By Martin Owens
They finally did it - now what?
Home at Last?
"My enemies are nothing - it's my goddamn FRIENDS that keep me up at night!"
Warren G. Harding
Philadelphia, PA (Sports Network) - Two pygmies, the story goes,
set out through the Congo jungle to bag an elephant. Finally after much effort
and a lucky break, they brought the beast down. So the first pygmy climbed on
their kill and broke into a victory dance, howling, "We got 'em! We got 'em!"
But his companion leaned on his spear, took a long look at the vast bulk, and
said, "Yeah, we got 'em. Now, what do we DO with him?" This same question will
soon be heard about Internet gambling in the USA.
New Jersey has passed an expanded Internet gaming law through both houses
of its legislature. Governor Chris Christie is likely, but not guaranteed,
sign it. It becomes law in 45 days anyhow if he does nothing. Any veto
will likely be futile, for the margin of votes in favor looks like giving
the proponents enough votes to override one. It looks as though the effort
to expand Internet gambling at the state level is gathering steam at last.
But it remains to be seen if other states will follow New Jersey's example
right away. Certainly the interest is there. Not only large, populous
states like California and Florida, but smaller ones such as Iowa, North
Dakota, and even Massachusetts have all been considering expanding I
gaming in the past few years, particularly poker. And the need for extra
revenue could not be greater. For American government, at every level,
the financial jig is well and truly up this time. Forty-eight states now
forecast budget deficits ranging from Hawaii's low of $71 million to
California's galactic black hole of $28 billion. The new Republican
majority in the House of Representatives makes the likelihood of further
bailouts and stimulus packages more and more remote. What could possibly
interfere, then, with immediately taking advantage of a new and untouched
Well, there is a bottleneck, but this time it isn't the usual suspects. The
fundamentalists and the self-appointed protectors of public morals are
largely silent this time; the alternative, you see, is increased taxes,
something they hate even more than gambling. No, the people blocking
Internet gambling's further progress in the USA are the very people who are
thought to be its friends and beneficiaries. The existing vested interests,
the licensed gaming operators already in place, and the legislators and
regulators who will be charged with running the show - hardly a one of them
understands how an intrastate I-gaming system is supposed to be organized
and run. And so they are making preemptive demands that will not only slow
the introduction of the Internet gaming future, but may prevent it from
taking off altogether.
Is We Is, Or Is We Ain't, Illegal?
The long-term legal basis for state licensing of Internet gambling is the
Tenth Amendment to the U.S. Constitution, which reserves to the states and
people, all powers not specifically granted to the Federal Government. Now
at the time the United States was formed, gambling was considered a public
nuisance and a low-grade crime. That put it under what is called the police
power, and this belongs to the states. State lawmakers can do pretty much
anything they choose with, two, or about gambling. This is why Nevada can
license almost every form of gambling known to man, but Utah, next door, is
equally within its rights to ban them all.
But for a long time an anti-gambling cadre within the Department of
Justice was able to take advantage of vague language in the Wire Wager Act
(18 USC sec 1084) to insist that all Internet gambling violated the Federal
stricture against using telecommunications to place illegal bets on
sporting events. In a superb twist of irony, this position was torpedoed
in 2006 by the very law that was supposed to "kill" Internet gambling in
America: the graphically misnamed Unlawful Internet Gambling Enforcement
Act (31 USC sec 5361 et seq). For all its shortcomings and stupidities
(and Allah witness they are many!) this deeply flawed statute did in fact
make on thing clear: Internet gambling, licensed by a given US State,
conducted within its own borders, offered to its own residents and properly
supervised, is NOT to be considered "Unlawful Internet Gambling". So
unless and until DOJ weighs in with a better argument (a large technical
difficulty, and very much less likely in a Democratic administration
anyway) the states have a clear field - especially since Senator Reid's
latest attempt to impose a national I-gaming regime couldn't find an ally,
even in the 111th Congress's notorious "lame duck" session. End result:
State sponsored Internet gaming is legal, if only by default.
System? What system?
So, since individual States can set up their own Internet gambling, it's a
green light for everybody and all's well, right? Well, not quite. Even if
there is a state statute authorizing an improved Internet gambling regime,
there are still plenty of ways to kill the goose with the golden eggs. The
systems must be built right.
The justification for a state I-gambling system, after all, is that it
will result in more state tax revenue than was there before. Ah, but that
improved revenue will not materialize if it does not attract any gamblers.
Every system, especially poker, needs what is called liquidity - that is,
enough players playing at any given time, to be sure there's a game going
on. Now since the present legal system restricts each state to its own
residents, the best thing to do is pool them all in one pool - that is,
offer one system for them all to patronize.
Unfortunately, each licensed operator, (especially in Jersey I'm told) is
itching to break out by himself in a unique system. Requiring a unique
registration, and ( ah-ha!) not requiring any revenue sharing with
competitors, just the state and Fed taxes. This would not be a particular
problem in a global market, with hundreds of millions of potential
customers. But in a state-by-state context, this is a strategy to outsmart
yourself. Even in crowded California, only about 3 million of its 37
million residents play online poker regularly. Apply the same proportions
to New Jersey's potential pool of 9 million total . Now divide it again by
the 11 licensed casinos that hope to have exclusive.... you get the
picture. The pie can only be sliced so thin, before it's not worth the
effort. To be sure, Jersey has left itself some breathing room by
authorizing gambling games besides poker- but the principle will still
apply sooner or later. Even in California, the much bigger pool is being
eyed by sixty-plus Indian tribes, ninety licensed card rooms, half a dozen
horse tracks, and probably others.
The Achilles heel of all these would-be monopolies is that nobody HAS to
play. What is needed is a system that everyone can sign on to, quickly and
easily - it will be even more necessary when smaller states begin to pool
their respective player bases, as they have already done with lotteries and
The obvious thing to do, then, would be to bring in an I-gaming
architecture that is already proven to be effective, reliable, and
attractive to players. The obvious candidates are the overseas operators
who have been already been running virtual poker rooms, table games and
sportsbooks for years - profitably and smoothly. But here, too, is
disappointment. Apart from a few disorganized probes, there is nothing
visible. The regulators and legislators need the expertise (not to mention
potential American partners the existing state licensees); the overseas
operators have it. But if there are efforts to bridge the gap, they are
well concealed just now.
Apparently each faction is expecting the others to do the heavy lifting and
simply hand over the finished article.
But there are no days like that. The starting gate has busted open at last;
this is the part where anyone who wants to be in the race has to say
"giddyup". Somebody has to convince the players that it's time to move.
Otherwise I-gaming in the USA may have to be saved from its friends.
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
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