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Inside Gaming Special Report: Caesars/888 Deal Approval a Milestone for Online Gaming

Caesars Palace, Las Vegas

Caesars Entertainment signed a deal earlier this month to partner with 888 Holdings to combine the power of the Caesars name and the World Series of Poker brand with 888's gaming platform. So what? We give you "Big Company X meets Big Company Y" all the time in our weekly Inside Gaming blurbs. This deal is extra juicy because the Nevada Gaming Commission actually approved it. And the debate regulators had about this partnership shed light on how gaming officials are likely to approach the licensing process when online gaming is approved in the United States. While it doesn't mean much for American consumers in the short term, it could be the start of a new chapter in the U.S. online poker saga.

Caesars Entertainment Inc. inked a deal in early March with two subsidiaries of the Israeli-based Internet gaming company 888 Holdings, LLC. Together, they will market the World Series of Poker and Caesars brands to virtual gamblers overseas. Operating out of Gibralter, 888 runs poker, bingo, sports betting, and casino game sites in the United Kingdom, France, and Italy. The Nevada Gaming Control Board (NGCB) met on March 9 to discuss the deal, voting unanimously to recommend that the Nevada Gaming Commission approve the partnership. The Gaming Commission acted on that recommendation on Thursday, giving the final OK to the groundbreaking deal. Caesars is now the first Nevada gaming licensee approved to partner with an overseas online gambling company.

Mitch Garber, CEO of Caesars Interactive Entertainment, said the NGCB's vote was a major step toward legalizing online gaming in the U.S. "It was a historic moment," he said. "It confirms that Internet gaming is a reality. It should allow us to look more and more at a federally regulated environment in the United States." Garber headed PartyGaming before taking a job with Caesars.

Although the Board's vote did acknowledge that online gaming can be regulated by government, the panelists were very clear that they were only advocating approval of the deal between Caesars and 888 and not recommending that 888 receive a Nevada license. "What we're doing today is looking at the suitability of a business relationship," said board member A.G. Burnett. "We're not granting [888] a Nevada gaming license and we're not making a ruling on U.S. gaming law."

Garber said that Caesars chose to work with 888 because the company already has the necessary hardware and software and will save Caesars the trouble of writing its own programs. Industry analysts have speculated for years about which platforms the major U.S. casino operators would chose when they entered the online gaming market. Some have suggested that companies like 888, Bwin, and Betfair eschewed the U.S. market since the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) specifically so that American gaming regulators would not reject such partnership agreements or mergers based on past violations of U.S. law.

Not surprisingly, discussion of 888's response to the UIGEA took up much of the two-hour hearing. 888 CEO Gigi Levy teleconferenced in from Tel Aviv to tout the company's respect for U.S. law. Levy and attorney Michael Horowitz explained why 888 believed that the company could take bets from American customers prior to the UIGEA's passage in 2006 and said that once the law changed, 888 immediately blocked American customers from placing wagers despite the significant financial loss. According to testimony, the company's revenue fell by 57 percent after it cut off American customers. "The words and actions of 888 were clear," Horowitz said. "The company has a commitment to doing what is right and doing what is legal."

Gaming-law expert I. Nelson Rose wrote on his Gambling and the Law blog that the NGCB's approval is important because "Nevada regulators did not find a site unsuitable merely because it took poker bets from the U.S., prior to the passage of the Unlawful Internet Gambling Enforcement Act."

The same day that the Gaming Commission approved the deal between Caesars and 888, PokerStars and Wynn Resorts, Ltd. announced their own partnership. Should online gaming be legalized in the U.S., the Wynn plans to launch Like Caesars, the Wynn has a Nevada gaming license and will need gaming approval, especially if it plans to launch a U.S.-facing site with PokerStars. Regulators may look at the Wynn's deal less favorably since PokerStars did not block American customers after the passage of the UIGEA. However, PokerStars has hired a former Nevada gaming regulator as a consultant and is ramping up its lobbying efforts to support a bill that would legalize interstate online poker in Nevada and could minimize the importance of PokerStars' intrastate gaming history. Caesars and MGM have both come out in strong opposition to the bill.

Read more about the NGCB's decision and the Caesars/888 deal in the Las Vegas Sun and the Casino City Times. The Sun also has more on the Gaming Commission's final approval.

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