting accounts.

Companies such as Youbet.com Inc., a public company based in California that provides account wagering services nationwide, are poised to offer the service through Nevada casinos.

Vic Gallo, the company's vice president of business development, said the WTO ruling may slow down but won't stop the process of adopting account wagering in Nevada.

Gallo said he doesn't expect either a full repeal of the Interstate Horseracing Act -- which now limits account wagering to U.S. tracks -- or an open door for foreign companies.

"It will be somewhere in the middle," he said.

Amending the horse racing act will be difficult because the racing industry is politically powerful, with key members of Congress from racing states such as California, New York and Kentucky, Fahrenkopf said.

The WTO ruling will probably have only narrow implications for the horseracing industry and won't likely to pave the way toward Internet gambling as some gambling backers have predicted, Gallo said.

"Although I'd love to see Internet gaming expand I don't think you'll see legislation passed to allow for Internet gaming or Internet poker," he said. "I don't think things will change in any dramatic way."

Fahrenkopf said the ruling could influence long-running efforts in Congress to clarify federal law by passing legislation specifically banning Internet gambling.

"We know there are (bill) drafts floating around in the House and Senate but nothing has been introduced yet," he said. "I think they're going to have to go back to the drawing board to consider what this case means and if (the bills) need to change."

Congress isn't likely to take away forms of betting that already are offered, Rose said.

Still, the WTO ruling could have broader influence longer term as gambling operators worldwide branch into other forms of remote betting, he said.

"This is a growing threat as American gambling operations go more and more to at-home betting," he said. "They are opening the door to the suggestion they are discriminating" against foreign operators.

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