The Mouthpiece


By Martin Owens
Contributing Editor


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    Martin Owens

    JUST DO IT ALREADY

    A quiet success and example for US Internet gambling

    "There's nothing like looking, when you want to find something."
    J.R.R. Tolkien, THE HOBBIT.


    Philadelphia, PA (Sports Network) - You may have heard of Akiro Kurosawa, the film director who made samurai movies in Japan just after the war. His masterpiece was "Seven Samurai" (the model for the American Western, "The Magnificent Seven"). The plots are identical. In a land without law, a poor farming village is threatened by ruthless outlaws. They need to hire protection but they can't pay anything. The solution? A crafty village elder says : "Find hungry samurai". And in the end, they do find protectors- unlikely, anti-hero types. Never fear! On the needful day their champions have the right stuff, and the good guys win.

    Well, a similar development has just taken place, almost unnoticed, toward the expansion of Internet gambling in the USA. Somebody found those hungry samurai. And a very improbable somebody it was-the District of Columbia. DC is not exactly a destitute rice village in medieval Japan, but by American standards the municipality is small, poor and disregarded (the national monuments and so forth being Federal territory) . It seems an unlikely place for Internet gambling to begin its expansion in the USA. The ideal venues are obviously states like California, New York, and Florida , with large populations, liberal legislatures, and the chronic debt that comes with liberal social programs. But apart from the need for funds, the District has almost nothing in common with these supposed "prime prospects". It is tiny by every comparison. Its total population is 600,000 , where California has 37 million, New York 19 million.. It occupies less than 80 square miles, where Florida, the smallest of the "hot" prospects, covers 54,000. Is it a lucrative market? Hardly! Nationally about 8 % of the population depend heavily or totally on public assistance - in DC it's closer to 20%. In fact, the District lacks even the autonomy of any state legislature. All its actions are subject to review and veto by the US Congress. But we'll deal with that in a little more detail later on.

    The Magnificent.. Pair...

    All right, who were the samurai? They were ( and are) the I-gaming versions of the wandering warrior or knight errant-small operators and software providers, the guys who have products and systems to sell. Pioneers and hustlers, prospectors looking for just a little luck to make that one big strike. Today's successors, truth be told, to Steve Jobs and Bill Gates and other cyber giants, who after all mostly started off as the likes of hackers and "phone phreaks". In fact, if a difference must be drawn, these later entrants are much more observant of the rules than their predecessors (of course, in the beginning there were few rules to worry about).

    The stars in this case hailed from Greece and Gomorrah by the Bay (aka San Francisco). Intralot is a company that has expanded from a small Athens operation to a global competitor in lotteries, sports betting and other offerings. It has been steadily increasing its presence in the North American market, and in 2009 beat GTECH for the DC lottery contract. At the same time it acquired a substantial stake in CyberArts, a California company that has been quietly, effectively building toward the day it could stake a claim in the American market.

    Fitting The Pieces Together

    For then the opportunity came. The Chinese character for "crisis" combines "opportunity" with "danger" and this time was no different. DC was broke, and desperate for money. No chance of help from the Federal government, buried under its own debt problems. Expanding licensed gambling was a possibility. But a brick and mortar casino would take time- and investment money they didn't have. Online gambling, on the other hand, was available quickly, cheaply and easily. And it was legally possible, too. The Unlawful Internet Gambling Enforcement Act (UIGEA) specifically exempts state-licensed Internet gambling from the definition of "unlawful" I-gaming. Intralot was already on board with the District's lottery- and had an inside line to CyberArts and its patented Foundation ? I-gaming platform. It was possible.

    All it needed was political support. And the DC City council voted to allow online poker, along with other unspecified "games of chance" and fantasy sports betting. You may ask, with so much Congressional disapproval of gambling on the Internet, weren't they afraid of repercussions? On the contrary- the biggest gripe of the people who live in DC is that the Federal government treats them like second class citizens. If the Feds won't help, the City Council figured, then they can just keep out of the way. The plans call for taking customers few weeks.

    A Cloudy Future Of course, this is not yet a done deal. Technically, DC's authorization is past the point of no return. Congress, through the House Oversight and Government Reform Committee, is required to examine the DC annual budget and other measures. The rules say that if there is no objection within 30 days, the measure becomes law in the District.

    Except when it doesn't. All of a sudden, the Committee has announced that the 30 day period is "symbolic" and not binding. In other words- we're the government, we do what we want and let's see you stop us. Can Congress simply stop the DC experiment? Maybe not. This time Congress may have stopped itself. DC is relying on the UIGEA exemption, assuming that the District, in this respect at least, has the equivalent status of a state government This is not unreasonable, especially since previous Federal gambling laws- the Wire Wager Act ( 18 USC sec.1084) and the Illegal Gambling Business Act ( 18 USC sec 1955) say exactly that.

    And that means, in turn, that if Congress should nullify the DC Internet poker experiment, it would be, by extension, awarding itself the power to nullify any other state's endeavors in this direction-Indian gaming tribes, too. Which would mean that Congress, on any whim, can change or completely nullify existing law without a formal repeal process. And that, friends and neighbors, would result in anarchy plain and simple. My own guess is that the District of Columbia will be permitted to go ahead with its online poker. Not because Congress approves, but because Congress is too busy to pay attention. When the national finances are in such bad shape, when the US teeters on the edge of entering a fourth war in the Middle East ( Yemen this time, or was it Syria? I forget), there simply may not be time and attention left over to quash Internet gambling in the District. But will this amount to a win by default? Not a bit! It will have happened because IntraLot and CyberArts and the City Council of Washington DC- seemingly unlikely champions- stood together and made it happen.

    Following the Money

    One final question remains. It is centered on the concept of liquidity-in short, will there be enough people playing to make it worthwhile? Liquidity is crucial in online poker, less so in other online games, but how much can DC reasonably expect to reap? Only $13 million a year- Peanuts by most state budgets. Not even a rounding error on the Federal scale. but where most spending is not discretionary, any relief in any direction is truly welcome.

    Even so, that's not the big thing. We must remember the powerful marketing tool called First Mover Advantage. It works like this: Politicians may delay making a decision beyond all reason: they hem and haw, and delay and drag out their decisions to a fare-thee-well. But once they do decide on a thing, they want it to go into action Right Now. And at that point, how do the harassed state regulators and administrators choose someone to execute this mandate? Who do they turn to? Only one choice- they guy who has just done it, next door. This is how GTECH became the leader in US state lotteries back in the 1960's onward. This is where Intralot and CyberArts are now.

    Lessons

    And now we know what has been missing in the big picture. We have been hearing, for four years at least, that any day now, one American jurisdiction or another was going to legalize Internet poker, if not the entire range of Internet gambling short of sports bets. And year after year, it never quite got there.

    But why? Because too many times, and in too many places, the people and factions that could have made it happen didn't. They took a wait and see attitude- "let's see what the others do first". And here's the joke: everybody else did, as well. To be sure, in capital after state capital there were the usual polite inquiries and preliminary discussions on the side. But where was the solid effort? Making these things actually happen needs an operator taking the time and trouble to make a coherent picture of what an I-gaming system would look like, how it would work, what could reasonably be expected, and putting it in front of the people who matter. It is a question of lining up the political support by demonstrating that this will work, it won't backfire and embarrass the lawmakers. It is a question of actively seeking out the opportunity- creating it, if need be.

    That is what this unlikely team - the District of Columbia City Council, Intralot and CyberArts - set themselves to do. And lo and behold, they have succeeded. They have not been sidetracked, as unfortunately happened in New Jersey. Also unlike New Jersey, they have a workable platform ready to go. (Competitive bids? Sure! After all, who else is seriously competing?) It will take a straight up fight with Congress to derail the DC Internet poker program now.

    Legislators, regulators, lobbyists, hobbyists, stakeholders of every description and children of all ages: Pay attention. The day you get serious, this is how it's done. The good news is, the door is open. But the door is part of a train that's already moving, and none of the seats are marked "reserved".

    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 2011


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