As Congress debates the federal budget, a Democratic senator strongly backed by Nevada casino interests and a Republican senator staunchly opposed to betting are working together to push an online-gambling bill into the mix.
Senate Majority Leader Harry Reid and Arizona Republican Sen. Jon Kyl are seeking language in a legislative package during the lame-duck session that could expand some forms of online wagering and would limit others. Among other things, the bill would create an Office of Online Poker Oversight under the Department of Commerce.
The initiative has long been discussed behind closed doors but never publicly introduced. It would create a federal system for online poker, something casino operators have pushed for in recent years. At the same time, it would prevent states from legalizing nearly every other type of online gambling, including sites run by state lotteries.
Even the measure's proponents say the bill is a long shot. At a news conference on unrelated issues last week, Mr. Reid suggested he needed more Republican support. But advisers for Messrs. Reid and Kyl say the legislation remains at the top of their agenda, even if its path forward is unclear. Most likely, people familiar with the matter say, the senators would try to attach the language to a piece of "must-pass" legislation before the end of the year.
State-lottery directors are worried enough about the measure that they have descended on Washington this week to advocate against it. Their efforts represent the first coordinated D.C. action for lottery directors, participants say.Helping to coordinate the visit are lottery-technology companies such as GTech, a unit of Italy'sLottomatica Group SpA, LTO.MI -0.12% which likely would lose a huge potential business running online gambling sites for lotteries if the federal bill passes. "All of the lotteries in the country agree this is a matter of states' rights," said Arch Gleason, president of Kentucky's lottery.
An informal draft bill asks state legislatures to decide whether they want Internet poker to be offered in their states. For the first two years, sites would be operated only by casino companies, card clubs, slot-machine manufacturers, Indian tribes and race tracks. The Commerce Department's online poker office would oversee state regulatory bodies, which would license online poker companies.
Revenues would be taxed at 16%, most of which would go to states. Whether or not states opt in to the federal poker system, other online gambling would be restricted to horse-race betting and limited lottery ticket sales.
The bill has its roots in a 2010 version that Mssrs. Reid and Kyl created but never introduced. In his re-election campaign that year, Mr. Reid received strong support from struggling Nevada companies such as Caesars Entertainment Corp.CZR -1.34% and MGM Resorts International, MGM -2.46% who want to run national online poker sites.
Until a 2011 federal crackdown, there were around 1.9 million poker accounts in the U.S. that supported revenues for offshore sites of around $1.3 billion, according to H2 Gambling Capital, which tracks the data. The accounts since have dropped to about 350,000, representing around $223 million in revenues from U.S. play this year.
Earlier this year, Mr. Reid said Internet poker "may be the most important issue facing Nevada since Yucca Mountain," referring to the proposed storage site for radioactive material that has spurred years of disagreement.
Mr. Kyl, retiring this year from the Senate, was involved in bills dating to the 1990s that sought to ban online gambling. One passed, a 2006 bill that targeted financial transactions for unlawful online gambling.
That bill didn't define unlawful gambling, but at the time the Justice Department believed a separate, much older bill, the Wire Act of 1961 outlawed most forms of online gambling. A year ago, however, the Justice Department reversed its position, and states began implementing plans to allow or operate various forms of online gambling.
The states of Illinois and Georgia began selling individual lottery draw tickets over the Internet. Delaware's lottery is preparing to oversee a potentially broader set of games while other state lotteries also have plans.
Legislators in 10 states this year introduced bills to introduce online gambling or study the issue. Nevada began licensing companies to offer online poker within the state.
Given the state activity,Mr. Kyl is trying to convince fellow anti-gambling Republicans that the federal poker bill is a good compromise that would reduce gambling overall.
Mr. Kyl "just doesn't like gambling," a person familiar with his thinking said. "With this effort he just wants to try to add to what he did before and limit gambling as much as possible."
Mr. Kyl's unlikely ally, the casino industry's trade group, has talked with 240 federal lawmakers in the past year on the topic, said American Gaming Association executive director Frank Fahrenkopf.
"We try to explain that the legislation is in fact a restriction of gambling rather than an expansion of gambling," Mr. Fahrenkopf said.
Several governors and state groups such as the National Conference of State Legislatures have pushed concerns that the bill pre-empts states' authority over gambling. Convenience-store owners, meanwhile, recently began aggressively advocating in favor of the bill because they don't want lotteries to expand online, which they say could hurt sales in their stores.
People involved with efforts to push the bill say that many of Mr. Kyl's fellow conservatives don't appear to be buying his argument that the bill is a good compromise to reduce gambling.
"You're just allowing poker into every house or home in the states that are going to allow this," said Chad Hills, a gambling analyst for the conservative- Christian organization Focus on the Family. "That's a huge expansion of gambling. This is a hill we consider worthy of dying on in our opposition."—David Wessel contributed to this article
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