Update on U.S. Internet Gambling: New and Pending Federal and State Legislation and Regulation

1. Update on U.S. Internet Gambling: New and Pending Federal and StateLegislation and Regulation by Mark Hichar Partner, Edwards Angell Palmer & Dodge PRV 1062810.1

2. Pending Federal iGaming Legislation: • The "Frank Bill" Rep. Barney Frank (D-MA) - May, 2009 Companion Tax BillRep. Jim McDermott (D-WA) – May, 2009 • Bill to Delay the UIGEA RegulationsRep. Frank - May, 2009 • "The Menendez Bill“Sen. Bob Menendez (D-NJ) - August, 2009 • Tax Reform Legislation Including iGamingSen. Ron Wyden (D-OR) and Sen. Judd Gregg (R-NH) - February, 2010

3. The Frank Bill (H. 2267) • Licensing Requirements for iGaming operators – all types of games, except sports-betting – 5 year license term, renewable • Only licensed operators could accept bets from persons in the U.S. (Treasury would be licensing authority) • Vendors managing or controlling bets would have to meet the same suitability criteria as licensees • States and Indian tribal authorities could "opt-out" • Payment processors not liable if following State law • Status: • 66 Co-sponsors as of March 15, 2010 • Committee Hearing Held December 3, 2009 • Now with Subcommittee of House Judiciary Committee

4. McDermott Bill (H. 2268) • License fee due from iGaming operators – 2% of amounts deposited per month • Fee for allowing unauthorized wagering accounts – 50% of the amounts deposited • iGaming operators required to file returns identifying players, their gross and net winnings, and gross wagers • Withholding of taxes on net iGaming winnings Status: • Had 5 Co-sponsors as of March 15, 2010 • No Hearings or other actions.

5. The Bill to Delay the UIGEA Regs (H. 2266) • Would extend from December 1, 2009, to December 1, 2010, the deadline for compliance with UIGEA regs • Status: • 55 Co-sponsors as of March 15, 2010 • Committee Hearing Held December 3, 2009 • No subsequent action • Probably obsolete in light of 6-month delay granted • No further delays expected • UIGEA Regs to take effect June 1, 2010

6. The Menendez Bill (S. 1597) • Licensing Requirements for iGaming operators – Only covers skill games. Sports betting excluded. – 5 year license term, renewable • Peer-to-peer poker only • Only licensed operators could accept bets from persons in the U.S. (Treasury would be licensing authority) • Monthly Fee – 10% of funds deposited for wagering -- ½ to Fed Gov’t; ½ to participating States and Tribes • States and Tribes could "opt-out" • Requires creation of a list of unlawful iGaming operators • Status: No action taken – No sponsors

7. The Wyden/Gregg Bill (S. 3018) • Similar to Frank/McDermott but not stand-alone • License fee same – 2% of wagering sums deposited • Reporting the same • Licensing requirements the same • License term the same – 5 year, subject to renewal • Same suitability requirements • Similar requirement to address problem gambling • Similar “opt-out” right for states and tribes • Status: • Bill Has 2 Co-sponsors as of March 15, 2010 • No Major Actions.

8. UIGEA Developments • The UIGEA Regulations: • were to take effect December 1, 2009 • delayed until June 1, 2010 (on Nov. 27, 2009) • fulfill the UIGEA's requirement that banks and transaction processors establish procedures • to permit identification of restricted transactions • to decline or block those transactions • Mid-November, 2009: MasterCard changed its Rules • Required card issuers (banks) to decline ALL iGaming payment transactions • MasterCard has issued new Card Acceptor Business Code: MC 9754 (Gambling – Horse Racing, Dog Racing and State Lotteries) – effective June 1, 2010

9. iGaming Activity in Certain States • New Jersey Bill Pending • Florida Bill Pending • California Activity • Illinois recently-enacted legislation

10. New Jersey Poker Bill filed January, 2010 • Atlantic City casinos could be additionally licensed to offer iGaming intrastate to NJ residents -- all games except sports wagering • Licenses valid for one-year, subject to renewal • Annual taxes 20% of gross wagering revenue • Licensing fees $200k initially, $200k/yr thereafter • All gaming-related equipment would be required to be located within Atlantic County, NJ • iGaming terminals (could be identical to slot machines) could be placed at tracks – with tracks’ agreement

11. Pending Florida Poker Bill – February, 2010 • Internet hub operators licensed to run poker sites for offering peer-to-peer (“unbanked”) intrastate poker • Hub Operator Fees/Taxes • $500k initial license application fee • 10% of monthly gross receipts fee • Tax of 20% of monthly gross receipts from play  • “Cardroom Affiliates” additionally licensed to provide portals to poker network – fee 4% of gross receipts • Players’ per hand fee: flat, hourly, or % of pot • Hub Operator Required Qualifications include: • licensed to operate gaming or lottery in the U.S. • licensed to conduct iGaming where legal in one or more jurisdictions outside the U.S.

12. California iGaming Activity • California lawmakers considering legalizing Internet poker to raise revenue • Morongo Band of Mission Indians in favor of their proposal • Other California Tribes are opposed • Believe fewer will visit brick-and-mortar casinos • Argue iGaming would violate tribal compacts • A California Senate committee held an informational hearing in February, 2010, but no formal Bill yet

13. Illinois Law Enacted and Amended in 2009 • Contemplates a pilot program whereby Illinois lottery games would be sold intrastate via the Internet • Requires DoJ review of the implementation plan • Plan will go forward only if the DoJ “does not object . . . within a reasonable period of time after its review.”

14. THANK YOU Mark Hichar, Partner Edwards Angell Palmer & Dodge, LLP tel: +1 401 276 6588 fax: +1 401 276 6611 mhichar@eapdlaw.com 111 Huntington Avenue 2800 Financial Plaza Boston, Massachusetts 02199-7613 USA Providence, Rhode Island 02903 USA