PRV Update on U.S. Internet Gambling: New and Pending Federal and State Legislation and Regulation by Mark Hichar Partner, Edwards Angell Palmer & Dodge

2 Pending Federal iGaming Legislation: 1.The "Frank Bill" Rep. Barney Frank (D-MA) - May, 2009 Companion Tax Bill Rep. Jim McDermott (D-WA) – May, Bill to Delay the UIGEA Regulations Rep. Frank - May, "The Menendez Bill“ Sen. Bob Menendez (D-NJ) - August, Tax Reform Legislation Including iGaming Sen. Ron Wyden (D-OR) and Sen. Judd Gregg (R-NH) - February, 2010

3 The Frank Bill (H. 2267)  Licensing Requirements for iGaming operators – all types of games, except sports-betting – 5 year license term, renewable  Only licensed operators could accept bets from persons in the U.S. (Treasury would be licensing authority)  Vendors managing or controlling bets would have to meet the same suitability criteria as licensees  States and Indian tribal authorities could "opt-out"  Payment processors not liable if following State law  Status:  66 Co-sponsors as of March 15, 2010  Committee Hearing Held December 3, 2009  Now with Subcommittee of House Judiciary Committee

4 McDermott Bill (H. 2268)  License fee due from iGaming operators – 2% of amounts deposited per month  Fee for allowing unauthorized wagering accounts – 50% of the amounts deposited  iGaming operators required to file returns identifying players, their gross and net winnings, and gross wagers  Withholding of taxes on net iGaming winnings Status:  Had 5 Co-sponsors as of March 15, 2010  No Hearings or other actions.

5 The Bill to Delay the UIGEA Regs (H. 2266)  Would extend from December 1, 2009, to December 1, 2010, the deadline for compliance with UIGEA regs  Status:  55 Co-sponsors as of March 15, 2010  Committee Hearing Held December 3, 2009  No subsequent action  Probably obsolete in light of 6-month delay granted  No further delays expected  UIGEA Regs to take effect June 1, 2010

6 The Menendez Bill (S. 1597)  Licensing Requirements for iGaming operators – Only covers skill games. Sports betting excluded. – 5 year license term, renewable  Peer-to-peer poker only  Only licensed operators could accept bets from persons in the U.S. (Treasury would be licensing authority)  Monthly Fee – 10% of funds deposited for wagering -- ½ to Fed Gov’t; ½ to participating States and Tribes  States and Tribes could "opt-out"  Requires creation of a list of unlawful iGaming operators  Status: No action taken – No sponsors

7 The Wyden/Gregg Bill (S. 3018)  Similar to Frank/McDermott but not stand-alone  License fee same – 2% of wagering sums deposited  Reporting the same  Licensing requirements the same  License term the same – 5 year, subject to renewal  Same suitability requirements  Similar requirement to address problem gambling  Similar “opt-out” right for states and tribes  Status:  Bill Has 2 Co-sponsors as of March 15, 2010  No Major Actions.

8 UIGEA Developments  The UIGEA Regulations:  were to take effect December 1, 2009  delayed until June 1, 2010 (on Nov. 27, 2009)  fulfill the UIGEA's requirement that banks and transaction processors establish procedures  to permit identification of restricted transactions  to decline or block those transactions  Mid-November, 2009: MasterCard changed its Rules  Required card issuers (banks) to decline ALL iGaming payment transactions  MasterCard has issued new Card Acceptor Business Code: MC 9754 (Gambling – Horse Racing, Dog Racing and State Lotteries) – effective June 1, 2010

9 iGaming Activity in Certain States  New Jersey Bill Pending  Florida Bill Pending  California Activity  Illinois recently-enacted legislation

10 New Jersey Poker Bill filed January, 2010  Atlantic City casinos could be additionally licensed to offer iGaming intrastate to NJ residents -- all games except sports wagering  Licenses valid for one-year, subject to renewal  Annual taxes 20% of gross wagering revenue  Licensing fees $200k initially, $200k/yr thereafter  All gaming-related equipment would be required to be located within Atlantic County, NJ  iGaming terminals (could be identical to slot machines) could be placed at tracks – with tracks’ agreement

11 Pending Florida Poker Bill – February, 2010  Internet hub operators licensed to run poker sites for offering peer-to-peer (“unbanked”) intrastate poker  Hub Operator Fees/Taxes  $500k initial license application fee  10% of monthly gross receipts fee  Tax of 20% of monthly gross receipts from play  “Cardroom Affiliates” additionally licensed to provide portals to poker network – fee 4% of gross receipts  Players’ per hand fee: flat, hourly, or % of pot  Hub Operator Required Qualifications include:  licensed to operate gaming or lottery in the U.S.  licensed to conduct iGaming where legal in one or more jurisdictions outside the U.S.

12 California iGaming Activity  California lawmakers considering legalizing Internet poker to raise revenue  Morongo Band of Mission Indians in favor of their proposal  Other California Tribes are opposed  Believe fewer will visit brick-and-mortar casinos  Argue iGaming would violate tribal compacts  A California Senate committee held an informational hearing in February, 2010, but no formal Bill yet

13 Illinois Law Enacted and Amended in 2009  Contemplates a pilot program whereby Illinois lottery games would be sold intrastate via the Internet  Requires DoJ review of the implementation plan  Plan will go forward only if the DoJ “does not object... within a reasonable period of time after its review.”

14 THANK YOU Mark Hichar, Partner Edwards Angell Palmer & Dodge, LLP tel: fax: Huntington Avenue 2800 Financial Plaza Boston, Massachusetts USAProvidence, Rhode Island USA