The Mouthpiece

By Martin Owens
Contributing Editor

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    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, to 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 revenue source?

    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 horse racing.

    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 Comments and inquiries welcome at to

    Copyright 2011

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