Nevada i -Gaming

1. Nevada i-Gaming A Workshop

2. Nevada iGaming Greg Gemignani Lionel Sawyer & Collins +1 702 383 8989 grg@lionelsawyer.com

3. Agenda Topics • Brief Overview of Terms Used in Nevada for Networked Gaming • History of iGaming in Nevada • 2011 Legislative Session • AB258 • SB218 • Student Bill

4. Nevada & Networked Gaming Nevada uses a somewhat unique set of terms to describe different forms of networked gaming. These terms are used in other jurisdictions, but do not always have the same meaning as they do in Nevada This has resulted in some confusion in reporting and understanding iGaming issues in Nevada Additionally, Nevada’s sports wagering industry, which is unique in the U.S. adds to the confusion

5. Nevada & Networked Gaming • The Gaming Premises • A “gaming premises” is any facility in which is approved for licensed restricted or non-restricted gaming. • The “gaming premises” includes everything within the lot of the facility. • For large casino hotel resorts, this means everything within the boarders defined by the adjacent streets.

6. Nevada & Networked Gaming • Server Supported Gaming • This refers to gaming devices on a gaming premises that have independent random number generation and game determination, but that receive content, media or other services from a centralized server or servers.

7. Nevada & Networked Gaming • Server Based Gaming • This refers to fixed gaming devices on a gaming premises that have random number generation and game determination sourced from a server or servers.

8. Nevada & Networked Gaming • Mobile Gaming • This refers to portable gaming devices, and fixed account based wagering devices on a gaming premises that have random number generation and game determination sourced from a server or servers. • It is not “mobile gaming” as it is known in most of the rest of the world.

9. Nevada & Networked Gaming • Sports Wagering • Nevada has a long history of wide open licensed and regulated sports wagering. • In the 1980s and 1990s, many states were looking to increase the popularity of their state lotteries. • One of the popular topics for lottery expansion was sports lotteries. • In 1992, the U.S. Congress stepped in to stop the spread of state sponsored sports wagering with the enactment of the Professional and Amateur Sports Protection Act (PASPA)

10. Nevada & Networked Gaming • Sports Wagering • PASPA prohibited any state or tribe from enacting or permitting sports wagering and prohibited anyone from relying on such enactment to engage in sports wagering. However there were three exemptions: • The lottery exemption for states that had sports lotteries between 1976 and 1980 (Oregon & Delaware) • The statutory exemption for states that had statutes permitting and regulating the activity, in 1980, providied the activity was conducted during that time, but only to the extent of such conduct (Nevada and Montana). • The New Jersey exemption, for in-casino sports wagering provided that such activity was permitted by statute within one year of the enactment of PASPA

11. Nevada & Networked Gaming • Sports Wagering • Prior to the enactment of PASPA, Nevada had telephone account wagering, thus this was grandfathered in as legal under PASPA. • Telephone account wagering evolved into telephone kiosk wagering. • Recently, it evolved into smart phone account wagering. • This has caused some confusion in reporting regarding Nevada activities. • It seems bizarre on its face that the most prohibited form of wagering under federal law is permitted on mobile phones in Nevada • However, when viewed in a historical context it is merely a modern form of telephone account wagering that Nevada has permitted and regulated for decades.

12. Nevada & Networked Gaming • Interactive Gaming or iGaming • In 2001, networked based gaming was in its infancy and was being conducted in various parts of the world on public and private networks • The Nevada legislature used the phrase “interactive gaming” to capture wide area network based gaming regardless of the type of network used as a medium. • Internet • Cable TV • Cell phone (non-internet)

13. Nevada & iGaming In 2001, the Nevada legislature enacted the first interactive/online gaming statutes in the U.S. The 2001 legislation envisioned an industry similar to terrestrial gaming, namely, one in which operators (casinos) and manufacturers (gaming device manufacturers) were the only licensed supply side participants. The 2001 legislation limited operator licenses to large casino operators.

14. Nevada & iGaming As part of the enabling legislation, the legislature required the Nevada Gaming Commission to make certain findings. Among those requirements was a requirement that the activity could be conducted in compliance with federal law. A letter from the Bush era Department of Justice indicated that the U.S. DOJ believed that the conduct of interactive gaming would violate one or more federal laws. This ended the regulatory activities related to iGaming in Nevada in 2002.

15. Nevada & iGaming In 2006, the U.S. Congress enacted the Unlawful Internet Gambling Enforcement Act (UIGEA) The UIGEA specifically exempted intrastate wagering from its definition of “unlawful internet wagering” This was viewed by many states as a federal expression that intrastate gaming activities sanctioned by a state were not the subject of federal regulation or prohibition.

16. Nevada 2011 Legislation In 2011, three bills were introduced to promote interactive gaming within Nevada AB258 – The Poker Bill SB218 – The Omnibus Gaming Bill XXXXX – The Preliminary Finding of Suitability Bill Each of these bills plays a role in promoting the regulation of interactive gaming and the use of interactive gaming technologies in Nevada

17. Nevada AB258 As originally introduced, AB258 was a bill that would radically alter Nevada’s gaming regulator regime by carving out special privileges for applicants of interactive gaming poker licenses. After a letter from Governor Sandoval, the bill was modified to avoid special privileges, avoid constitutional issues, and avoid any modification of the gaming regulatory regime in the state.

18. Nevada AB258 • AB258 ultimately did the following: • It removed the requirements that the Commission make the findings required in 2001 • It required the Board to draft and the Commission to adopt regulations regarding intrastate online poker • It allowed the Commission to issue licenses in compliance with federal law, should federal law change. • It allowed the Commission to issue interstate licenses upon a change in federal law or a change in the U.S. DOJ’s interpretation of federal law that such interstate activity can be conducted in compliance with federal law.

19. Nevada SB218 SB218 was the final bill that included concepts from other bills and was the bi-annual omnibus gaming bill. SB218 recognized that the licensed operator and manufacturer model of iGaming expressed in the 2001 legislation was an outdated concept. In response SB218 introduced the concept of a “service provider” as a licensed or licensable activity.

20. Nevada SB218 “Service Providers” are anyone, in conduction with a licensed interactive gaming operator engage in any of the following:

21. Nevada SB218 Regulations related to SB218 further classified service providers into three classes. Class 3 Service providers are mark licensees and marketing affiliates. Only subject to cursory investigation. Class 1 Service providers are…. Class 2 Service providers are anyone that does not fit in either class 1 or class 3. Class two and three providers may deemed Class 1 service providers at the discretion of the Chairman.

22. Nevada SBxx • From the inception of regulated gaming in Nevada until this year, the only way for anyone to trigger a gaming investigation was to engage in an activity requiring licensing. • This means executing a definitive agreement to purchase a licensed operator, provide services requiring a license, or committing to an activity requiring licensing • Many deals and investments were thus negotiated drafted and executed with provisions that made the entire arrangement subject to licensing approval.

23. Nevada SBxx SBxxx changed this by allowing an applicant to apply for a finding of suitability Such an application will subject the applicant to the full investigative scrutiny previously reserved for license applicants. However, it does not require a definitive agreement to be executed or the imminent conduct of an activity requiring licensing.

24. Nevada SBxx It is a vehicle for vetting suitability in Nevada The investigative materials and reports from a preliminary finding can be used as a foundation for a future licensing application. A licensing applicant that has a prior finding of suitability will generally be investigated only for the period after the issuance of the finding of suitability. This has the potential for dramatically reduce the investigative time normally experienced by license applicants.

25. Nevada SBxx SBxx provided an opportunity for prospective investors, service providers, manufacturers and general licensees to determine their suitability before committing significant resources and investment to negotiating, engineering, and executing a definitive deal. Additionally, it provides current licensees with a stable of potential partners and suppliers that are suitable for licensing, thus making those with a preliminary finding more desirable.

26. Questions