Online gaming was dealt a setback in two of the country’s largest potential markets over the last week when the California and Nevada legislatures moved separately to keep the industry out of their states. The legality of Internet gambling remains a cloudy issue, with some saying existing federal laws prohibit the practice while others say it should be allowed. The subject has also been hotly debated in the U.S. Congress.

In the meantime, however, a bill in the Nevada legislature that would have set up an infrastructure to regulate online gaming had passed in the state’s Assembly and was being debated in the Senate when it ran into a roadblock.

The bill had passed through the Senate’s Judiciary Committee earlier in the month, but was removed from a scheduled vote in the Senate on Saturday.

The state’s gaming lobby had strongly backed the measure, and vowed not to give up the fight until the state’s legislature adjourns on Monday.

In California, meanwhile, a bill to ban Internet gaming passed in the state’s Assembly on Wednesday on a 61-2 vote, said Democratic Assemblyman Dario Frommer, author of the measure.

The bill — which must still be approved by the Senate and Gov. Gray Davis — would ban Internet gambling. It also would clarify California law to make it a misdemeanor for anyone to knowingly offer, solicit or facilitate play of a prohibited online game to a California resident, a Frommer spokesman said.

“The current explosion of unregulated Internet casinos leaves Californians just a mouse-click away from losing their hard-earned money to fraudulent offshore casinos,” Frommer said in a statement. “This bill will put an end to that.”

California Gov. Gray Davis has not yet indicated if he will sign the legislation, but in the past he has show a bias toward bills against the expansion of gambling in the state, said spokesman Roger Salazar.…

A federal judge selected a joint venture involving Planet Hollywood’s co-founder and the Starwood hotel chain to buy the bankrupt Aladdin hotel-casino on the Las Vegas Strip.

U.S. Bankruptcy Judge Robert C. Jones on Friday chose OpBiz, a partnership that includes Starwood Hotels & Resorts, Bay Harbour Management and Planet Hollywood CEO Robert Earl, because the group had the backing of secured and unsecured creditors.

“It boils down to a not so difficult a decision,” Jones said. “The bottom line is what the constituency groups want.”

The judge’s decision ended an 18-month process that included a frenzy of last-minute negotiations between bidders and creditors during a standing-room only purchasing hearing in U.S. Bankruptcy Court.

Three parties attempted to compete with OpBiz for the Aladdin during Friday’s proceedings, but none had all the requisite pieces of a deal in place, especially all-important financing.

Aladdin lenders concluded that OpBiz had the total package. It was the “bird in hand” that the judge wasn’t willing to risk getting away, he said.

OpBiz has been in talks with the Aladdin for about eight months, and was named the stalking horse, or lead bidder, in the bankruptcy case in May.

OpBiz intends to assume $510 million of Aladdin debt and other liabilities. OpBiz will invest $90 million over three years in the 2,567-room hotel-casino and keep all of its employees.

The Arabian Nights-themed resort will be renamed Planet Hollywood Hotel & Casino. Starwood, the sixth largest hotelier in the nation, will manage the hotel through its upscale Sheraton brand. It will receive 4 percent of revenues plus expenses, and give the hotel chain a coveted spot on the Strip for its preferred club members to redeem and earn points.

“This is the one of the world’s greatest hotel markets,” Joseph D. Long, Starwood senior vice president of acquisitions and development, said after the hearing. “It was the number one target market for us.”

Earl could not say how long it would take to transform the Aladdin. OpBiz still must obtain a state gambling license, and Jones must approve plans for the makeover when they are completed.

Aladdin lawyer William Noall said it could take until March 2004 before Earl completes a deal with his lenders and the Aladdin emerges from bankruptcy under new ownership.

The $1.4 billion Aladdin opened in August 2000 and filed for Chapter 11 protection about a year later. The Aladdin owes …