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Congress in a race with states to pass online gambling law

By Sue Zeidler

LOS ANGELES (Reuters) - States racing to legalize online gambling may soon be overtaken by the federal government, as efforts to pass a national bill begin to come together.

Legislation in the House is likely to be introduced this spring. Senate Majority Leader Harry Reid (D-Nevada), whose long-advocated federal legislation never got introduced last year, is working behind the scenes to form a coalition to support the measure.

"I think the states' passage gives some incentive to the federal government to act," said Representative Joe Barton (R-Texas), who introduced an online poker bill in 2011 that failed. He plans to introduce a bill this spring.

"Whether you're for or against Internet gambling," said Barton, "you don't want 50 sets of state laws. You want uniformity."

Similar efforts by Senate Majority Leader Harry Reid and former Senator Jon Kyl (R-Arizona), backed by the casino industry, fizzled last year. The Reid-Kyl bill faced stiff opposition from Republicans and several states' governors and others who felt it unfairly favored Nevada by giving it too much regulatory clout and a cut of the regulatory fees.

Congressional efforts have picked up as more states move forward with their own bills. New Jersey Governor Chris Christie signed legislation on February 27 authorizing online gambling in an attempt to help the state's struggling casino industry and generate casino tax revenues.

New Jersey is the most populous state to approve online gaming, following Delaware and Nevada. Many others are considering it. An Illinois senate committee filed a bill earlier this week that could authorize online gambling there.

Several states are also trying to figure out how to band together to attract more gamblers.

Proponents of a federal law say it would create uniformity and impose safeguards against fraud, while opponents say it would usurp states' power and siphon off badly needed revenues.

Prior federal efforts have also drawn steadfast opposition from religious groups such as the National Association of Evangelicals and the Southern Baptist Convention, which blasted the draft legislation circulated last year.

That effort was sidetracked as both parties concentrated on the election, gambling executives and political officials said. Reid and Senator Dean Heller (R-Nevada) say they intend to try it again.

"We should have done it on a federal level ... we are going to try to figure out a way forward," said Reid at a recent press conference.

"Senator Heller believes federal legislation for online poker is crucial, and will continue to work with Senator Reid and like-minded colleagues to get a bill passed," said Chandler Smith, Heller's communications director.

To date, proposed federal legislation has sought only to regulate Internet poker and prohibit other forms of online gambling.

New Jersey's legislation allows for a broad array of games, including online slots, blackjack and other table games. The state plans to take 15 percent of the amount won by online casinos from players within its borders. Nevada intends to keep 6.7 percent.

Nevada is expected to be the first state to go live with online gaming, likely by summer, according to regulatory and industry experts. The state will only allow poker.

Draft federal legislation over the past few years would divide tax revenue between the federal government and states where the bettors reside and the state where the legal website is located. Some proposals allow the federal government to take 5 percent to 10 percent of the tax revenue.

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.

AGA projects the U.S. market to reach $10 billion a year by 2017 from about $4 billion in unauthorized gambling in 2011.

Caesars and other large casino operators like MGM Resorts International Ltd have long promoted federal legislation, as it would offer a larger, more uniform and liquid market.

"We will be prepared with our offerings for Nevada and hopefully New Jersey," said Seth Palansky, a spokesperson for Caesars Interactive Entertainment. "But there is still time for Congress to step in and provide a federal solution."

(Reporting by Susan Zeidler; editing by Prudence Crowther)

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