In debates about the labyrinthine laws governing Internet gambling, attorney Anthony Cabot is never far from the discussion. Cabot, a partner with Lewis and Roca's government relations and administrative law practice group, is one of the country's foremost experts on Internet gambling law.
Cabot, a founding member of the International Masters of Gaming Law Association and co-editor-in-chief of the Gaming Law Review, has authored and edited several books on gambling law and Internet gambling law.
His expertise has been sought by major Nevada casinos as well as offshore Internet casinos and Internet poker rooms.
Cabot in March ended a 23-year career with Lionel Sawyer & Collins, Las Vegas' largest law firm with more than 50 attorneys, to lead a gaming practice at Lewis and Roca. Lewis and Roca is a Phoenix-based firm that is aiming to grow several areas of its practice, including gaming.
Question: You worked for Lionel Sawyer and Collins for many years before joining Lewis and Roca to craft a gaming law practice. How will your practice differ from Lionel Sawyer's?
Answer: It really doesn't. My practice is really in three different areas: traditional casino representation, interactive wagering and a growing body of sweepstakes and contest law. Effectively, the nature of the practice hasn't changed from my old firm.
You've said in the past that you believe poker is primarily a game of skill. That could have legal benefits for the game because many states prohibit games of chance. Do you believe any state would eventually change its laws to allow poker games while still preventing other traditional gambling games such as slots and blackjack?
You've already seen it to a certain extent. There's been a liberalization of poker laws in a number of states. A good example is Minnesota. Prior to last year, the Minnesota law enforcement authority took the position that claimed poker in bars violated Minnesota law and the legislature went back and changed that. I think the recognition that we're talking about a game of skill that's being played in a community atmosphere distinguishes it from games of chance. I think there is a recognition that poker is a different game than casino games of chance.
You serve as the legal counsel to a group called the Poker Players Alliance. What is this organization all about?
The goal of the Poker Players Alliance is to try to allow poker players to play poker in the venue of their choice. Currently, under U.S. law, there's no federal law that prohibits someone from participating in any gambling activity online. There's probably some persons in Congress who want to change that. The goal (of the Alliance) is not to change existing law to criminalize an activity on behalf of poker players that is currently not a criminal activity.
How are you helping out this group?
I'm basically helping the group by assisting them with regard to legal issues that surround the Internet and gambling and poker so that they have an understanding of what the current law says, what the potential ramifications of legislation being introduced would be and provide alternatives to legislation that would protect poker in particular.
How likely do you think it is that Internet gambling on poker will be allowed in the next few years?
It's really hard to say. The issue that Sen. Jon Kyl (R-Ariz.) has had with regard to attempting to get legislation passed that would prohibit all forms of Internet gambling is not about the rule but the exceptions to the rule. The rule would be, Internet gambling and funding Internet gambling transactions would be unlawful "except for." The "except for's" have created the problem. The horseracing industry is already engaged in Internet gambling. There are 16 states, I think, that have authorized interactive wagering on horseracing and they're taking Internet wagers, from Americans, from businesses set up in America. The state lotteries want their exception so they can engage in Internet wagering. There have been moves by some state lotteries to institute programs to take advantage of interactive wagering. And then you have the traditional casino industry saying, "Where's our exception?" You have the Native Americans coming in saying, "Where's our exception?" The problem is that Kyl is faced with the untenable situation that if he gives everyone exceptions he basically guts his prohibition. All these different interest groups have a real economic stake in getting their exception. Ultimately there's going to be a resolution. I think the resolution will actually result in greater participation by these different groups in interactive wagering than there is today. Would it become illegal? It could, but the exceptions are really going to be the rule.
What's legal and illegal with respect to Internet gambling in the United States?
There's multiple forms of gambling. Sports wagering is unlawful. There was a case called the Cohen case in the Second Circuit which says that effectively the federal Wire Act prohibits a company engaged in the business of betting or wagering from using the Internet to transmit information or bets or wagers on sporting events. That only applies to the bookie. No federal law applies to the bettor. They all apply to the people who are in the business of betting or wagering. Sports wagering on the Internet is unlawful. On the other end you have horseracing. In the horseracing industry there's a specific exemption that allows it to conduct interactive wagering over the Internet. That is clearly legal. It's the things in between that are the ones that are realistically debated. That's casino-style wagering, lottery wagering and poker. These activities, despite the position of the Department of Justice, are not prohibited under the federal Wire Act. In order for them to be unlawful under federal law the operations would have to be in violation of a state law. That's because back in the early 1960s they passed a series of laws that allowed the federal government to assist the states in enforcing their own state laws.
With regard to casinos and poker, there's only been one federal prosecution of an online casino operator. It was actually dismissed with regard to the individuals, and the company paid a small fine. There's been no prosecution of online poker sites. Why is that? I think the federal government is in a very difficult position to find it in violation of federal law with regard to these activities in terms of finding violations of state laws. State laws don't apply well to the Internet. These laws were adopted in large part in the 19th century. A lot of them are location or device-specific laws. The federal government as the prosecutors are reticent to bring any actions, as shown by their lack of action, against casinos and poker until such time as there's clarification in existing federal law that makes it clearly unlawful or clearly lawful to conduct that ac tivity.
Nevada's law is pretty specific, isn't it? If a Nevada poker player is playing poker on the Internet, isn't he or she breaking the law?
A Nevada poker player could be violating state law. There is a law in the state of Nevada which says it's unlawful for someone in the state of Nevada to place a wager with anybody who's not licensed by the Nevada Gaming Commission. There may technically be a violation of state law but it is not a violation of federal law. A poker player's right to play poker online could be affected by state or local laws. They don't have to worry about federal law.
Why do you say they "could" violate state law? Is that up to interpretation? The law is pretty clear. But whether or not that law would survive constitutional scrutiny is up for question now. There's a case that came out of the United States Supreme Court about six months ago that invalidated the laws of New York that prohibited the importation of wine from other states under something called the Commerce Clause. That statute may prevent discrimination against out of state suppliers of goods and services. Nevada law may run afoul of the dormant Commerce Clause.
Do you think the state will ever crack down on Internet gambling? And should they?
I don't think they will. It's very difficult for the federal government to crack down on it. By and large the Internet operators are not located in the United States. If it's difficult for the federal government to crack down on it, it becomes almost impossible for a state. The state technically has jurisdiction within its boundaries. It has no chance or no hope of getting jurisdiction over a company that may be operating in Curacao or Costa Rica.
Is it too late for Nevada to get into Internet gambling? Has the train already left the station or are the state's casinos still in a position to capitalize on it?
It's never going to be too late. Nevada has been a casino destination since the 1940s but a lot of the companies that are here today weren't even around in the 1940s and they came in and were able to provide a product that people wanted and were able to finance things and become established. There will be opportunities to do that in the Internet market, which is still pretty embryonic. The hardest thing is how to reconcile your obligations as a land-based licensee with some of the unknown issues with regard to online gaming. Until there's some clarification as to what a land-based casino can and cannot do, it's difficult for them to enter the market. Once they do they can make a significant impact if they can provide their services (in the United States).
In your best judgment, what would have to happen for Nevada to allow and regulate Internet gambling?
The first thing is there needs to be clarification of existing federal law. Either a new law is passed that specifically says state- licensed casinos can engage in this activity or a U.S. attorney general is going to change the existing policy of the Department of Justice. Or potentially a case coming out of the U.S. Supreme Court clarifying that issue.
Are any of those options feasible in the coming years?
I think so. One thing that occurred when PartyPoker and some of the other poker companies went public is the realization that this is a real industry. When you have a company like PartyPoker which has obtained a $10 billion market cap, making it one of the largest gaming companies in the world, it's the realization that this industry is real. It's not only here but it's going to grow substantially. The economic reality is going to impact the traditional industry and start to influence policymakers. How much are you going to let this substantial amount of money be exported outside of the United States when our closest ally, the U.K., is embracing it?
The Department of Justice's opinion that Internet gambling is illegal is being challenged by offshore companies while U.S. gaming companies watch from the sidelines. Why have these offshore companies become so aggressive about advertising and marketing their casinos here?
Sports book sites are really faced with the fairly clear illegality of taking U.S. wagers. A lot of them, particularly some based in the U.K., openly come to the United States, openly advertise, because effectively, it's very difficult for the U.S. to get into a trade dispute with the U.K. over this issue. These folks are operating, probably rightly so, with the knowledge that they are pretty much immune from suit. The casino and poker sites are fundamentally different. I think they have a legitimate argument that they may not be violating U.S. law at all by taking wagers.
Sen. Kyl recently tried and failed to introduce yet another bill to ban financial gambling transactions online. Rep. Jim Leach has now introduced a similar bill. Is there any chance that this legislation will pass in the years to come?
There's a chance. The chance is only going to be determined by the exceptions. Kyl can not and will not get a blanket prohibition. He needs to get enough support from the gaming industry members in order to get his bill passed. The problem is that he's going up against some very powerful groups. He has not been able to get a bill passed for I think almost eight years now because he has not found that balance. I think it's unlikely that he'll ever find that balance.
The United Kingdom is expected to legalize Internet gambling as part of its move to deregulate and expand its gaming industry. Do you believe this will put any pressure on the United States to allow Internet gambling?
It clearly has to. If we are so far out of step with the broader world economic powers on this issue it will only result in the exportation of this business to those jurisdictions. The U.K. has embraced it because they understand the economic potential of this industry and unless the U.S. also realizes the economic power and attempts to legalize it, license it and regulate it, it faces the economic reality that it's going to lose literally billions of dollars overseas every year. Americans will gamble online. It's a question of whether they will be gambling on U.S. sites or non-U.S. sites like those in the U.K.
In a 2004 decision, the World Trade Organization said the United States' ban on Internet gambling violates an international treaty. How significant was this ruling and do you expect it will change the status quo?
In immediate effect isn't that significant. The potential long-term ramifications are very significant. Antigua brought an action under a treaty called GATS. Under that treaty the U.S. had an obligation to open its borders to recreational services. The U.S. took the position that it did not include gambling services; the WTO said yes it does. The WTO also said that U.S. law is discriminating against these foreign operators. Antigua won the first few steps. The problem is the U.S. raised a defense called the morals exemption, that (Internet gambling) violates the morals of the United States, therefore we should not have to comply with our obligations under the treaty. The burden then shifted back to Antigua to show that there were reasonable alternatives to a complete prohibition. The court held that Antigua didn't meet that burden and ruled in favor of the United States. Because they ruled in favor of the United States, with the exception of horseracing, that pretty much put an end to that particular case. What it did is it provided a roadmap for the next country to challenge the U.S. In the next case, the country will be prepared to provide alternatives to prohibition. Let's say the U.K. adopts a regulation and goes full bore into this area and the U.S. decides they are going to take an enforcement action against a U.K. company. That gives the U.K. an opportunity to bring a World Trade Organization case. Frankly, just from the roadmap that was set up in the Antigua case, they would probably win. That has real meaning. If the U.S. doesn't open their market to online gaming, they face retaliatory trade sanctions against a major trade partner.
You have represented casino and poker Internet sites that take bets from Americans. Have you gotten any heat from Nevada regulators for representing companies that are breaking the law in the eyes of the Justice Department?
No. My role as a legal adviser to any clients is to basically provide them with an assessment of the risks involved in their business activities. I don't tell them what to do and what not to do. I tell them what their risks are with regard to potential activities. It's a legal advisory capacity, telling them what the law is in the United States.
The Nevada Legislature recently approved a bill allowing casinos to offer remote wagering games. If the idea is that you can walk around with these devices or take them off the casino floor, how will casinos be able to assure that kids won't use them?
I'm not sure exactly what the standards will end up being with regard to the authentication requirements. I think there are substantial differences between the areas of deployment for mobile devices. For example, if you're deploying mobile devices for use in the poker rooms I don't think they'd have an issue with regard to minors because minors aren't going to be playing poker. There's clearly ways that casinos can assure that children don't use (such devices). It's going to be up to (Nevada regulators). It could be as simple as requiring a key, a set of numbers, to be entered on a periodic basis or it could be something as complicated as biometrics, where there's regional contact with the person to verify that they are using the device. It's also a question of the cost to implement it.
What kinds of games do you believe will ultimately be offered by casinos under the law and when do you think they will be on the market?
Poker players like to bet on sports. So I could see a situation where poker players are placing sports bets on a remote device during a poker game. I could also see devices being used by people in the sports book to play blackjack and other games. It's hard to say (when these will hit the market). They still have to adopt regulations and the equipment makers need to get licensed and their products approved. It could take as little as 12 to 14 months.
What do you believe are some top challenges Nevada regulators will face in the years to come?
I think the single largest challenge Nevada regulators have is the proliferation of technology. It's not only the gaming devices -- which 10 or 15 years ago were based on a few thousand lines of code and now are based on millions of lines of code -- but that the technology has really infiltrated all aspects of the casino, to smart table games, cashless wagering systems, player monitoring systems, all the other types of new innovations that are really beneficial to the gaming indsutry but require a high level of expertise to regulate. The challenge that regulators have is that they're going to need staff and equipment capable of understanding and testing the technology. That's going to require a significant capital investment from the state to meet those needs. These people are typically very well compensated in the private sector. The state has to be prepa red to provide competitive salaries and benefits to attract and retain those people. Likewise, the equipment neccessary to establish this new technology is also somewhat costly.
Another challenge is the proliferation of gaming across the world. The challenge regulators have with regard to this is that 20 years ago when it was a very local type of operation it was much more easy to understand and control the actions of the licensees because they were effectively down the street. Now they are halfway around the world, in some cases in jurisdictions that are less regulated and in some cases substantially less regulated than Nevada. Regulators need to make sure that corruptive influences that were successfully kept out of Nevada are kept out of these operations around the world.
What's the biggest hurdle for people applying for a gaming license in Nevada?
Before you come into Nevada to go through the licensing process you have to understand that it's a significant commitment of time and money. And unless you come to that realization its going to be a difficult process. It's effectively going to take six to nine months. It's going to require you to basically put together records for the past five years financial records, piece together information going back 20, 25 years, to be available to talk to the agents on short notice and to have effectively all aspects of your life open to review. If you're willing to do that and you're willing to be honest and up front with the regulators, it's actually not that difficult. It's just that initial realization of that intrusion and the work and the money it's going to cost.
Can you put a pricetag on that?
It's difficult. It depends on a lot of things. How many places you've lived, how many jobs you've had, how many issues you've had. The range can be extreme. It's very difficult for anyone to go through the process today without spending at least $25,000 for an investigation. That can go all the way up to $300,000 to $400,000 for a U.S. citizen. One good thing about investigations is that my fees look really reasonable in comparison with where investigative fees ultimately end up.
What's the toughest hurdle lawyers face in shepherding their clients through the process?
The most important thing is to prepare your client for what is to come and to prepare your client for the fact that there are no secrets. Regardless of how embarassing an incident might have been in your past you've got to talk about it. You've got to disclose it. Your application has to be full and complete and that you need to cooperate and get documentation in a timely fashion, to be up front with all your answers. In my experience, most applicants get into trouble because, for some reason or the other, they want to not disclose everything to the agents. Most things can be overcome if you're up front. It's very difficult in the ninth month to explain why you didn't disclose an arrest.