Reid says poker bill not dead

While the fate of a federal Internet poker bill remains unclear, many industry observers believe the most likely path to legalization will be as an attachment to the tax-cut package President Barack Obama brokered with Republicans.

Senate Majority Leader Harry Reid, D-Nev., continued to reach out to members of both parties in an effort to build support for attaching his legislation to the tax measure. His success depends on his ability to put down an uprising by angry Democrats opposed to the president’s tax-cut deal.

Reid’s spokesman Tom Brede denied media reports late Wednesday that the bill had been pulled from the agenda during the final days of the lame-duck congressional session. He said the senator’s response to reporters’ questions was misunderstood.

"Senator Reid’s response to the question about the online poker bill is that we’re still working on it," Brede said.

Republicans have been opposed to legalizing online poker for financial and moral reasons. Spencer Bachus, R-Ala., along with Rep. Dave Camp, R-Mich., and Rep. Lamar Smith, R-Texas, sent a letter last week to Reid and Minority Leader Mitch McConnell, R-Ky., opposing "any attempts … to legalize Internet gambling."

Sen. John Ensign, R-Nev., supports Reid’s efforts, but remains cautious about the current bill.

"I definitely support the concept of this legislation because it would be good for Nevada. We are still working out a few of the bill’s details at this time," Ensign told the Review-Journal in an e-mail.

Industry analysts say given Reid’s successful re-election, a U.S. Internet poker bill will pass before Congress adjourns.

"We believe the potential passage of an Internet poker bill is increasing," said Joseph Greff, an analyst with JP Morgan. "That said, at this point we continue to believe ultimate passage of Internet poker is less than 50 percent by year-end, given the controversial nature of the bill."

In a research report, Greff said if the bill doesn’t pass before the current congressional session ends "it has a reasonable chance to pass in 2011."

The Internet Poker Act of 2010 proposes to amend the Unlawful Internet Gaming Enforcement Act to allow for traditional payment processing for online poker and to legalize Internet poker at the federal level. The Internet enforcement act was included in a port security bill approved by Congress before the mid-term elections in 2006.

Should Reid’s bill become law, online poker sites wanting to operate in the U.S. would have to obtain a five-year operating license and pay a 20 percent tax on all deposits. For the first two years, licenses would only be issued to current U.S. casino or racetrack operators and casino slot machine manufacturers.

Todd Eilers, senior research analyst with Roth Capital Partners LLC, said he wasn’t surprised the bill favored domestic casino operators, given that "Las Vegas casino operators contributed heavily to Reid’s re-election campaign."

According to figures compiled by the Center for Responsive Politics, MGM Resorts International and Caesars Entertainment Corp. are Nos. 1 and 3, respectively, in total contributions to Reid since 1989.

MGM Resorts has donated $295,150, while Caesars contributed $171,200 over the past 21 years. The donations are from individuals and political action committees, according to the Washington, D.C.-based nonprofit research group.

"In our estimation, never before has the passage of Internet poker, at the federal level, been as probable as at this moment," said Bill Lerner, principal and analyst with Union Gaming Group LLC.

In 2012, potentially the first year of legalized U.S. online poker, Union Gaming estimates there will be more than $1 billion in earnings before interest, taxes, depreciation and amortization, generated by licensees.

"We feel very strongly that 90 percent (or more) of the direct benefit will accrue to a very small number of licensees, 10 or so," Lerner said in a research report released Wednesday.

He said of the publicly traded casino operators, MGM Resorts has the most to gain, perhaps $100 million to $200 million in related EBITDA, representing increased earnings of $2 to $4 a share.

In terms of private casino companies, both Lerner and Greff, of JP Morgan, expect Caesars to benefit because of its World Series of Poker brand, while Station Casinos Inc. should be helped by its ownership of the Ultimate Fighting Championship, or UFC.

Greff said legalization of online poker would drive significant growth in the market, reaching $3.5 billion to $5 billion annually in 2015.

Current estimates by the Poker Players Alliance suggest there are 23 million U.S. online poker players, while 15 million of these are believed to play online poker for money.

The midafternoon news report that purported to quote Reid saying the online poker bill was dead caused scrambling among lobbyists and industry executives following the legislation.

"I don’t think I am going to believe it until I hear it myself from Reid’s office," one lobbyist said.

That is when Reid’s office moved to put out the fire with the statement distancing itself from the report.

Stephens Washington Bureau chief Steve Tetreault contributed to this report.Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.