Major players in the gaming industry gathered in Washington on Tuesday to plot strategy in the escalating war with GOP super-donor Sheldon Adelson over Internet gambling.

Geoff Freeman, president and CEO of the American Gaming Association (AGA), said his trade group hosted lottery representatives, game manufacturers and casino operators in a meeting that he described as unprecedented.

{mosads}“When you have a situation like this, it can galvanize and unite parts of a community towards a common cause,” Freeman said. “It was very productive and probably the first time that has ever happened.” 

Adelson, the owner of a casino company, is on a crusade to ban Internet gaming nationwide.

Draft legislation that would create a national ban has begun to circulate among lobbyists in Washington. The text, which was obtained by The Hill, would rewrite the Wire Act to ban online gambling and would also require the FBI director to issue a study on its dangers two years after the bill passes. 

The AGA says online gambling should be brought under federal regulations and argues that banning it would only empower the black market.

“Prohibition of an everyday product has not and will not work,” Freeman said. “The only thing a Wire Act fix does is cement the power of offshore operators.” 

Adelson’s company, Las Vegas Sands Corp., has an executive on the AGA’s board of directors. Freeman said there has been no discussion of the company leaving the trade group despite its opposition to Internet gambling. 

“We are not the first trade association to have board members who have divergent viewpoints,” Freeman said. 

Adelson, a mega donor who gives millions to GOP candidates and causes, plans to launch a coalition this January to stop online gambling, according to The Washington Post. The coalition has hired former Denver Mayor Wellington Webb (D), former Sen. Blanche Lincoln (D-Ark.), and former New York Gov. George Pataki (R) to co-chair it.

Aldeson’s advocacy has raised the stakes in Washington, lobbyists say.

“If someone introduces legislation to ban online gambling, their phone will ring off the hook for weeks,” said John Pappas, executive director of the Poker Players Alliance, which supports legalizing online poker.  

State officials are being pushed to take sides in the fight.

Las Vegas Sands Corp. and Caesars Entertainment Corp. made dueling presentations about online gambling this month to the Republican Attorneys General Association (RAGA).

 David Satz, senior vice president of government affairs for Caesars Entertainment, gave a PowerPoint presentation to the officials that said, “Internet gambling is here to stay,” according to slides obtained by The Hill. 

Satz noted that people in all 50 states could gamble online, despite the fact that it’s still largely prohibited. That leaves attorneys general unable to protect consumers or collect tax revenue from a market “dominated by rogue offshore operators,” he said. 

“Prohibition has proven it does not work. We’ve supported a federal solution due to the interstate nature of Internet activity and to more effectively deal with the black market,” Satz told The Hill. 

“That being said, with no federal solution forthcoming at this time, state regulation makes the most sense in allowing states to determine how they want to deal with the issue and to protect consumers.”

But Andy Abboud, senior vice president of government relations and community development at Las Vegas Sands, shared polling with the attorneys general that showed that more voters have a negative view of Internet gambling and online poker than other games, like casinos, cards and horse racing. 

The presentation also cited the Republican Party’s 2012 platform, which supports a ban on Internet gambling, and showed websites for “kiddie slots” that could entice children to gamble. Adelson has said that he opposes online gambling because he’s worried that children would become addicted.

The state attorneys general are an important constituency for the casinos. As the top law enforcement official in each state, they would be responsible for enforcing regulations or a ban on online gaming. 

“If I was running a campaign for or against online gaming, the [attorneys general] would be very important to that effort. They are going to write the regulations. They are going to write the compacts,” said former Rep. Jon Porter (R-Nev.), who has worked on gaming issues at Porter Gordon Silver Communications. 

They might also be receptive to Adelson’s cause. 

“The attorneys general have a history on weighing in on online gambling from a law enforcement perspective,” said one lobbyist who follows online gambling. “You may never get a bill on the Hill to ban this, but you might have more success in the states, especially from Republicans who tend to be sympathetic to the societal ill argument that is being made.”

A draft letter to Congress opposing legalizing online gambling has begun to circulate among the state attorneys general. Nebraska Attorney General Jon Bruning is talking to his colleagues about signing onto it, said Shannon Kingery, a Bruning spokeswoman.

“Attorney General Bruning always has been, and continues to be, strongly opposed to expanded gambling. We’re working with a number of states to address the issue, including drafting a letter to Congress,” Kingery said.  

The rise of online gambling began after a 2011 Justice Department ruling held the Wire Act only bans Internet sports betting.

Three states have legalized some form of online gambling since then, and at least 10 states considered legislation this year to do the same, according to Jonathan Griffin, a policy specialist with the National Conference of State Legislatures.

“This is a big issue that won’t go away, and we expect many of these states, if not more, to consider legislation in 2014,” Griffin said.