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MGM expects online gaming license, state compacts

By Sue Zeidler

LOS ANGELES (Reuters) - MGM Resorts International Ltd's CEO expects his company to obtain an online gaming license from Nevada regulators this week, and said states are talking with each other to forge alliances to create a viable interactive gambling market.

Obtaining the Nevada license would move MGM one step closer to entering the online field, which is expected to reach $10 billion a year nationwide by 2017. The sector is seen attracting younger players and offering a new avenue for growth to traditional casino operators whose growth has been stagnating.

Nevada, Delaware and New Jersey are among the states that have moved or are moving toward interactive gaming after the U.S. Justice Department last year declared that only online betting on sporting contests was unlawful, allowing states to legalize some forms of online gambling, from lotteries to poker.

According to the American Gaming Association, about 85 countries have legalized online gambling and an estimated $35 billion is being bet worldwide online each year, including by millions of people in the United States.

"We are encouraged to know that states are talking to one another. They are crafting their own legislation and legal frameworks but are talking with other states in anticipation of compacting with multiple states," MGM CEO Jim Murren said in an interview.

An interstate compact is an agreement between two or more states for the purpose of improving some shared resource, and generally requires the consent of Congress.

To be sure, Murren and other industry leaders favor federal legislation because it would provide a larger, more uniform market. Conversely, state-by-state legislation could lead to a patchwork of regulations and different tax rates and inadequate liquidity in some states.

But the likelihood of federal legislation passing this year is decreasing with each day. A proposed federal online gaming measure backed by U.S. Senate Majority Leader Harry Reid, a Nevada Democrat, and U.S. Sen. Jon Kyl, an Arizona Republican, would require quick action during the post-election congressional session to pass.

On Wednesday, the Massachusetts treasurer blasted the bill backed by Reid, saying the proposed federal law threatened the Massachusetts lottery that last year yielded nearly $1 billion in profit.

"We feel strongly that if it is in fact state by state, the states themselves need to compact with one another to create a more viable business model," Murren said. "Any one state going on its own presents an economic challenge, particularly in a small state like Nevada."

Earlier on Wednesday, MGM Resorts posted a larger loss, missing analysts' expectations, because of a steep drop in tax benefits, soft demand in Las Vegas and disappointing margins in Macau. Its shares closed 2.6 percent lower at $10.31.

TIPPING POINT

Murren said officials from New Jersey and Nevada are among those who have had discussions. A representative for Nevada Gov. Brian Sandoval was not immediately available, while the office of New Jersey Governor Chris Christie was closed in the aftermath of storm Sandy.

MGM spokesman Alan Feldman said at least a dozen states are talking.

Brick and mortar casinos like MGM are teaming up with online game developers and putting in place safeguards that would combat fraud, money laundering, underage and compulsive gambling, and players falsifying their location.

And Murren and others said these safeguards could easily be implemented for broader markets if states reached compacts.

MGM has partnered with Bwin.party Digital Entertainment Plc, a UK-based online gaming company, and U.S.-based Boyd Gaming Corp to offer real money online poker in the United States.

"Absent a federal law permitting online poker or gaming, I would urge that states ... come up with uniform regulations and uniform technical requirements to the extent that they can because that will make it much easier for the industry to bring the product to your jurisdiction," said John McManus, executive vice president and general counsel for MGM at a recent gaming conference.

"At the end of the day the industry has to make money ... At some point you will get to the tipping point where it won't be profitable and nobody will pursue it," he said.

Slot machine makers International Game Technology and Bally Technologies Inc in June were granted online gaming licenses in Nevada, allowing them to partner with Nevada's casinos to provide online poker and interactive games.

(Editing by Matthew Lewis)

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