A briefing paper that highlights key legislative, regulatory and market developments from 2013 and developments expected in 2014.

U.S. Internet GamblingIn Focus: 2013 And 2014

Contents

U.S. Internet Gambling: 2013 And 2014 January 2014

NO. OF STATES THAT CONSIDERED INTERNET GAMBLING LEGISLATION 2013 (STATE)

No. of states in which Internet gambling websites are now live2014 (State)

Amount spent ($m) lobbying Internet gambling legislation 2013-2014 (Federal)8.24

3Notable Data

Author

About This Report And Use Of Information

In Focus: Legislative Activity

In Focus: Commercial Activity

In Focus: New Jersey

In Focus: California

In Focus: Federal

In Focus: 2014

Chris KrafcikResearch Director North AmericaChris@gamblingcompliance.com

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About This Report Use Of Information

In preparing the report, GamblingCompliance Inc. relied principally on information obtained from U.S. Internet Gambling Regulatory Tracker, a research solution specifically designed to keep your business at the leadingedge of legislative and regulatory developments in the United States.

Tracker is intended as a response to growing demand for an integrated, concise source of information on the emerging U.S. Internet gambling market. Each report, delivered monthly in PDF format, offers a straightforward survey of how Internet gambling legislation and regulation is progressing in applicable U.S. jurisdictions. In the event a major development occurs between reports, an interim update summarizing that development will be sent directly to your inbox.

Last year was a historic one for Internet gambling legislation. More states considered Internet gambling measures than any other in history. Indeed, since 2008, the number of states considering bills has risen from two to ten. That number is expected to grow again this year. When it does — as it does — will your business have the intelligence on hand to react smartly and expeditiously?

These are exciting times. The regulated U.S. Internet gambling market is just beginning to take shape. Please accept this briefing paper with our best wishes for a successful new year. In the meantime, if you would like to know more about Tracker, please visit our website.

In preparing this report, GamblingCompliance Inc. has made every effort to ensure the accuracy of its contents. However, no representation or warranty, express or implied, is given as to the accuracy or completeness of its information.

Readers, or their associated corporate entity, that rely on any information in this report do so entirely at their own risk. GamblingCompliance Inc. and its employees do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this report.

This report is no substitute for local legal advice in each jurisdiction covered. Before acting or refraining to act on any information you read in this report, it is strongly recommended that you obtain independent legal advice.

©Copyright 2014 GamblingCompliance Inc. All rights reserved. The intended use of this report is for purchasers only. No part of this report may be: (i) copied, photocopied or duplicated in any form by any means; or (ii) redistributed or republished without the prior written consent of GamblingCompliance Inc. Terms and conditions can be found here.

U.S. Internet Gambling: 2013 And 2014 January 2014

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U.S. Internet Gambling: 2013 And 2014 January 2014

In Focus: Legislative Activity

In 2013, eight states considered legislation that would authorize Internet gambling. Some states, including California, considered legislation that would authorize Internet poker, only, while others considered legislation that would authorize some combination of Internet poker, table games and slot games.

Also in 2013, two states, Nevada and New Jersey, enacted legislation. The Nevada legislation authorized the governor to execute interstate agreements and prohibited certain businesses from attaining supplier licensure, while the New Jersey legislation authorized existing casino license holders to offer Internet poker, table games and slot games.

Considered Legislation

Enacted Legislation

No Activity

Source: U.S. Internet Gambling Regulatory Tracker • January 2014

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U.S. Internet Gambling: 2013 And 2014 January 2014

In Focus: Commercial Activity

In 2013, three states commenced Internet gambling. Nevada went live with poker on April 30, Delware went live with poker, table

games and video lottery games on November 8, and New Jersey went live with poker, table games and slot games on November 26.

Commenced Internet Gambling

No Activity

Source: U.S. Internet Gambling Regulatory Tracker • January 2014

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In Focus: New Jersey

U.S. Internet Gambling: 2013 And 2014 January 2014

The Current Market • Month 1

The New Jersey Internet gambling market opened on Nov. 26, 2013. Between then and Dec. 31, it generated $8.3m in gross gaming revenue. Caesars Interactive Entertainment and the Boyd Gaming-Bwin.Party Digital Entertainment joint venture currently boast 73 percent market share.

Boyd GamingBwin.Party45%

28% CaesarsInteractive

Source: New Jersey Division Of Gaming Enforcement • January 2014

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Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1

Year 1 Year 2 Year 3 Year 4

GamblingData forecasts that the New Jersey Internet gambling market will generate $262m in gross gambling yield in Year 1, rising to $463m in Year 4. Internet casino is expected to grow steadily, with growth in Internet poker peaking in Year 3 before flattening in Year 4.

The Future Market • Year 1 To Year 4

$USm

Internet Casino

Internet Poker

Source: GamblingData New Jersey Data Forecasting Report • April 2013

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In Focus: California

U.S. Internet Gambling: 2013 And 2014 January 2014

Quick Facts SB51 SB678 Draft

Games Allowed

PokerTable GamesSlots

Regulation

IntrastateInterstate

Operator Licensing

OpenLand-Based IncumbentsMonopoly

Supplier Licensing

Restricted Non-Restricted

Regulator

Gaming Control CommissionDepartment of JusticeTribal Gaming Regulators

Tax Rate

5% of GGR10% of GGR

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In 2013, California Native American gaming tribes came closer than ever before to reaching a compromise on how best to legalize Internet poker. Two coalitions drove the debate. The first, led by the San Manuel Band of Mission Indians, threw its weight behind Senate Bill 678, and the second, led by the Pechanga Band of Luiseno Indians, circulated draft legislation that was in broad alignment with Senate Bill 678. Tribal leaders from the two coalitions met on Jan. 10, 2014, and again on Jan. 23 in an effort to iron out the remaining differences. After the Jan. 23 meeting, Pechanga Chairman Mark Macarro told GamblingCompliance: “We believe we made progress on a couple of critical issues, but clearly more discussions are needed. We anticipate more discussions over the coming weeks.” With the second year of a two-year legislative session now underway, lobbying around Internet poker is expected to intensify. By and large, observers expect legislative movement before the Aug. 31 bill-passage deadline.

Source: U.S. Internet Gambling Regulatory Tracker • January 2014

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In Focus: Federal

U.S. Internet Gambling: The Year In Review January 2014

Internet Lobbying Spend • 112th To 113th Congress

2.0

2.5

3.0

3.5

4.0

Q313Q213Q113Q412Q312Q212Q112Q411Q311Q211Q111112th Cong. 113th Cong.

$USm

There was no legislative movement in 2013, which was the first year of a two-year legislative session. Internet gambling lobbying spend during 2013 remained well off of spend during the 112th Congress, which reflected diminished expectations for legislative movement.

Source: GamblingCompliance Research Services • January 2014

Top Proponent Internet Lobbying Spend • 112th To 113th Congress

$USm

Caesars UC Group PPA PokerStars

Source: GamblingCompliance Research Services • January 2014

Top proponents, including Caesars Entertainment, UC Group and PokerStars, all increased spend on a quarterly sequential basis in 2013, which, despite diminished expectations for legislative movement, ensures that Internet gambling will remain on the congressional radar in 2014.

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Q313Q213Q113Q412Q312Q212Q112Q411Q311Q211Q111

112th Cong. 113th Cong.

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U.S. Internet Gambling: 2013 And 2014 January 2014

In Focus: 2014

Federal

GamblingCompliance expects that, on Capitol Hill, consideration of Internet gambling issues will be limited. It is an election year, which means that virtually all politically controversial subjects, including Internet gambling, will be seen through the risk-averse lens of re-election.

Still, behind the scenes, proponents and opponents will continue to jockey for position as Senate leadership continues to weigh up a blanket Internet gambling prohibition amid continued online expansion at the state level. On one hand, there is Caesars, which upped its third-quarter lobbying expenditures by 63 percent. The company, as in prior quarters, spent more on Internet gambling issues than any other proponent — and by some distance. On the other, there is Las Vegas Sands, which more than doubled its expenditures. Sands kicked off a campaign to prohibit Internet gambling in June 2013, when chairman Sheldon Adelson’s fiery op-ed, “Online Gambling Is Fool’s Gold,” was published on Forbes.com. With the second year of a two-year congressional session now underway, GamblingCompliance expects 2014 to be constrained by election-year politics but also to feature a concerted push — perhaps the most concerted since 2006 — to clamp down on Internet gambling. At the center of the scrum will be Caesars, which is lobbying more aggressively than any other interest group to legalize Internet gambling, and Sands, which is lobbying more aggressively than any other to stamp it out.

State

GamblingCompliance expects California, Colorado, Hawaii, Illinois, Iowa, Louisiana, Massachusetts, Mississippi, New Jersey and Pennsylvania to consider legislation that would authorize or expand Internet gambling. As of this writing, such legislation has carried over or been introduced in California, Hawaii, Iowa, Massachusetts, New Jersey and Pennsylvania.

Broadly, and in line with historical trends, most states are expected to consider Internet gambling legislation that would limit operator licensure to land-based incumbents, such as commercial casino license holders, and limit supplier licensure to entities that did not accept or facilitate U.S. Internet wagers after December 2006. Most states are also expected to consider legislation that would initially limit Internet gambling to within state lines but that would grant regulators power to execute cross-border Internet gambling agreements with other states and foreign nations.

In Delaware, Nevada and New Jersey, where Internet gambling is live, regulators are expected to continue fine-tuning and expanding their nascent regimes. Tiny Delaware is expected to continue cross-border agreement discussions with Nevada and other states. Nevada, at the behest of commercial casino license holders there, may consider expanding its poker-only regime to include table and slot games. And New Jersey, for its part, will consider legislation that would create a new class of licensure for so-called “interstate and foreign Internet wagering.”

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