Casinos & offshore companies battle for billions in online gambling push
Ever since Bugsy Siegel opened the Flamingo Hotel in 1946 and launched the Las Vegas Strip, gambling has held a tenuous position in American life, suggesting glamour, wealth, depravity and corruption all at once. Now that casinos have spread throughout the nation and allegedly shed their mafia ties, a new branch of the industry is fighting for legitimacy here.
Las Vegas-based casinos and overseas operators have begun an all-out battle over Internet gambling, which is mostly banned nationwide but carries with it the promise of billions of dollars in additional revenue for casinos and state governments. Three states began licensing online betting last year, and lawmakers are debating online gambling bills in seven others right now. In Washington, meanwhile, Congress is facing increasing pressure to either bar or regulate the fledgling industry federally.
The moves are coming in response to a concerted push orchestrated by a colorful cast of characters, including one of the most prolific political donors of the Super PAC era, an offshore company that only recently settled federal allegations of money laundering and bank fraud and a pair of benignly named groups backed by millions of dollars in casino cash.
In the process, the war over online gambling has created surprising alliances and divisions that are just now surfacing. Some in the industry warn that the practice poses a threat to the casinos' hold over gambling since customers would no longer need to actually visit a casino. Furthermore, since online gambling has been legal in other countries for years, American casinos face competition from more established online companies based in exotic locales like Costa Rica and Gibraltar.
One casino mogul, Sheldon Adelson, a prominent backer of conservative political causes, has pledged to spend "whatever it takes" to get Congress to ban Internet gambling outright, while industry giants like Caesars Entertainment and MGM Resorts have taken the opposite tack, banding together in an effort to legalize and control the growing market. Maneuvering quietly in the background are foreign entities, including the Isle-of-Man-based PokerStars, the world's biggest online poker operator, which so far has been denied a license to operate in New Jersey because of pending federal money-laundering charges against its founder. Along with the Garden State, Nevada and Delaware have legalized online gambling.
All together, this rich mix of interest groups spent $8.2 million lobbying the federal government on Internet gambling last year, according to the trade publisher GamblingCompliance, and millions more in state capitals from Trenton to Sacramento. The casino industry is also among the most generous in giving to political candidates across the country. According to figures from the Center for Responsive Politics and the National Institute on Money in State Politics, from 2009 to 2012 (state data for 2013 aren't yet available), the gambling industry contributed $287.6 million to state and federal campaigns, some directly to candidates and state ballot initiative efforts and the rest to groups like the Republican Governors Association, which can send the money to states where casinos are barred by law from making political contributions.
Lost in the cacophony are warnings from gambling industry critics who say politicians are rushing headlong into expansion with little understanding of the potential social and fiscal risks. Problem gambling — which the American Psychiatric Association last year classified as an addictive disorder akin to alcoholism — already afflicts millions of Americans. As for the Internet, "Now instead of having to drive to Atlantic City, I can sit at home," said Les Bernal, national director of the Washington, D.C.-based advocacy group Stop Predatory Gambling. "It's the most extreme and most addictive form of gambling — because there's no turning it off."
For close to 50 years, Nevada had gambling to itself. Even after 1976, when New Jersey legalized casinos in Atlantic City, the gambling industry was essentially relegated to just a few cities. But when Congress passed the Indian Gaming Regulatory Act in 1988, which allowed tribes to run casinos, the move led to a swift series of reactions by states hoping to cash in on the action. In 1989, South Dakota legalized non-tribal casinos, and Iowa, partly as a response to tribal gambling, authorized riverboat casinos. Soon, states up and down the Mississippi River were legalizing gambling, and casinos spread through the country like a colony of industrious ants.
Today, 39 states have some form of casino gambling, and Americans bet away some $90 billion each year, including lotteries, more than on they spend on movies, concerts, theater and sporting events combined, according to the gambling scholar I. Nelson Rose, who teaches at Whittier Law School. Much of that money goes to state governments to fund programs for seniors or property tax rebates, tying the states into an uneasy partnership with the gaming industry.
Just as book sales and movie rentals have moved from brick-and-mortar stores to online operations, many gambling executives see a move to the Internet as inevitable. It began around the turn of this century, when a handful of companies based in loosely regulated jurisdictions in Europe and the Caribbean began offering online gambling games worldwide, including to American players. The industry quickly flourished, but all beyond the grasp of American regulators and tax assessors and, importantly, the big casino companies.
At the time online betting inhabited a legal gray area: neither forbidden nor permitted explicitly by state laws, which generally require any gambling operation be licensed by the state. For years, the federal Department of Justice argued that the 1961 Wire Act, passed to limit bookies' use of interstate telegraphs, prohibited all forms of betting online. Advocates for Internet gambling, including an aggressive Washington lobbying group for poker players that's funded by the offshore online companies, countered that the Wire Act applied only to wagers on sports and shouldn't bar poker or online slots. With the issue unsettled, states were unwilling to challenge the Justice Department's interpretation, and none tried to license the practice.
It all came to a head in 2006, when Congress passed the Unlawful Internet Gambling Enforcement Act, or UIGEA, which prevents banks from processing the financial transactions of unlicensed Internet betting. Essentially, it gave the Justice Department a tool to go after the offshore companies that were offering games to Americans. Some of these operators saw the law as a warning and pulled out of the U.S., but a handful did not.
In 2011 the Justice Department sued the three biggest operators that remained, including PokerStars, for alleged money laundering. Prosecutors portrayed an elaborate scheme to deceive banks, charging that executives established dozens of fake online businesses with names like www.petfoodstore.biz to hide transactions worth billions of dollars. The companies eventually settled the suit without admitting guilt. As part of the agreement, Ireland-based Full Tilt Poker forfeited its assets to the federal government, which then sold them to PokerStars for $731 million. PokerStars agreed to cease its U.S. operations until a state or the federal government legalized online betting. The third company, Absolute Poker, forfeited its assets.
In a paradoxical twist, though, the 2006 law also paved the way for today's wave of legalization. The Internet gambling enforcement act had an explicit "carve out" allowing for online bets made entirely within a state as long as state law authorized the activity, and some state lotteries wanted to use that opening to sell tickets online.
New York and Illinois asked the Justice Department whether such a move would be legal, and in late 2011 the department responded by quietly reversing its interpretation of the Wire Act, saying the 1961 law applied only to betting on sporting events. The department did not respond to a request for comment for this story. But suddenly and without fanfare, there was no federal statute barring Internet gambling. States were free to authorize the practice, and some had already begun the process.
An American market: New Jersey
Even before the Justice Department revised its opinion, the offshore companies had begun looking for a legitimate way into the American market, with a particular focus on New Jersey. In early 2009, Joe Brennan Jr., who ran a small, Washington D.C.-based industry group called the Interactive Media Entertainment and Gaming Association, met with state Sen. Raymond Lesniak, a New Jersey lawmaker representing a densely populated patch of the state south of Newark. Lesniak, one of the state's most powerful politicians, had caught Brennan's attention when he introduced a bill to legalize sports betting.
The senator, who has thinning red-gray hair, shares a district office with two other legislators in Elizabeth, where he greets visitors in an unadorned conference room. He speaks confidently, as if whatever he's saying should be self-evident. In a recent interview, Lesniak said he proposed legalizing sports betting after growing tired of annual raids on Super Bowl gambling rings in the Garden State, even as betting on the game is legal in Las Vegas. When Brennan came to visit five years ago, however, he had another idea for the New Jersey lawmaker. Why not legalize gambling over the Internet?
For Lesniak, the proposal offered hope for Atlantic City: a new form of gambling to draw younger clientele and help the state's struggling casinos, which had been losing money for three straight years because of increasing competition in nearby states. Brennan's group, which has since ceased operations, never published a list of members. But in a 2007 lawsuit, the group acknowledged that some of its members "provide an Internet gambling opportunity to private individuals located both within and beyond the territorial borders of the United States." In 2009, when Brennan first met with Lesniak, his organization collected $1 million in membership dues, which Brennan quickly devoted to fighting for a law in New Jersey.
"There was no silver bullet to this," he said. "It was, very simply, a lot of hard work." Brennan hired one of New Jersey's most influential lobbying firms, Princeton Public Affairs Group, which drew up what proved to be an effective strategy. The idea was to have the Atlantic City casinos run the Internet gambling operations, because no bill would pass without their support.
Lesniak was a dogged sponsor, ushering a bill to passage in January 2011. Gov. Chris Christie vetoed the measure, however, saying it would violate the state constitution, which allows gambling only in Atlantic City. Another factor: the casinos, led by Caesars, opposed the bill at the time. The big national gaming companies had gotten behind Internet gambling but wanted a federal law instead, worrying that a patchwork of state statutes would lead to a more arduous and expensive regulatory system. (Lesniak suspects the industry pressed Christie to veto the bill. David Satz, Caesars' top lobbyist, was a member of Christie's transition team in 2009 and helped write a report arguing against legalizing Internet gambling at the time.) A spokesman for Christie did not respond to questions about the veto. Neither Caesars nor any of the other casinos contacted for this story offered any comment.
By 2012, though, Caesars and some other casinos had changed course, realizing that Congress was unlikely to approve online gambling, and so they threw their support behind the legislation. Lesniak had reintroduced the bill, tweaking it to address Christie's concerns, and after two more rounds, Christie signed the law in February 2013.
The online gambling bill received little organized opposition in the state. Only six lawmakers voted against it, compared to 105 in favor. One of the opponents, Assemblyman Ralph R. Caputo, a Democrat, said he was concerned about gambling addiction. One of the few voices against the move from outside the capitol was Carl Zeitz, who served on the state Casino Control Commission from 1980 to 1988.
"It is one thing to have to get on a bus, drive a car, take a train, get on an airplane to Vegas, to go to casinos. It is another thing to sit home in your skivvies in bed or at the kitchen table playing gambling games for real," he said. "That to me is really unwise public policy."
The bill allows licensed casinos to apply for online gambling permits and to offer a wide array of games. Players have to be in New Jersey to log in, a detail the casinos verify by tracking a computer's IP address and using geo-location on cellphones. The state takes 15 percent of the proceeds, along with $400,000 up front and $250,000 each year from any casino running online betting. While the casinos are the only ones eligible for licenses, they have generally partnered with other companies, including overseas operators such as Gibraltar-based Bwin.party Digital Entertainment, to run the websites.
The casinos, which were in favor of an Internet gambling law by 2012, spent $1.2 million on lobbying in 2012 and 2013 in New Jersey, with Caesars spending $703,100 of that both directly and through its donations to the Casino Association of New Jersey. The offshore companies were also active in lobbying. The Interactive Gaming Council, a Vancouver-based industry association for online gambling companies, spent another $253,700, and PokerStars' parent company, Rational Services, spent $204,353 last year. Both of those entities hired Princeton Public Affairs, the same firm that had represented Brennan's group.
The various groups also donated generously to Lesniak and other supporters. Brennan, his wife Jennifer and his association gave $22,225 to New Jersey politicians and committees since 2009, including $4,600 to Lesniak and $7,000 to Assemblyman John Burzichelli, the prime sponsor of the legislation in the lower chamber of the legislature.
Another donor was that Washington-based poker group, the Poker Players Alliance, which has been one of the strongest proponents for legalizing online poker. It has unleashed torrents of social media attention on state and federal politicians, pre-writing tweets for its members to send. When the Massachusetts Gaming Commission held a forum on Internet gambling in March, the alliance's vice president for player relations, Rich Muny, tweeted a link directed at Gov. Deval Patrick: "@MassGovernor I'm glad to see today's Gaming Commission Internet Forum. Please support Internet #poker for Massachusetts!" Within a day, dozens of supporters had sent the tweet.
The alliance was formed in 2005 by a group of poker players, and says it represents 1.2 million players around the country. But according to federal tax filings published by the website citizenaudit.org, nearly all of its money in 2005 came from $1.1 million given by Ruth Parasol and James Russell DeLeon, a married couple who started PartyGaming, one of the world's largest online poker companies.
The couple, both born in California, were living in Gibraltar at the time, and their company eventually entered into a "non-prosecution" agreement with the Justice Department in 2009, after it had pulled out of the American market in response to the 2006 Internet gambling enforcement act. Under the agreement, PartyGaming paid a $105 million fine and acknowledged that some of its "customer transactions" prior to the 2006 law "were contrary to certain US laws." In exchange, the Justice Department agreed not to prosecute the company for those transactions.
The company later merged with another to become Bwin.party, which announced in October that Parasol and DeLeon would divest their 14 percent stake as part of the company's application for a license to operate in New Jersey (in its partnership with the Borgata Hotel Casino and Spa, in Atlantic City, the company holds about 40 percent of New Jersey's Internet gambling market so far).
John Shepherd, a spokesman for Bwin.party, said the couple decided the time had come to part ways with the company, in part because they were in the midst of divorce proceedings. He said the company had some contact with the Poker Players Alliance prior to 2006, but that Parasol and DeLeon gave their own money to the group and that the company has never contributed money.
While the poker alliance hasn't received funding from Bwin.party, John Pappas, the group's executive director, said that most of its money does comes from other offshore online gambling companies, including the Rational Group, which owns PokerStars.
And as Lesniak and Brennan were pushing the law through New Jersey's legislative process, the alliance was there to help it along. Pappas and other members met with Christie's staff in January 2013 to urge him to sign the bill. The organization, Pappas, and four prominent poker players gave Lesniak a total of $15,600 after the law passed last year, along with $2,000 to the Union County Democratic Committee, which gave $144,089 to Lesniak. The alliance gave another $2,600 to Burzichelli, the maximum allowed under state law.
Lesniak, Burzichelli and Sen. Jim Whelan, a co-sponsor, received an additional $17,300 collectively from four law and lobbying firms and their employees and family members, including Princeton Public Affairs, that represented the offshore companies in New Jersey, Pennsylvania and Washington, D.C.
Licensed casinos are barred from contributing to politicians in New Jersey. But in 2013, the country's largest casino companies and their representatives, several of which operate in New Jersey, gave at least $1.5 million to the Republican Governors Association, with $1 million coming from Adelson, the casino mogul. The RGA, in turn, spent $1.7 million last year helping reelect Christie as governor. In November, Christie became chairman of the organization, anointing him the chief fundraiser for the group. Adelson and his wife Miriam also gave $7,600 directly to Christie's campaign last August, even though Christie had already signed the law legalizing online gambling, which Adelson opposes. Adelson does not have operations in New Jersey.
Jon Thompson, a spokesman for the RGA, said in an email that his organization does not solicit funds for specific races, and there's no way to tie money from donors to individual contributions the RGA makes. A spokesman for Las Vegas Sands, of which Adelson is chairman and CEO, did not respond to repeated requests for comment.
Despite all the cash being thrown around in the Garden State, the revenue from Internet gambling has so far proved disappointing. The casinos pulled in $27.2 million since they began operating the new websites in late November, through the end of February. At that rate, revenue will fall well short of the $200-$300 million analysts had forecast for the first year of operation; Christie's initial budget projections suggested even more.
But other states and casino firms still envision a potential Internet gambling bonanza. By the time Christie had signed the law, Nevada and Delaware had passed their own online gambling laws too, with Nevada legalizing only poker. In February, those two states announced an agreement to allow players from each state to place bets with sites based in the other. One of the biggest concerns for less populated states has been that casinos won't have enough customers to run viable games, and early returns in Delaware have proved disappointing too.
Several other states are looking at Internet gambling this year, including Massachusetts, California, Illinois, Iowa, Minnesota and Mississippi, where a bill was introduced but failed to pass. Lawmakers in Louisiana held hearings on the issue.
The Rational Group, the firm that owns PokerStars, hired lobbyists in at least six states last year, including New York, where the company's lobbyist met with an adviser to Gov. Andrew Cuomo in November, according to a report by Capital New York. In late March, a lawmaker introduced legislation to legalize online poker in the Empire State. But the bill's language makes clear that companies that continued to offer U.S. betting even after the 2006 federal law limiting online gambling — with PokerStars the most prominent example — would have a hard time obtaining licenses in New York.
Rational Group declined to comment for this article.
While Nevada and Delaware have teamed up, it's competition among the states that, more than anything, is driving the push for online gambling. The decline in revenue that so concerned Lesniak, Christie and others began in 2006, two years after Pennsylvania legalized casinos. New Jersey's casinos have seen revenue fall each year since, and Pennsylvania's casino revenue passed New Jersey's in 2012, pulling in $3.2 billion.
Now Pennsylvania is finding itself in a similar situation to New Jersey. Since Ohio and Maryland legalized casinos in 2008 and 2009, Pennsylvania's gambling growth has stagnated: last year was the first that the Keystone State's casino revenue did not grow. It's no surprise the state is now considering legalizing online gambling, with New Jersey as its model, offering a glimpse of how the debate may spread across the country in coming years.
All about revenue: Pennsylvania
Pennsylvania's ornate state capitol sits high on a hill overlooking Harrisburg and the Susquehanna River. The building dates back to a more prosperous time in the Keystone State's history, when wealthy industrialists like Andrew Carnegie drove a growing industrial economy. Today, Harrisburg sprawls out below the capitol in a gritty grid of mostly empty streets.
In the plush offices of the capitol, the debate over online gambling is circumscribed almost entirely by the question of whether or not it will generate money for Pennsylvania and its casinos. The state takes 55 percent of revenue from slots and 14 percent from table games, making it essentially a partner in the business. "It's about revenue," said state Sen. Kim Ward, who chairs the Community, Economic and Recreational Development Committee, which oversees gambling. "Because every year we're in a budget squeeze."
The state is facing a deficit of more than $1 billion this year. Pennsylvania and neighboring states have steadily increased the number of allowable forms of legalized gambling over the past decade, increasing competition within the industry, and casinos have responded with a cry for help.
In December, the Senate funded a study that will look at updating the state's gambling regulations and taxes and allowing Internet gambling in an effort to boost revenue. The report is due by May 1, in time for this year's budget debate. Rep. Tina Davis, a Democrat, had already introduced a bill to legalize online gambling last year. But Republicans control both chambers and are likely to write their own bill if they decide to advance the issue after the report comes out.
The state's tremendous casino stake gives the industry a powerful tool to influence policy, said Barry Kauffman, executive director of the good-government group Common Cause Pennsylvania. All told, various interest groups spent $7.4 million lobbying on gambling and wagering issues last year in Pennsylvania, with Adelson's Las Vegas Sands spending nearly $234,000, the most of the big casinos. PokerStars spent $42,500 lobbying in Pennsylvania last year, pressing to make sure it's not cut out of an Internet gambling bill because of its troubled legal history. All told, Pennsylvania's biggest casinos retained 12 lobbying firms in the state last year, including some of the state's most powerful, like Greenlee Partners and J.M. Uliana and Associates. Most lawmakers say the casinos have not begun lobbying aggressively on the issue — that would come once a bill is introduced — and that some of the smaller, local casinos have expressed concerns that online gambling could hurt business.
Like in New Jersey, the casinos cannot give directly to candidates or committees in Pennsylvania. But since 2010, casinos operating in the state or their executives and executives' families have given at least $6 million to the Republican Governors Association. That cash cannot be traced to particular expenditures by the RGA, but the governors' group has spent generously in Pennsylvania over a period of several years, giving $6 million to Gov. Tom Corbett in 2010 along with $2.3 million to the Pennsylvania Republican Party. Corbett is up for reelection this year in what is expected to be one of the toughest governor's races in the country. Last year, the RGA gave Corbett another $210,028 and $16,110 to the Pennsylvania Republican Party.
Casinos have also given more than $850,000 since 2010 to the Republican State Leadership Committee, a national group that distributes money to state politicians. In 2012, that group gave $500,000 to the Pennsylvania House Republican Campaign Committee, which in turn distributed money to candidates and to the Pennsylvania Republican Party.
Jill Bader of the Republican State Leadership Committee said in an email that her group has created a "segregated account" for Pennsylvania and that money from casinos is not deposited into the fund.
In response to a question asking whether some casino funds had made their way to Pennsylvania, Thompson, the RGA spokesman, said only that the group invests money "in full compliance of the law."
The Pennsylvania Gaming Control Board oversees casinos in the state, and spokesman Richard McGarvey said his agency tries to make sure that PACs and other committees are in compliance with the law, but that the agency has no authority over federal political organizations. "We deal with the constraints that we have," he said.
The casinos' lobbying firms contributed hundreds of thousands of dollars to Pennsylvania candidates last year, though the lobbyists represent many other clients as well.
Pennsylvania lawmakers say that because of the ban on campaign contributions, they don't feel influenced by the casinos. And unlike in New Jersey, there is opposition in both parties to allowing online gambling. Republicans in the House have introduced bills to ban online betting. Adelson runs a casino in the state, so he carries considerable weight.
In February, state Rep. Mario Scavello, a Republican, introduced a bill to create criminal penalties for gambling online illegally. The Coalition to Stop Internet Gambling, an advocacy group funded by Adelson, quickly issued supportive statements. The Poker Players Alliance called its members to action with the opposite goal, directing people to flood Scavello's Facebook page with comments, which the representative later deleted. "If you had read those things, you wouldn't leave them up there," he said.
When Rep. Mike Tobash included a note about the Scavello bill in a recent newsletter, the alliance again unleashed its members, who put up a solid block of nearly 40 posts on his Facebook wall, some of them presenting detailed arguments, others with more direct assertions like, "I guess you hate freedom!"
Scavello said he's not convinced by the poker players' arguments. "I'm really set on seeing something happen," he said.
Dianne M. Berlin, who helped lead a loose coalition of religious, good-government, minority and other advocacy groups that campaigned against the 2004 gambling expansion, sees a repeat of what occurred a decade ago. She said the industry preys on Pennsylvania's weakest citizens, from the elderly to the poor, and that lawmakers are hoping for revenue while ignoring the costs of addiction and increased gambling.
"I find it a slap in the face to the people of Pennsylvania when they only look at one side," she said. "If I open a shoe store and say, oh my God, I can make 60 percent on each pair of shoes, and don't look at my rent and my lights and the people I'll have to employ, that's stupid."
The coalition has largely dissipated, though. The faith-based Pennsylvania Family Institute and it's sister group, the Family Council, represent the most established anti-gambling organizations in the state, but Thomas J. Shaheen, the group's vice president, said the institute is focused more on blocking the state lottery from adopting a new type of video gambling. Last year, the two groups spent $52,714 lobbying on a handful of issues, including gambling.
A battle royale in the nation's capital
While many of the big casinos turned their attention to the states over the past couple of years, the Washington lobbying game is ramping up again, driven largely by Adelson's new push to ban online gambling.
Adelson had already begun pushing for a ban through Las Vegas Sands, which spent $320,000 on lobbying in Washington last year. But in November, the Washington Post reported that he was forming a group called the Coalition to Stop Internet Gambling (the group's website, stopinternetgambling.com, was registered in June, according to www.whois.com). The group hired former New York Gov. George Pataki, former Sen. Blanche Lincoln of Arkansas (who was also recently hired as a lobbyist by Las Vegas Sands) and former Denver Mayor Wellington Webb as national co-chairmen and recently announced the support of 38, mostly faith-based organizations.
The coalition has begun a national media campaign to convince the public of the ills of online gambling, with Pataki and Webb writing opinion pieces in major newspapers and appearing on television. In February, the group released its first television ad, which warns that "disreputable gaming interests are lobbying hard to spread Internet gambling throughout the country." The group also secured signatures from 15 state attorneys general on a letter expressing their concern about online gambling and urging Congress to restore the Justice Department's initial interpretation of the Wire Act; in March, Gov. Rick Perry of Texas and Gov. Nikki Haley of South Carolina sent their own letters — each nearly identical to the other — with the same request to Congress.
Meanwhile, Las Vegas Sands lobbyists were reportedly circulating draft legislation to achieve this goal, a copy of which was published in January by poker blogger Marco Valerio. Several reports tied the draft to Adelson's representatives.
In late March, the campaign scored a major victory when Sen. Lindsey Graham, R-S.C., and Rep. Jason Chaffetz, R-Utah, introduced a bill with the same title and intent as that draft legislation: to amend the Wire Act to prohibit online gambling. M.J. Henshaw, a spokeswoman for Chaffetz, said the Congressman wants the issue decided by Congress, not a Justice Department lawyer, and that he's particularly concerned because Utah does not allow any form of gambling. Asked whether the bill originated with Adelson's lobbyists, Henshaw said, "like any issue that my boss takes on, he seeks the advice of industry folks."
While Graham has not received much money from casinos, Adelson and his wife and daughter contributed $15,600 to his campaign account last year, and a Sands PAC gave another $5,000, according to the Center for Responsive Politics. The senator's office did not respond to requests for comment, but Graham told NPR that his Baptist constituents and Adelson "are one with this," and that "this is really easy politics for me back in South Carolina." Chaffetz has not received contributions from Adelson or any other gambling interests, according to the Sunlight Foundation.
Neither Las Vegas Sands nor the coalition responded to requests for interviews, but in January, the Sands' vice president for government relations, Andrew Abboud, told Nevada political reporter Jon Ralston that Adelson was "prepared to mount full campaigns in every state where a bill is introduced," adding, "we are going to make it 'the plague.' "
Adelson, 80, says he is morally opposed to the practice. He warns of a rash of underage gamblers betting in their living rooms and of the ease with which criminals and terrorists could rig games to launder money. Adelson and his coalition have widely cited an FBI letter, sent last year in response to a request from the late Rep. C.W. Bill Young, which warns that, "online casinos are vulnerable to a wide array of criminal schemes," including identity theft, money laundering and public corruption. Effective regulation could prevent much of this activity, the letter notes, but "sophisticated methods" might evade detection.
In a recent interview with Politico Magazine, however, Adelson admitted that beyond the morals, he fears for his industry, warning that if online gambling is legalized, software giants like Google or Facebook will take over the market, "and that's going to be the end of all of it."
Most of the rest of the casino industry disagrees, and the American Gaming Association, of which Sands is a member, announced in January that it was launching a campaign to fight back. The group added several new staff members and also hired Jim Messina, who led President Obama's 2012 reelection campaign, to help with "grassroots initiatives," including online gambling.
The following month, the gaming association and other casino interests formed the Coalition for Consumer and Online Protection, which has hired former Reps. Michael Oxley and Mary Bono and launched a $250,000 ad campaign to block a federal ban. The coalition has framed the question in terms of states' rights, consumer protection and Internet freedom.
In the Poker Player's Alliance, the offshore companies have a voice in Washington, too. Pappas has a long history as a political operator — he began his career working for former Rep. John Shadegg before going on to political work with Dittus Communications, a well-connected Washington public relations firm that was later bought by a competitor. Pappas joined the alliance in 2007 and now spends his time criss-crossing the country, testifying on behalf of his group to lawmakers in Washington D.C., Springfield, Ill., and wherever else someone is talking about online gambling. His message: millions of Americans are already gambling over the Internet, and legalizing and regulating the practice would make it easier to protect those gamblers from criminal activity and addiction problems.
Pappas said Adelson appears to be reaching for any argument he can to try to ban online gambling, though most of them, he says, are specious. What's more, Pappas argues, Adelson has offered visitors to his Venetian Palazzo Las Vegas the opportunity to use computers or smartphones to place bets from anywhere on the property.
The alliance has shifted its focus from direct lobbying to playing more of a pesky role through its own "grassroots" effort, Pappas said, particularly with a heavy social media presence. A December Facebook post by Adelson's group, showing an image of a child in front of a computer and warning of the "threat to kids," garnered more than 50 comments after the PPA urged members to fight back. The group's spending on direct lobbying is far lighter than in previous years, down to $350,000 last year from a high of $2 million in 2007.
The alliance has also given some $363,000 in federal campaign contributions since it began operating in 2005, with the top recipient being former Rep. Barney Frank, who for years pushed to legalize online poker. Frank received $15,024 in direct contributions from the group over the years, and in the 2010 election cycle Pappas bundled contributions worth $51,200 for Frank, according to the Sunlight Foundation.
Bwin.party and its predecessor also spent $2.7 million on lobbying in Washington since 2007, hiring influential firms such as Heather Podesta and Partners. Shepherd, the Bwin.party spokesman, said that money was, "very much to geared to having political radar as opposed to having full-on lobbying."
Over the past few years, lawmakers have introduced several bills that would create a federal system for regulating Internet gambling, but they garnered little support. In February, Sen. Dean Heller, R-Nev., said he is working on a bill that would legalize Internet poker but ban all other types of online gambling — a move he and Sen. Harry Reid, D. Nev., have pushed in previous years — telling the Las Vegas Review-Journal that "Adelson brings up some reasonable concerns."
Adelson and his wife have given $18,800 to Heller's campaigns since 2006, and other Sands employees have given another $27,550. Over the same period, the casino industry as a whole has given Heller nearly $640,000.
The chances of passing such a federal bill, though, will become more difficult as more states legalize their own systems of Internet gambling. To many, there's a sense of inevitability to online gambling. Rose, of Whittier Law School, said that the wave of gambling expansion that swept the country over the past 25 years has inured politicians to the reservations they once had. "Adding one more form, like Internet poker, is not a big deal now," he said. "Every state has entrenched political operatives who have no problem with Internet gambling. As long as they're the ones to run it."
Ben Wieder contributed to this report.
Reprinted by permission of The Center for Public Integrity.