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Is Nevada short-changing itself by requiring interactive gaming license applicants to pay $500,000 for an initial one-year license and $250,000 a year to renew it?
That’s a question members of the 11-member Gaming Policy Committee will try to answer next month in what is expected to be its final meeting.
Gov. Brian Sandoval, who heads the committee, framed the debate at a meeting Thursday in Las Vegas during which three speakers gave presentations about the current state of online gaming, the fee structures being studied in other states and the economic development opportunities surrounding online gambling.
The issue could become a hot topic in the coming months as a steady stream of applicants seek licenses for online poker play within the state. The first licenses could be approved as soon as June 21, when the Nevada Gaming Commission meets.
The committee is expected to make recommendations to tweak the state’s online gaming legislation. The July meeting is expected to be the committee’s last, and Sandoval hopes the group will offer suggestions that could be incorporated into legislation to be considered in the 2013 session.
Anna Thornley, a senior research specialist with the Nevada Gaming Commission, told committee members that other states have higher online gaming licensing fees.
California, for example, has legislation pending that would require a $30 million license fee that would serve as a credit against monthly taxes imposed on gross gaming revenue. Just to apply for a license would cost from $1 million to $5 million.
Florida plans a nonrefundable $10 million fee credited against its 35 percent gross gaming tax in addition to an annual licensing fee of $500,000. Massachusetts will seek a $10 million fee that would be credited against gross gaming tax revenue.
The fees in Florida and Massachusetts are proposals. California has active bill drafts.
Nevada, which also would collect gross gaming tax revenue, has the lowest proposed fees by far as well as the lowest tax rate in the nation at 6.75 percent.
While some committee members wondered if Nevada was selling itself short, committee member Keith Smith, president and CEO of Boyd Gaming, cautioned that higher fees could result in companies seeking to be licensed elsewhere.
The state of online gambling is murky thanks to conflicting policies and government agency interpretations of Justice Department decisions. Frank Fahrenkopf Jr., president and CEO of the American Gaming Association, told the committee he isn’t optimistic that Congress will be able to produce any clarity in the months ahead.
Most industry leaders want federal lawmakers to approve legislation to make the regulation of Internet gambling consistent in all states. But since there appears to be little appetite for legislators to address online gaming — primarily, playing poker for money on the Internet — states are considering their options for how to regulate intrastate play and, possibly, enact compacts between states that would allow residents of one state to be able to play in another.
A notable industry exception is Las Vegas Sands Chairman and CEO Sheldon Adelson, who says he opposes legislation for online poker play because he fears the systems won’t be able to prevent underage players.
Fahrenkopf said his association and most companies believe systems not only would be able to prevent underage play but would ensure that a player is in a location where it is legal to play.
The industry doesn’t have a clear indication whether compacts between states would be allowed, but a number of states, including Nevada, are considering their own legislation if federal lawmakers remain silent.
For most states, interstate compacts are the only way to make online poker play financially viable — their population bases aren’t large enough to support the gaming on its own. One possible exception is California, which is studying its own rules.
Two bills are pending in the U.S. House, Fahrenkopf said, and the association is hopeful that an online poker bill will be approved that would give the Commerce Department the authority to allow states to do licensing and regulation. Fahrenkopf said legislation also would give the Commerce Department authority to oversee Internet poker on Indian reservations, enable states to opt out if their legislatures don’t want to allow residents to play, and to strengthen and clarify the Wire Act and the Unlawful Internet Gambling Enforcement Act to give law enforcement more tools to close down illegal offshore websites.
But the politics involved are tenuous. Fahrenkopf said lawmakers on the far left and far right of the political spectrum are poised to block pro-gambling bills.
What should Nevada do?
“I think you should keep doing what you’re doing,” Fahrenkopf said, noting that the state has a leg up on other states because it quickly passed online gambling regulations and has begun the licensing process. He said Nevada’s respected regulatory system also includes a lengthy history of industry oversight.
As for economic development opportunities, Steve Hill, director of the governor’s Office of Economic Development, said if the state can establish itself as the hub of Internet gaming in the United States, it would attract more technology companies to help the industry and entrepreneurs would find nongaming applications for the systems they develop.
Two testing laboratory companies with dozens of high-tech jobs already have begun relocating to Southern Nevada. Hill said the presence of online companies would lead to more technology courses at the state’s universities and new degree programs.
And while growing the gaming industry might seem counterintuitive to people who have viewed economic diversification as prospecting for nongaming companies, "it’s a significant opportunity for Nevada,” Hill said.