1. Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. Latham & Watkins practices in Saudi Arabia in association with the Law Office of Salman M. Al-Sudairi. In Qatar, Latham & Watkins LLP is licensed by the Qatar Financial Centre Authority. © Copyright 2012 Latham & Watkins. All Rights Reserved. ONLINE GAMING MEETS ONLINE GAMBLING Roxanne Christ January 27, 2013 Video Game Law University of British Columbia Law School Law 450A.001

2. DOJ switched its view of the Wire Act– now says the Wire Act applies only to sports- related gambling activities (Dec. 2011) Nevada legalized interactive gambling -- online poker to start (Dec. 2011) New York Federal Judge Weinstein ruled that poker is predominantly a game of skill, not chance under the Illegal Gambling Business Act (US v. Dicristinia, Aug. 2012) Recent Legal Developments in Online Gambling 1

3. What “Online Gaming” Means to Casino Companies SPORTS WAGERING POKER CASINO GAMES BINGO LOTTERIES $ Globally, $21.4 billion in 2010 $ $30.5 billion by 2015 $ In US, potentially $10 billion (including $1.4 billion in poker) What “Online Gaming” Means to Casino Companies 2

4. Social games Social casino games Real money social games Social Video GamingSocial Casino Gaming 3 Played on web-based social networks (e.g., Facebook) and mobile social networks (e.g., Gree) $8.2 billion in 2012 (ThinkEquity) $14.6 billion by 2015 Social games played with real money that cannot be redeemed $1.6 billion in 2012 (SuperData) $2.5 billion by 2015

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6. Gaming and Gamers: The Coming Convergence Community-based, on-going engagement with massive numbers of concurrent users Game content is immersive; content and game play merge Economics focused on “owning” the player, micro-transaction revenue, data generation and advertising Write their own constitutions Competing without government- granted licenses Location-based, periodic engagement with limited numbers of players Game content is about the game, not the story Economics focused on maximizing machine and real property assets Live with government regulation Casino companies have large player databases through loyalty programs 17

7. Social Game Plays 6 February 2011 Tencent takes control of Riot Games July 2011 EA buys PopCap for about $750 million

8. 7 Social Game Plays March 2012 Zynga buys OMGPOP for about $180 million May 2012 GREE buys Funzio for $210 million

9. Online Gambling Meets Online Video Games 8 December 2011 Caesars buys Playtika October 2011 MGM, Boyd and Bwin join Bwin to offer internet poker

10. Online Gambling Meets Online Video Games 9 January 2012 IGT buys Double Down for up to $500 million May 2012 WMS buys Jadestone

11. Principal Federal Laws Affecting Online Gaming Unlawful Internet Gambling Enforcement Act Illegal Gambling Businesses Act Travel Act The Wire Act 10

12. Unlawful Internet Gambling enforcement Act (UIGEA) Prohibits accepting credits, fund transfers, or other payments from anyone “engaged in the business of betting or wagering, in connection with the participation of another person in unlawful Internet gambling” Defines “unlawful Internet gambling” as “to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received or otherwise made” 6a

13. Makes it a crime to conduct, finance, manage, supervise, direct or own all or part of an “illegal gambling business.” An “illegal gambling business” is a business that meets the following conditions: (i) violates the law of the state where it takes place; (i) violates the law of the state where it takes place; (ii) involves at least five people who conduct, finance, manage, supervise, direct, or own all or part of the illegal gambling business; and (iii) operates continuously for at least 30 days or has a gross revenue of $2,000 on any single day “Gambling “includes” slot machines, conducting lotteries, numbers games, or selling chances therein. Illegal Gambling Business Act (IGBA) 6b

14. US v. Dicristina, Judge Weinstein, E.D.N.Y. Aug. 2012) Texas Hold’em is a predominantly a game of skill, not chance The IGBA does not criminalize all activities that constitute gambling under state law. There is no reason to think Congress intended for gambling to include poker Unlike live poker, video poker is predominantly a game of chance House-banked games are more likely, but not necessarily, to be predominated by chance The IGBA was passed to close the gap in state enforcement of intra-state mob-backed gambling activities 9

15. Prohibits, in relevant part, a person or entity from using “any facility in interstate or foreign commerce” with the intent to “(1) distribute the proceeds of any unlawful activity; or... (3) otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any unlawful activity,” and thereafter performing or attempting to perform such conduct in violation of state or federal laws” “Unlawful activity” is defined to include “any business enterprise involving gambling in violation of state or federal laws” Travel Act 6c

16. The Wire Act on any sporting event or contest transmission of a wire communication “Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.” 7

17. DOJ Wire Act Opinion (Dec. 23, 2011) DOJ reversed its long-held interpretation of the Wire Act that all online gambling is prohibited by Wire Act sports-related gambling activities DOJ now says the Wire Act only applies to sports-related gambling activities The DOJ says the “ordinary meaning of the phrase ‘sports event or contest’ does not encompass lotteries” Per Judge Weinstein, “the [Wire] Act applies only to wagering on sporting events.” Open issue: what are “sports-related gambling activities” and “sporting events”? 16 8

18. Virtual Sports and Game Play Betting for Real Money The Wire Act does not define a “sporting event” or “sports- related” gambling The DOJ did not opine on what kind of games or contests other than state lotteries are not, in its view, sporting events Based on Dicristina, the reach of federal gambling laws may depend on: Need for tools to curb mob influence Absence of robust state enforcement Inability of RICO to reach the objectionable conduct 9

19. The Bottom Line for Federal Regulation Online sports-related gambling activities are still illegal under federal law Online betting that violates state law also remains illegal under federal law No new safe harbors Federal legislation to legalize online gambling looks doubtful 18 10

20. A Taste of Tribal Gaming Issues Does state-by-state approach leave Indian tribes unable to participate? Impact of online gaming on states and tribes with “exclusivity” clauses in their compact Wording of exclusivity clauses may be key (“gaming devices”) Is a home computer or mobile phone a “Gaming Device”? Where will the gaming be deemed located – i.e. in the home or on the server? 11

21. State Regulation of Online Gaming Every state and the District of Columbia have some form of applicable gaming or lottery statutes, whether gaming is conducted in person or over the internet Some states, such as Illinois, Indiana, Louisiana, Oregon, South Dakota, Washington, and Wisconsin, explicitly prohibit online gaming Nevada and Delaware have legalized online poker California has re-introduced legislation to legalize online poker Nevada has introduced legislation to allow cross-state compacts 13

22. State Regulation of Online Gaming States that define gambling to include poker: ArizonaArkansasConnecticut FloridaIdahoIllinois IowaKansasMichigan OhioOklahomaTennessee Wisconsin 13

23. Nevada’s Online Gambling Regulations– the Model of What is to Come? Limited to online poker to start Operator, service provider and manufacturer licenses offered Requires in-state presence or affiliation with entity that has in- state presence Imposes geolocation and “patron identification” technological hurdles on operator 14

24. Nevada Interactive Gaming License Applicants (green= granted) 3G Studios 888 Holdings (SP,M) ACEP (Stratosphere) (SP, M) Aristocrat (SP, M) Bally Technologies, Inc. (SP, M) Boyd (O, SP) BP Gaming (bwin sub) (SP, M) CAMS (SP-Geolocation, Patron ID) Caesars (O) Canter (SP) Fertitta Interactive Global Cash Access, Inc. (SP-Cash Access and Wagering Instrument) Golden Nugget (O) Hard Rock 15 IGT (SP, M) Lottomatic Group (Italy Based) - includes SPIELO, Boss Media, and St. Minver (SP, M) MGM Resorts (O) Monarch Casino (O) NetEffect Networks (Class 2 SP-IT Service Provider) Paddy Power (UK) Pokertrip Enterprises (SP-Marketing Affiliate) SG Gaming Shuffle Master (SP, M) South Point Poker (O, M) William Hill PLC (Europe) WMS Industries (M) Zynga

25. 2012 M&A deal value $4 billion (up 18%) 2012 M&A deal volume over 83 transactions (down 27%) 2012 average transaction value of $48.6 million 24 2012 Games Industry M&A Activity Source: Digi-Capital Global Games Investment Review

26. 25 Trend: Rising M&A Exits % M&A Activity % IPO Activity

27. The convergence of social games and casino games will increase M&A activity and deal size Cross-state interactive gambling compacts Addiction claims and self-exclusion programs 26 What to Expect

28. Roxanne E. Christ Roxanne Christ is a partner in the Los Angeles office of Latham & Watkins and is a member of the Corporate Department. Ms. Christ’s practice focuses on intellectual property, technology and media transactions, including both US- based and China-based cross-border acquisitions and dispositions of intellectual property portfolios; commercial loans secured by copyrights, patents and trademarks; securitizations of receivables arising from copyrighted works; licensing and strategic alliance agreements; and purchases, sales and restructurings of technology and media assets in bankruptcy. For several consecutive years, Ms. Christ has been recognized by Legal 500 US guides as a leading attorney in Technology, video and online gaming corporate advice and the Legal 500 US: Volume II - Intellectual Property, Media, Technology & Telecoms. As noted in the Chambers USA guide, Ms. Christ is considered by clients to be "one of the leaders in the burgeoning video game industry.” In 2010, she was selected by Los Angeles Business Journal as one of the “Top 40 Lawyers” in Los Angeles for work in interactive media. Ms. Christ previously served as Co-chair of the Publications Subcommittee of the American Bar Association’s Special Committee on Computer Gaming and Virtual Worlds. Ms. Christ handles video game industry matters for both publishers and developers as well as investment banks, commercial banks and private equity funds. Contact +1.213.891.8300 roxanne.christ@l w.com Education JD, Loyola Law School BA, University of California, Los Angeles 21