Nevada adopts rules for online poker licenses

23 December 2011
By Chris Sieroty

LAS VEGAS, Nevada -- The Nevada Gaming Commission on Thursday adopted rules that would let companies apply for licenses to operate poker websites in the state.

The new rules, which were approved unanimously, are designed to put the state in a position to capitalize on the lucrative online poker business, should Congress overturn the ban on Internet gambling and allow online poker to be played across state lines.

"We estimate the U.S. online poker market at $5 billion in revenue, relative to the current $24 billion global Internet gaming market and (the) $33 billion commercial casino market in the U.S.," Union Gaming Group analyst Bill Lerner wrote in a research report. "In our opinion, the commercialization of online poker is a 2013 event."

Lerner said from a commercial perspective, online poker within Nevada's borders will be marginal, however, "structurally it will become an important model for other states to follow."

However, Nevada's regulations would allow the state's casino companies to operate Internet poker sites limited to players within its borders. Some of the sites could be up and running by the end of 2012.

Several companies have already applied to be licensed once regulations are ready.

Gaming equipment manufacturers, such as International Game Technology, Bally Technologies and Cantor Gaming, and casino operators, including Caesars Entertainment Corp. and Boyd Gaming Corp., have submitted proposals.

According to the regulations, companies with other Nevada licenses would have the new title attached to their licenses while companies new to Nevada would be vetted with full licensing investigations, which usually take several months.

Licensed gaming companies seeking online poker licenses will have to prove that their technology will be able to limit play to state residents of a legal age. The guidelines approved Thursday were mandated by the state Legislature's approval of Assembly Bill 258 earlier this year, which dictated that Internet poker regulations be established by Jan. 31.

Online poker sites are also required to establish procedures to detect money laundering, fraud or other criminal activities, and to establish a cash reserve to complement money deposited by customers in their accounts.

Nevada regulators also approved operator use of a celebrity player for marketing purposes to attract players to a particular poker website, and included rules for finding of entity suitability, technology approvals, audit and record keeping, and customer enrollment.

They also spell out regulatory oversight of internal controls by the online gaming companies and establish a disciplinary process for regulatory violations.

The Gaming Commission spent about 90 minutes discussing the regulations and taking public opinions Thursday before approving the package of rules by a 4-0 vote. Commissioner John Moran Jr. did not attend Thursday's meeting.

Representatives from the gaming industry applauded the vote despite online poker being illegal in the United States.

The federal Unlawful Internet Gambling Enforcement Act of 2006 still prohibits companies from accepting payments related to online wagering, but allows several exceptions, including intrastate wagering and fantasy sports.

In other business, the commission recommended Ronald Paul Johnson's appointment as a receiver to oversee the gaming operations at the Las Vegas Hilton, soon to be called the LVH-Las Vegas Hotel & Casino.

Clark County District Judge Elizabeth Gonzalez recently appointed Johnson as the receiver for the nongaming operations at the struggling property. The Las Vegas Hilton is owned by Colony Resorts LVH Acquisitions LLC, but its lenders, Goldman Sachs Mortgage Co. and Gramercy Capital Corp., are seeking to foreclose on the property.

Gramercy Capital Chief Operating Officer Robert Foley said the lenders were seeking to take over the property to keep it running. The Hilton runs a cash flow deficit, and since July the lenders have pumped more than $36 million into the property to fund operations, he said.

Meanwhile, the gaming commission approved BREF HR LLC, a division of Brookfield Financial of New York City, as the new owner and Warner Gaming Inc. as the operator of the Hard Rock Hotel. Andrea Balkan, a controlling owner of the new parent company, told regulators that the changes in ownership had reduced the property's outstanding debt to $842 million from $1.3 billion.

Commission Chairman Peter Bernhard voted in favor of the deal, but expressed his concern that there was "still a lot of debt on the property." He said after looking at the deal's debt structure that "there is a pretty good chance of a return" on their investment.

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