1. Copyright © 2011 by K&L Gates LLP. All rights reserved. BLACK FRIDAY IMPACTS Linda J. Shorey

2. 1 What Motivated DOJ To Act?

3. 2 Opinions  Increasingly bold activity by Pokerstars in U.S.  Payment processors lying to banks about their activities.  Poker Companies’ use of less-than-savory payment processors.  Possible evidence of connection between the Poker Companies and activities of the less-than- savory payment processors.  All of the above and more.

4. 3 Was DOJ’s Action An Attempt To Influence The Legislative Debate On Internet Gambling? Maybe or maybe not; DOJ’s not talking.  Some say this is not a gambling case but a bank fraud case (they point to permitting return of accounts and seized domain name usage for non-U.S. players).  Some say this is a gambling case to stop online poker (they point to choice of poker operators only and none of the sports wagering operators still accepting wagers from U.S. players).  Ultimately, however, Congress and State Legislatures are more influenced by their constituents (and lobbyists) than by DOJ activity, and poker has support.

5. 4 Some Winners & Losers

6. 5 Who Loses?  Stars & Tilt,  U.S. online poker players,  Online players in other countries,  Absolute/Ultimate, and  Other U.S.-facing poker sites who had plans to continue to operate in some fashion in the U.S.

7. 6 Who Might Benefit?  Big Casinos,  Certain non-U.S. Poker Operators --  Those never taking wagers from U.S.-based players, and  Those who stopped taking wagers from U.S.- based players in October 2006,  U.S.-based online subscription and play-for-free poker operators.

8. 7 Impact Uncertain Or As Yet Unknown  PPA,  Those receiving “gifts” or campaign contributions,  Land-based poker tournaments,  Networks televising poker tournaments,  Banks, and other financial institutions, in the Internet gambling payment processing system and lawful Internet gambling businesses needing their services, and  Likely others.

9. 8 Legislative Efforts - Congress

10. 9 In Play - HB 1174 On March 17, 2011, Rep. John Campbell (R-CA) introduced H.R. 1174 – "Internet Gambling Regulation, Consumer Protection, and Enforcement Act."  Identical to H.R. 2267 (introduced by Rep. Barney Frank (D-MA) in prior congressional session), as amended and reported by the House Financial Services Committee on July 28, 2010.  Provides framework for issuance of licenses to “operate an Internet gambling facility” (defined as “the direction, management, supervision, or control of an Internet site through which bets or wagers are initiated, received or otherwise made, whether by telephone, Internet, satellite, or other wire or wireless communication”) and for the regulation of licensees.

11. 10 On Deck Action in the Senate (bill, addition to conference committee bill, etc) undertaken by Senator Harry Reid and limited to poker.

12. 11 Hurdles For Congressional Action  Multiple Interested Parties Not on Same Page  Large Casinos  Regional Casinos  Horseracing Industry  Tribes  States  Non-U.S. Operators  Congressional Leaders Who Oppose I-gambling  Rep. Bachus (R-AL) – Chair of House Financial Services Committee  Senator Kyl (R-AZ)– Republican Whip

13. 12 Did Black Friday Impact Congressional Efforts?  Possible positive  Unifies members of American Gaming Association  Illustrates need for consumer protection through regulation  Mobilizes players to become engaged in –  Grassroots activity  Supporting PPA  Possible negative  Members opposed to online gambling argue UIGEA is working  Support for claims that the online gambling industry associates with disreputable/criminal actors

14. 13 Legislative Efforts - States

15. 14 States With Legislative Activity in 2011 14

16. 15 Status of Legislative Efforts Done for 2011  Hawaii – Legislative session ended May 5  Florida – Legislative session ended May 7 Passed and now law  Washington D.C. – Congressional period to object ended April 7, law effective April 8 Passed Legislature and before Governor  Iowa – Passed legislature May 3 Passed Legislature but vetoed by Governor  New Jersey – Governor Christie vetoed March 3 Introduced and in Committee  California  Nevada

17. 16 Washington D.C. Law #L18-370 The Lottery Modernization Act of 2010 (Subtitle G of the District’s 2011 budget legislation) changes D.C. law to provide that a “lottery or lottery game means both games of skill and games of chance that are operated by and for the benefit of” the District, IF  When offered over the Internet, it can be confirmed that those playing are located in the District; and  “No method, media or device for play of the games of skill and games of chance” violates federal law.

18. 17 New Jersey S490/A2570  The legislation that would have permitted licensed New Jersey casinos to offer their authorized games over the Internet to persons located in NJ was vetoed by Governor Christie because, among other things, he believed it violated the NJ Constitution.  Senator Lesniak, sponsor of the vetoed legislation, has indicated he intends to introduce a joint resolution that would provide for a constitutional amendment referendum to appear on the November 2011 ballot.

19. 18 Iowa-- SF 526 Requires the administrator of the state racing and gaming commission to prepare and provide the legislature, by December 2, 2011, a report “regarding the creation of a framework for the state regulation of intrastate internet poker.”

20. 19 Nevada -- AB 258  As introduced on March 1, would have permitted Nevada to be a hub for interstate online poker and provided that applicants for a NV license would not be denied licensure solely because they accepted wagers from U.S., if licensed in another jurisdiction.  As amended on Apr. 25, the bill provides that  no license for interactive gaming will be effective until  A federal law is enacted that authorizes it, or  The U.S. DOJ informs Nevada gaming authorities, in writing, that it is permissible.  Applicants must meet federal law qualifications for interactive gaming

21. 20 California – SB 40 and SB 45  SB 40  Authorizes and provides for regulation of intrastate Internet poker.  Permits licensure of up to 5 operators, but the operators must be a federally recognized tribe or tribal authority, a licensed card room, or an entity owned by a combination of tribes/tribal authorities and/or card rooms.  SB 45  Authorizes and provides for regulation of intrastate Internet gambling.  Permits licensure of up to 3 qualified bidders as hub operators.  Federally recognized tribes may bid but would do so “subject to the jurisdiction of the state.”

22. 21 Did Black Friday Impact State Efforts?  Nevada - Yes  Others – No immediate direct effect

23. 22 What May Impact State Operation After Legislation Enacted?  Action by U.S. DOJ  Liquidity  Blocking by banks  Tax rates

24. 23 Prediction

25. 24 Two Year Forecast  Federal  50-50 chance of federal authorizing legislation in 2011  25-75 chance of federal authorizing legislation in 2012  State  0 chance of state authorizing legislation in 2011 (including the ability of D.C. to implement its law)  50-50 chance of state authorizing legislation in 2012

26. 25 Linda J. Shorey K&L Gates LLP +1.717.231.4510 linda.shorey@klgates.com www.klgates.com QUESTIONS??