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Real-Money Gaming Returns To The U.S.
by William Chambers on 06/10/13 04:47:00 pm   Expert Blogs   Featured Blogs

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The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

Four years ago every conversation regarding real-money gaming in the U.S. would be prefaced with, “if regulation happens”. Two years ago that changed to, “when regulation happens”. Now, nearly halfway through 2013, we can talk about “where” regulation is happening.

Already this year, more tangible progress has been made than in the preceding six years since the 2006 Unlawful Internet Gaming Enforcement Act (UIGEA) banned online gambling in the U.S.

The level of regulatory progress by states is impressive, according to Chris Krafcik, North America research director at Gambling Compliance and long-time watcher of gambling legislation in the U.S. He told this blog:

“In recent years, the number of states considering Internet gambling has risen markedly. Just two states considered such legislation in 2008, but this year, 10 states (and counting) have considered it. Clearly, states are beginning to move toward Internet gambling regulation with increasing interest and in decidedly increasing numbers.”

Who, What, When, Where

In December 2011, a reinterpretation of the Wire Act by the Department of Justice (narrowing the law’s scope to only apply to prohibiting online sports wagering) opened the door for states to regulate real-money games. Fast-forward 18 months and we are seeing some real results.

In April 2013, Nevada made history by approving the first company to offer licensed real-money online poker in the U.S. It took a long 16 months from the approval of regulations to the first licence being issued, but Ultimate Poker is now taking online bets from players within the Nevada state border.

Anxious to not be left behind, New Jersey ended a 12 year campaign to legalize real-money gaming in February, after Governor Chris Christie signed online gambling bill into force. According to draft regulations (a mere 78 pages long) published earlier this month, N.J. hopes to approve its first licensees as soon as the Fall. What makes this market particularly interesting is that licensees will be able to offer casino games as well as poker.

Elsewhere, Delaware hopes to start offering keno and casino games online via its state lottery before the end of the year. Illinois, Kentucky and Georgia have already given the go-ahead for their lotteries to move online, but they will be limited to offering a narrow selection of existing lottery products.

Early Days, But More to Come

Currently opportunities in the U.S. are largely theoretical. States like Delaware and Georgia intend to operate as closed markets with only the state lottery allowed to offer games. Nevada and N.J., on the other hand, will offer a competitive licensing process to companies with a land-based presence within the state. Still, but there are questions as to how viable these markets will be.

Estimates place annual online poker revenue in the Nevada market at somewhere between $35m to $60m. N.J. has the potential to be somewhat more lucrative. Areport from Gambling Data predicts casino gross gaming yield of $158.9m and poker GGY of $103.1m in the first year of operation. By comparison the U.K., which is one of the oldest regulated online real-money gaming markets, is thought to be worth around ₤1.7bn ($2.58bn) in net revenue, according to accounting firm Deloitte.

Given the limited size of these markets, companies currently applying for licences may be doing so more to win good will of authorities and learn the business of regulated online gaming, than to make any serious money. But this will change, if more states join these first trailblazers.

In California, there are three pieces of legislation on the table looking to bring online poker to the state’s 38 million residents. David Quintana, a tribal lobbyist, told reporters he believes there is a 50-50 chance of laws changing in 2013, up from a zero percent chance in prior years. Other Tribal representatives have put the odds of success as high as 75 percent. If an agreement can be reached between diverse interests – tribal casinos, card rooms, and racetracks – the state has said it would work quickly to legalize online gambling.

Elsewhere, just a few weeks ago Illinois published draft language, which if passed into law would legalize: “fee-based [i.e. games in which a fee or rake is charged, such as peer-to-peer poker] or non-fee based games [i.e. house banked games] of skill or chance…”

Laws are also pending in Massachusetts and Pennsylvania, while Louisiana has just commissioned a study into the feasibility of legalizing internet gaming. A further 8 states have recently considered legislation on online gambling which failed to progress, but as others forge ahead, many are expected to re-introduce laws.

Interestingly, there are also signs that politicians in Washington D.C. may be reconsidering the issue. According to reports, Senators Harry Reid and Dean Heller may team up again to introduce a bill, while New York State congressman Peter King and Texas congressman Joe Barton may also introduce legislation.

Historical attempts to take federal action on gambling regulation have all failed. So, it will be interesting to see if progress by states does anything to move the conversation on, or whether any forthcoming bill will be as doomed as its predecessors.

The Future for the U.S. Market

One danger is that state-by-state regulation could lead to a fractured landscape, where, like in Europe, laws differ from region to region and companies cannot pool players from one jurisdiction to the next. The theory goes that if the liquidity of a market is too small, players will not be interested and companies who have invested in licences will be unable to recoup their costs.

A solution is the potential for states to sign compacts, which would allow sharing of information and pooling of players between jurisdictions.This would transform a small market like N.J., into a base from which to access the larger ecosystem of customers from states like California and Illinois. In their laws, both Nevada and N.J. have left the door open to signing compacts at a future date.

While there are many kinks to still work out, it seems to only be a matter of time before a regulated U.S. real-money online gaming market is a reality. And in the meantime all parties should support regulation, because whether on state-by-state or federal level, these laws will help steer consumers away from the black market.

Additionally, from the industry’s point of view, each new state passing legislation represents a new market opportunity for responsible operators. As should be the case with a real-money gaming, there will be high barriers to entry, with a growing trend of states requiring companies to have a land-based presence.

Over the coming years, it will be very interesting to see who will rise to the top in these new markets. For example, what will happen to the traditional real-money landscape when really innovative games developers get their foot in the door?

Originally posted on blog.betable.com


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