POSTED: 01:30 a.m. HST, Mar 28, 2014
A push by casino billionaire Sheldon Adelson to outlaw online gambling has ignited a bitter civil war in the gambling industry, dividing one of Washington's most powerful interest groups and posing a major test of the Republican megadonor's political clout.
Adelson's effort officially kicked off Wednesday, when lawmakers, including Sen. Lindsey Graham, R-S.C., who has accepted tens of thousands of dollars from the businessman and his family, introduced legislation originally drafted with Adelson's lobbyist.
The bill would close a 3-year-old loophole in federal law, banning online gambling — a growing industry that Adelson argues is bad for casinos and gamblers — and shutting down online gambling in a handful states that recently legalized it.
The dispute has already largely sidelined the industry's powerful trade group, the American Gaming Association, after Adelson threatened to withdraw from the organization if it continued to back expanded online gambling, according to several industry executives.
Adelson's political prominence was expected to be on display this week in Las Vegas at a four-day Republican Jewish Coalition meeting — an event that is attracting several 2016 presidential prospects, including former Florida Gov. Jeb Bush and Gov. Chris Christie of New Jersey, Gov. Scott Walker of Wisconsin and Gov. John Kasich of Ohio.
Adelson, whose $38 billion fortune makes him among the richest men in the world, poured roughly $100 million into Republican campaigns in 2012, and he is known for pushing ideological fights in Washington. The battle over online gambling shows how he also lobbies for his business.
In this fight, dueling branches of the casino industry are entering the fray, employing a half-dozen former elected officials and a clutch of lobbyists and public relations strategists through a pair of strange-bedfellows coalitions.
A new group bankrolled by Adelson, the Coalition to Stop Internet Gambling, is wooing socially conservative lawmakers opposed to gambling along with some Democrats who are worried about possible online gambling by minors. But it also features former New York Gov. George E. Pataki, who presided over a sweeping expansion of gambling in that state, including online bets on horse racing.
Rival casinos and online poker companies are counterattacking through the Coalition for Consumer and Online Protection. The group has signed up former Rep. Michael G. Oxley, a Republican, who a decade ago led efforts to outlaw online betting and accused companies selling such games of "gobbling up victims in the United States," and former Rep. Mary Bono. Oxley, who retired from Congress in 2007 and works as a lobbyist, said in an interview that he believed state-regulated online gambling was now the best hope of countering the rapid expansion of illegal online gambling.
"The world has changed dramatically in the last 10 years," Oxley said. "I have come to the conclusion you can't try to control the Internet and the like."
Other hires include Jim Messina, President Barack Obama's former campaign manager, and Haley Barbour, a former governor of Mississippi and prominent Republican lobbyist, who helped Republican super PACs raise millions of dollars in the effort to beat Obama in 2012. Among the coalition's arguments against a ban on online gambling is one that also figured in Republicans' battle against Obama's health care expansion: that it violates states' rights.
Some in the industry worry that a brawl between its biggest players could threaten the painstakingly crafted image of family-friendly entertainment the casino resorts have worked to promote.
"It is unfortunate, when an industry undermines itself," said Jan L. Jones, a former Las Vegas mayor who is the head of government relations at Caesars Entertainment, which is opposed to the bill. "This fight is tarnishing the entire industry. You just raise a whole specter of negativity that I think is unfortunate and inappropriate, after we have spent the last three decades with a message that gaming is just entertainment enjoyed by responsible adults."
An enormous amount of money is at stake: Morgan Stanley, an investment banking firm that tracks the industry, has estimated that by 2020, online gambling could be worth $8 billion a year — about 12 percent of the overall current gambling revenues at commercial and Native American casinos nationwide.
Online gambling was long deemed illegal under a federal law known as the Wire Act. But in 2011, the Justice Department issued an opinion that the law allowed individual states to sanction online gambling. Three states have since moved to legalize some form of Internet gambling — New Jersey, Delaware and Nevada — and several other states are considering it, in part as a way to bring much needed revenue into state coffers.
The legislation backed by Adelson would in effect reinstate the ban, although the legislation proposed Wednesday would exclude horse racing, a significant industry in Kentucky, the home state of Sen. Mitch McConnell, the minority leader.
The dispute over the gambling legislation largely traces the diverging economic fortunes of different gambling companies.
Casino operators like Caesars Entertainment and MGM Resorts International view online gambling as a way to bring in a new generation of gamblers to their U.S.-based resorts. Caesars, which also owns the popular World Series of Poker, is under particular financial pressure to bring in new revenue. The company's biggest investors include hedge fund executives who, like Adelson, are major players in political fundraising and super PACs.
Also supporting expansion are firms that manufacture betting equipment and software, and see online gambling as a lucrative new market, along with online poker companies.
On the other side is Adelson's casino resort company, Las Vegas Sands Corp., which is among the world's biggest and most profitable, buoyed by its enormously lucrative expansion into Asia, where it earns the vast majority of its profits.
Adelson has been joined by executives of some local casino companies and Indian-run casinos, who face a more direct threat from online gambling because their casinos do not typically offer the kind of destination resort experience associated with Las Vegas establishments.
Las Vegas Sands pursued online gambling itself as recently as 2003, when a subsidiary received a license to run an offshore gambling center in the British Channel Island of Alderney. In filings with the Securities and Exchange Commission, the company reported that it had spent $1.3 million exploring the feasibility of operating an Internet gambling site there.
But more recently, Adelson has warned that widespread online gambling would be impossible to effectively regulate, with operators having far less incentive to obey regulations than brick-and-mortar casinos with billions of dollars worth of capital investments at stake.
In an interview, Andy Abboud, the Sands' vice president for government relations, said the company had no interest in building the kind of online gambling platform that would be outlawed by the new bill.
"We aren't interested in the marketplace," Abboud said.
The other major industry power player — Steve Wynn, whose gambling and entertainment empire includes Wynn Las Vegas and Wynn Macau in China — has been much less vocal on his opinion of online gambling. But in recent weeks, he has made it clear that he is on Adelson's side and is worried that the industry could end up a target of criticism if underage players get on to an online poker site, among other complications.
"Where is the business opportunity?" Wynn told prominent Nevada reporter Jon Ralston last month. "The big problem I see is I don't see the government letting us keep the money."
Now the industry appears poised to deploy in Washington the kind of money it already lavishes on state capitals, where most gambling regulations are drafted. In New Jersey, firms and lobbyists working on online gambling issues were paid more than $50 million leading up to the state's 2013 decision to legalize some forms of Internet gambling.
Adelson has not been shy about deploying his wealth and prestige to muster allies and deter opponents in his latest fight. A year ago, the American Gaming Association prominently defended the 2011 ruling, prompting Sands officials to question why the company's member dues should pay for advocacy it strongly opposed.
"They are now like Switzerland," one casino executive said. "They have been ordered to stay neutral."
The ban was introduced in the Senate on Wednesday by Graham, who has not been a vocal foe of online gambling but faces a primary challenge from the right in his re-election effort this year. Adelson and his wife hosted a fundraiser for Graham in Las Vegas last April, and Adelson has in the past written six- and seven-figure checks to super PACs like one now backing Graham's re-election campaign.
At a news conference Wednesday, Graham was asked if he and other co-sponsors were operating merely as Adelson's emissaries.
"I would say that Sheldon has aligned himself with most Baptists in South Carolina," Graham replied. "I am on solid footing in South Carolina with people I represent. The fact that Sheldon is on board is a good thing."
Nicholas Confessore and Eric Lipton, New York Times