Nevada Update: Regulation of Internet Poker, Part 2

In our prior article, “Nevada Update: Regulation of Internet Poker,” published in the August edition of CEM, we examined the recently enacted Nevada regulations governing Internet gaming, as well as the first interactive gaming licenses to be granted by the Nevada Gaming Commission. At that time, Bally Technologies and International Game Technology had both been licensed as manufacturers of interactive gaming systems and interactive gaming service providers. These were the first such approvals issued in the United States by a regulatory authority.

Since then, the Nevada Gaming Commission has approved a number of other interactive gaming licenses, including the first licenses for the operation of interactive Gaming systems to South Point Poker LLC, an affiliate of the South Point Casino in Las Vegas, and Monarch Interactive Inc., an affiliate of the Atlantis Casino Resort Spa in Reno. Similarly, PokerTrip Enterprises Inc. received the first probationary license as a marketing affiliate, and NetEffects Networks Inc., received the first information technology service provider license, authorizing it to provide management of and support for regulated hardware and software systems. This list continues to grow with each monthly commission meeting.

In addition to the expanding list of licensees, the Nevada Gaming Commission, as expected, continues to refine the categories of licensure. In particular, on Sept. 20, 2012, the commission approved revisions to Regulation 5.240, which governs the licensing of service providers. The purpose of these amendments is to clarify the types of services that require licensure, as well as the levels of investigation conducted by the State Gaming Control Board with regard to each type of service. The focus of this article is to analyze these revisions.

The term “service provider” is now defined as a person who:

(i) Acts on behalf of another licensed person who conducts nonrestricted gaming operations and who assists, manages, administers or controls wagers or games, or maintains or operates the software or hardware of games on behalf of such a licensed person, and is authorized to share in the revenue from games without being licensed to conduct gaming at an establishment;
(ii) Is an interactive gaming service provider as defined pursuant to Regulation 5A.020;
(iii) Is a cash access and wagering instrument service provider;
(iv) Is an information technology service provider;
(v) Acts on behalf of another licensed person who conducts nonrestricted gaming operations where the services provided include those functions that fall within the definition of “gaming employee” pursuant to NRS 463.0157;
(vi) Is a geolocation service provider;
(vii) Is a patron identification service provider; or
(viii) Is a payment processing service provider.

--> A service provider granted a license by the commission is a licensee.1

The revised regulation sets forth three additional categories of service providers, namely geolocation service providers, patron identification service providers and payment processing service providers.

The term “geolocation service provider” is defined, in relevant part, as “a person who identifies, or provides information for the identification of, the geographic location of individuals to a licensed operator of interactive gaming, licensed interactive gaming service provider, or licensed manufacturer of interactive gaming systems for purposes of interactive gaming … ”2

The term “patron identification service provider” is defined, in relevant part, as “a person who verifies, or provides information for the verification of, the identification of individuals to a licensed operator of interactive gaming, licensed interactive gaming service provider, or licensed manufacturer of interactive gaming systems for purposes of interactive gaming …”3

The term “payment processing service provider” is directed at “a person who directly facilitates the depositing of funds into or withdrawing of funds from interactive gaming accounts for a licensed operator of interactive gaming or licensed interactive gaming service provider …”4

The inclusion of these three new categories of service providers is important, as they add greater clarity to the types of services that trigger licensure. In turn, this allows persons intending to offer such services, as well as those persons utilizing such services—such as online gaming operators—to plan accordingly. As we noted in our previous article, the original wording of Regulation 5.020 created a potential cause of confusion because of its lack of specificity:

The lack of a definition of a Class 2 service provider creates confusion. For instance, such third parties as payment processors, geolocation companies, age and identification verification companies, site security services, loyalty and marketing management software and service providers, etc., may or may not all have to be licensed … The intended scope of a Class 2 service provider license is currently unclear and could possibly encompass many third-party providers that were not
necessarily envisaged as having to undergo licensure when the legislation permitting Internet poker was originally enacted.5

Equally important, however, to the expanded scope provided by the three new categories, is what is specifically excluded from the definition of service provider. In particular, the definitions of geolocation service provider and patron identification service provider exclude the following:

(i) A person who otherwise generally provides such information for purposes other than interactive gaming;
(ii) A licensed operator of interactive gaming who obtains such information for its own use;
(iii) A licensed interactive gaming service provider other than a marketing affiliate, or licensed manufacturer of interactive gaming systems who provides such information; or
(iv) A person who provides such information to a licensed operator of interactive gaming, licensed interactive gaming service provider, or licensed manufacturer of interactive gaming systems so long as the licensed operator of interactive gaming, licensed interactive gaming service provider, or licensed manufacturer of interactive gaming systems assumes responsibility for the information provided.6

Similarly, in defining a payment processing service provider, the commission omits:

(i) A licensed operator of interactive gaming who provides such services for its patrons;
(ii) A licensed interactive gaming service provider other than a marketing affiliate who provides such services; or
(iii) A person who provides such services to a licensed operator of interactive gaming or licensed interactive gaming service provider, so long as the licensed operator of interactive gaming or licensed interactive gaming service provider assumes responsibility for the service provided.7

These exclusions are important, because they recognize that the more intrusive and thorough Class 1 level of licensure (imposed upon operators of interactive gaming systems, manufacturers of interactive gaming systems, and interactive gaming service providers) trumps the less-intrusive Class 2 level of licensure (imposed upon payment processing, geolocation and patron identification service providers). Thus, a licensed operator of interactive gaming systems is not required to obtain a separate license to provide payment processing, patron identification or geolocation services if it will use the information itself.

Similarly, licensed interactive gaming service providers and manufacturers of interactive gaming systems are not required to obtain separate licenses to provide geolocation or patron identification services if the interactive gaming service provider or manufacturer of interactive gaming systems is the entity providing such information. An interesting distinction, however, is that a licensed manufacturer of interactive gaming systems may not provide payment processing services without obtaining a specific license, whereas a licensed interactive gaming service provider may provide such services under its existing license.

Similarly, of particular significance is the last exclusion in each of the definitions for instances where the licensed operator of interactive gaming or licensed interactive gaming service provider assumes responsibility for the service provided. The term “assumes responsibility” is defined in Regulation 5.240 as “to acquire control over, or ownership of, a person, or to acquire the authority, by contract or otherwise, to direct a person to make corrections, modifications, or changes to any aspect of the service or services provided by the person, including corrections, modifications or changes to software or hardware.”8 Accordingly, a payment processing, geolocation or patron identification service provider can forgo licensing if a licensed operator, interactive gaming service provider, or manufacturer assumes responsibility for the service. This significantly reduces barriers for entry into the Nevada market for providers while still preserving the integrity of the industry.

Finally, the exclusions note that geolocation and patron identification service providers do not have to undergo licensing if they would otherwise generally provide such information for purposes other than interactive gaming. This raises the intriguing question as to who will be deemed to be providing this information for gaming-specific purposes as opposed to other, general purposes. This question will be answered as the Gaming Control Board proceeds with the processing of service provider licenses.

To conclude, the revisions to Regulation 5.240 are important for two primary reasons. First, the addition of three new categories of service providers offers additional clarity with regard to the types of services that require licensure and the levels of investigation conducted by the Gaming Control Board. Second, the fact a payment processor, geolocation service provider or patron identification service provider can forgo licensing in certain circumstances, as discussed above, makes the market more accessible while preserving the integrity of the industry.

1 NGC Reg. 5.240(2)(h).
2 NGC Reg. 5.240(2)(c).
3 NGC Reg. 5.240(2)(f).
4 NGC Reg. 5.240(2)(g).
5 G. Light & K. Rutledge, “Nevada Update: Regulation of Internet Poker.” Casino Enterprise Management (August 2012).
6 NGC Reg. 5.240(2)(c) and (f).
7 NGC Reg. 5.240(2)(g).
8 NGC Reg. 5.240(2)(b).

CLICK HERE to read Nevada Update: Regulation of Internet Poker, Part 1.

CLICK HERE to view Nevada Update: Regulation of Internet Poker, Part 2 on the Casino Management Enterprise webiste.

 

Published In: Administrative Agency Updates, Art, Entertainment & Sports Updates, General Business Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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