The Mouthpiece


By Martin Owens
Contributing Editor


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    Martin Owens

    Another missed opportunity?

    Government is either organized benevolence or organized madness;
    John Updike


    Philadelphia, PA (Sports Network) - Efforts to license US I-gaming look like stalling again.

    I could be wrong, but it's beginning to look like another year is going to go by before somebody licenses Internet gambling (beyond horse racing) in the USA.

    Where's the Success?

    On the national level, Congressman Frank's bill to legalize and license Internet gambling throughout the country under the Department of the Treasury did make it out of committee this time. Unfortunately, that's where it's liable to stay. Although Democrats are traditionally much easier on gambling than Republicans are, lots of Democrats in the House are going to have a tough fight hanging onto their seats this election. The taint of being "pro-gambling" is a problem they just don't need. In any case, there is no companion bill in the Senate, so it would take a series of fast shuffles to even mount a worthwhile effort this year.

    Legalization on the state level would seem to be a much more promising prospect, not least because the UIGEA, just as it stands, already authorizes the various state governments to okay Internet gambling within their respective borders. All they have to do is make sure that it's properly supervised, and restricted to their own residents. And, one would think, the current financial troubles ( almost every state is predicting a substantial budget deficit this year) present an excellent opportunity to sell I gaming as a new source of revenue, a welcome alternative to raising taxes or cutting services.

    Alas, that too is mostly burned out. Florida and Iowa introduced measures for licensed Internet gaming, but couldn't get the votes. California and New Jersey still have measures and play that would permit online gambling, but there have been delays, and it's already September.

    Soon even the full-time legislatures will have to adjourn for the election. If somebody's got a move to make for 2010, it's time to make it.

    The Reasons Why

    What is preventing Internet gambling from being widely adopted at the state level- indeed, why doesn't it sweep from coast-to-coast given the present favorable environment?

    The disconnect seems to arise from differing expectations among stakeholders, and a woeful lack of accurate knowledge about just what Internet gambling is and does.

    For once it is the vested gambling interests, rather than the diehard fundamentalist moral types, who are the principal problem . As soon as the idea of Internet gambling is introduced, the existing gaming industries in a given jurisdiction immediately assume it is a threat to their existing markets. Either it will steal customers from them, or, even worse, give the competition - racetracks, state lottery, licensed establishments, or gaming tribes- some kind of unfair advantage.

    But the world will not stand still, and businesses that rely on outdated technologies and business models, gambling included, are planning to fail. The horse racing industry is a dreadful example of what happens when you assume that your advantages will last forever. In the 1960s, a horse track was about the only place where anyone could bet legally. But things didn't stay that way. State lotteries were reintroduced, Indian tribes got the right to build casinos, and states started expanding their own gambling programs. By 1990, there were even gambling riverboats in staid, conservative Iowa. The horse industry failed to reach out to two generations of customers, and is now struggling as the old ones leave the scene. Indeed, digital simulcast betting- online gambling, in other words, only on a private line- is one of the few things that is keeping the industry alive today. Which makes the opposition to innovations such as betting exchanges and proposition bets all the more puzzling. Horse racing, to survive, needs to make a deal with the future. Any deal, while it's still there to get.

    So even for the land based operations which are currently successful the handwriting is on the wall. They need to attract and keep new players. And that means accessing the audience for new media, Tweets and Yelps and Facebooks, i-Phones and Droids and all the rest. That's where they are, that's where they interact. That's where the money is tomorrow. Internet and interactive gaming is not a threat to the current clientele, especially the older ones. But it's the only path to the new one. And time is not standing still. Congressman Frank's nationwide effort is slowly but steadily building support, and if the state-level vested interests dally until it finally breaks through, they will likely find themselves swept away as big name, Vegas-and AC operations, leveraging their sheer size and deep pockets, roll in like a flood.

    The state legislators, with several statesmanlike exceptions, seem to be in a cocoon of their own. The assumption is, that if they don't legalize something, it isn't legal and therefore can't be done.( So there!) But this ignores the fact that the offshore gambling industry has been accessing the American market at will for 15 years, in spite of everything the powers that be could throw at it. In fact it still is- a survey of some of the more... adventurous sites, let us say, revealed that UIGEA has had no effect on the money getting through. And a national scheme of licensing will leave state legislatures playing second fiddle at best. All Frank's bill will do is give them the option to opt out- of ALL expansion of I- gaming, forever- and take a cut of tax revenue they could have had exclusively. If state lawmakers think that Internet gambling will stay comfortably in limbo until they are graciously pleased to consider it, there's a large surprise package in the mail, with their name on it.

    Another gang that could have been doing far more to help themselves are the European and offshore Internet gaming operators. If and when a given US state expands its Internet gambling, it will be under pressure to get into action as soon as possible. Experienced operators will be indispensable. While it's true that the USA has a lot of Internet and techno savvy, very few Americans have actually operated an Internet gambling business, made it work and made it pay, day-to-day. Of course, state politicians will insist on a large degree of local participation- isn't that what joint ventures and strategic alliances are for? But all too many eligible partners from the operating side have missed the key difference between the systems they're used to and the proposed American systems.

    Namely, the American system isn't built yet. This is as much of a pioneering effort as a business opportunity.( But it will be a very lucrative opportunity . To give just one example, the Internet poker market for the state of California alone is estimated at $1 billion a year.) The respective primary contractors for each state's Internet gambling network will be called on to help design and install it as well as run it. And the operator of the first successful system is going to have a rock solid marketing advantage. Because once the first state takes the plunge, many others will follow in quick succession. So the question will be "who do we go to, to get our own system up and running quickly?" And of course the answer will be "who else? - the guy who just did one!" It will be very hard for competitors to overtake that lead.

    But there have been very few who have reached out to the proper parties- the legislators and regulators, and the advocacy groups who are coordinating the efforts. To be sure, here and there an individual company approached an individual gaming tribe or card room, or vice versa. But until the enabling Internet gambling legislation is passed, any given land-based operator has nothing in particular to offer. To borrow one of Ronald Reagan's favorite sayings, "It ain't legal ?till the fat lady sings." And for those with particular concerns and needs, it's best to talk to the right singers.

    A chance to re-boot the program?

    Just now it's still too soon to call. California or New Jersey, or perhaps both of them could very well be the breakthrough state(s) for expanded Internet gambling in America. On the other hand, we could finish up the year hanging fire yet again.

    If that should happen, it would be a signal for everyone involved in the effort to take a step back and focus on what hasn't been happening. The right information is not getting to the right people, and as a result they cannot see their way forward to the correct, lucrative-all-round decisions.

    The legislators need to be educated on the real-life possibilities of Internet gambling- what it can and can't do for them, what sort of support and authorizations and legal protections it would need to flourish. They don't know, and don't know that they don't, and so the operators and advocates need to reach out directly to them.

    The existing state-licensed gambling interests, the tribes and card room, tracks and lotteries and casinos, need to educate themselves about what accelerating technology is doing to their customer base. Namely opening up a new one if they will take the trouble to reach out to it. They need to hitch their wagons to the future, rather than hang around the statehouse trying to pass laws to break its legs.

    The foreign operators and service providers need to understand that the American venture cannot be an exact copy of what they've done before. The system, for all practical purposes, remains to be built, and local tastes are going to count heavily. That is an unusual challenge, and also an unusual opportunity for the right companies to put their mark on the development of I-gaming in the USA. But be warned: no one will be allowed to influence the solution, who is not part of that solution.

    And lastly there is a place in the proceedings for the average American who just wants to play poker (or something) online. Time for him to remember that he is boss of the politicians, and not the other way round. Time for players to remember that they are citizens, not just sinners. Time to tell the powers that be, loud and clear, to attend to their real jobs, and leave people's leisure pursuits alone.

    Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming since 1998. Co-author of INTERNET GAMING LAW with Professor Nelson Rose,( Mary Ann Liebert Publishers , 2nd ed 2009) ; Associate Editor , Gaming Law Review & Economics; Contributing Editor, TSN. Com Comments and inquiries welcome at to mowens@trade-attorney.com.

    Copyright 2010


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