January 09, 2012

Justice Department ruling allows for possibility of online gambling in New York

Imagine super-sized online poker games with seven-figure jackpots. Gambling apps on your smart phone that let you pull the lever on a virtual slot machine while your boss isn’t looking.

The U.S. Justice Department last month cracked open the doors for these options and many more. Quietly, with a legal opinion, the federal government cleared the way for online gambling Dec. 23. And they began a race between states to create games and generate billions in revenue, gambling experts and legal scholars say.

For decades, the Justice Department has opposed online gambling in all its forms. But when New York and Illinois asked the federal government to clarify the rules for online lottery ticket sales, the opinion went farther: The only thing illegal under federal law was sports betting over state and federal lines.

Now states are starting to sort out what to do with a new freedom that could give them the potential to make billions.

Some states are already poised to go. Washington, D.C., has already legalized Internet poker to be run by the lottery there. Nevada has legalized Internet poker. Three other states: California, Iowa and New Jersey will likely approve online poker and other games this year, said I. Nelson Rose, a lawyer and expert on gambling law at Whittier College of Law in California.

At first, states will likely limit the games so only state residents can play. But it won’t take long for states to develop compacts, as they have with Powerball lotteries, to form multi-state games and larger jackpots, Rose said.

In some cases, the states will run the games. In others, casinos will. Either way, states will be taking a cut of the money.

When New York Lottery Director Gordon Medenica received the opinion letter from the Department of Justice the Friday before Christmas, he said, he was happily surprised. It had taken two years to get an answer to his question: Can the state sell single lottery tickets online without violating federal law.

Now the state offers online subscription sales of Lotto and Mega Millions tickets. The lottery wanted to add single-ticket online sales of Sweet Millions and Powerball. The opinion was that yes, the state could do this, and much more.

“It is really up to the states and the policy makers within those states to decide what they can do,” Medenica said.

In New York, the plan is to be cautious and watch the market, he said.

Medenica said the state plans to add the single ticket sales of Sweet Millions and Powerball in the next few months. He said the state asked its longtime games vendor, GTECH Corp. of Rhode Island, to develop a computer system to sell those tickets several years ago, but GTECH and the lottery wanted to be sure it was legal. The state asked the feds for guidance in 2009 and have been letting that system sit idle since then.

Medenica said the governor, legislature and customers will dictate what the lottery does with its new freedom.

State law clearly allows the lottery to sell tickets online. But whether it allows instant online games is unclear. Poker and Quick Draw would require the legislature to act, Medenica said. Quick Draw is an online, instant game that is played in bars and other outlets licensed by the lottery. Patrons buy tickets and the winning numbers pop up on a TV screen every few minutes. Online games could transfer that game to laptops and smart phones.

None of those options has been ruled out by the lottery, Medenica said.

“It’s something we need to study and stay open to the possibility and see where the marketplace goes,” he said.

Fran Fiorito, whose Euclid restaurant in Clay does more than $500,000 in Quick Draw business a year, said he doesn’t worry that online games would cut into his business. People play Quick Draw as part of an evening out with friends, he said.

“Those people are not going to sit home and play online,” Fiorito said.

He thinks the state would be smart to offer online games. “We need the money,” Fiorito said.

The legislators who oversee the lottery and other gambling are less sure.

State Sen. John Bonacic, R-Mount Hope, chairman of the Senate Committee on Racing, Gaming and Wagering, prefers developing “brick and mortar” casinos. In his State of the State Address, the governor asked lawmakers to consider an amendment to the state Constitution that would legalize gambling and allow new casinos off of Indian land.

Assemblyman Gary Pretlow, D-Mount Vernon, chairman of the same committee in the Assembly, said he opposes online gambling.

“It’s too easy to cheat,” Pretlow said. He said he’d like to see other states legalize online games such as poker and watch the scandals unfold.

Poker is likely the first game to go online, said Bill Eadington, a gambling expert at the University of Nevada. It’s seen as a game of skill, unlike simpler casino games and slot machines. And it has a nostalgia that people like.

“Every president has played it. It’s the game of the Old West,” Eadington said.

Not to mention that it’s worth a lot of money. A study in California said legalizing online poker would generate $1.5 billion for the state government over the next decade. And once federal authorities shut down several popular online poker sites in March, that number went up to $2.5 billion, said Rose, the California gambling expert.

Eadington said slot machine games will be the most politically difficult for states to get online. They’re perceived as skill-free and highly addictive.

But Eadington also said that with the economy struggling, states will follow the pattern of the past three decades. When they have money, “gambling is an evil thing. They won’t consider it,” he said. “But when times are tough, morality takes a backseat.”

As the states begin to make their decisions, the casino industry is trying to move Congress to create federal regulations to bind states. That way, the casino operators wouldn’t have to deal with 50 different sets of laws. Or lobby 50 different legislatures. Under one congressional bill proposed in 2009, a single state would act as the regulator for the entire country. The bill was set up so a state that already has gambling, like Nevada or New Jersey, would be in charge of regulating everyone, Eadington said.

Jeff Gural, owner of the Vernon Downs and Tioga Downs racetracks, doesn’t want to see New York legalize online gambling. He watches his teenage grandchildren text and play games on their smart phones. He worries what would happen if gambling were readily available there, too.

“We’ll open a Pandora’s box,” Gural said. The casinos’ jobs will erode, he said, and people will become more addicted to gambling.

“I’d like to see it tried in another state,” he said.

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