The Mouthpiece


By Martin Owens
Contributing Editor


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    Martin Owens

    States and Tribes Debate Land Based Systems - Just As Gambling Goes Mobile

    "Whenever you find yourself on the side of the majority, it is time to reform"
    Mark Twain

    On the surface, the outlook for American gambling couldn't be more hopeful. States which had held out against the introduction or expansion of gambling- Massachusetts, New Hampshire, Maryland, even conservative Iowa- are all moving forward with plans to open casinos and other new facilities. New Jersey has officially approved online gambling, and Nevada is issuing more licenses for it every week ( the enabling legislation was put in place more than 10 years ago). The good news seems to include online gambling as well. Already, online gambling mini-systems (handheld devices for table games, sports books, etc., operating exclusively within the physical boundaries of the resort using them) have been approved in New Jersey and are already in use, in limited form, in Nevada.

    Meanwhile, Indian gaming continues to expand. Under the Indian Gaming Regulatory Act of 1988, the Federal government has the power to "take land into trust" on behalf of such tribes and nations, provided a reasonable historical link between that particular tribe and that particular piece of land can be established. In practice, Democratic administrations considered generous and open-ended links to be a form of social justice, particularly when the tribes in question support Democrats. Republican administrations, historically anti-gambling, take a much narrower and more punitive view. With the help of the Obama administration, several gambling tribes are even eyeing locations outside their reservation land, close to lucrative population centers.. The sun is shining, and the Indians are out there making hay.

    So what's wrong with this picture?

    Going Mobile and Going Away

    Well, it just might be that a lot of new boats are being launched on a falling tide. Just as state authorities finally decide to take the plunge, the currents are changing. Like every other form of activity involving communication and the transfer of money, gambling and gaming are going digital, online, and, most recent of all, mobile. Internet applications are moving firmly in the direction of more portability and instant access: from desktops to laptops, and now from laptops to pads, tablets, and smart phones. The growth here has been explosive even by Internet standards. As of March 2012, the Apple iPhone store sold its 25 billionth application- no typo there, ladies and gents, that's "billion" with a "B". Meanwhile, its main rival, Android, reached a sales level of 850,000 units per day.

    This was inevitable, for a number of reasons. First and foremost, these things are based on cell phone technology, and cell phones long ago conquered the world market- today there is a cell phone for almost every person on earth. So the task called ?market penetration' has already been done and done well. All the online service providers had to do was to essentially stock shelves that had already been built. Second, and almost as important, mobile and digital are the new normal, or soon will be. People born since 1990 have grown up in a digital world. For them, reaching across the globe for business, friendship, information, or entertainment is no technological marvel, but simply the established order of things. More and more, these systems, links, and interconnections, are being used to conduct the business of society and of individual existence. More and more, we are coming to live online.

    And that is very important for gambling, because gambling is a form of entertainment, and these new people's idea of entertainment can vary considerably from their parents and grandparents. To the older folks, gambling had a sort of romance to it, a whiff of godfathers and gunslingers. A Vegas getaway was a naughty treat, one you couldn't get at home. Today 48 of the 50 states have some form of gambling-state lotteries, racetracks, casinos, Indian gaming, and so on. So for the new generations as customers, on which gambling's future depends, we have new realities. On the one hand, gambling per se is no longer that big a deal, and on the other, the activity of gambling is no longer irrevocably wedded to certain locations. Or, for that matter, even certain equipment. A slot machine, for instance, cannot be used for anything else, but you can do all kinds of things on an iPhone, including gamble. And as opposed to the requirement that the slot machine be located only on licensed premises, operated within certain hours, that iPhone could be anywhere at any time.

    Internet and interactive gambling began as a global market, not a local one. That means that profitable constituencies could be assembled instantaneously without regard to geographic or border considerations- a phenomenon known as "the long tail". It works like this: if your method of distribution is a physical storefront, then it would be very difficult for you to profitably deal with fringe markets such as stamp collecting. Outside of large metropolitan areas, the cost would be prohibitive. But working online, and selling stamps across the world from a central online store, a worthwhile customer base can be identified and reached.

    And what that means, in turn, is that in the long run it is making less and less sense to build casinos closer and closer to each other, to cut up thinner and thinner shares of a shrinking pie. The generations, the demographics that associated gambling with a physical casino are aging and dwindling, moving into circumstances where they will have less disposable income. Their heirs and successors may very well not replace them, but move on to new formats that the new people are comfortable with. In a word, it's an open question on whether investors will get their money back long-term . Later entrants to Indian gaming in California, for instance, have suffered greatly from the economic downturn, and at least one has filed for Chapter 11 protection.

    And lastly, there is an entirely new development that surely rates the label of "game changer." Gaming is moving away from gambling, especially online. If a given activity does not meet the legal definition of gambling, then it does not fall under state gambling laws. Including the necessity for licensing, background checks, audits, etc. and so forth that constitutes such a prohibitive burden to expansion and entry in state regulated gambling.

    The premier example is the company called Zynga, which has found a way around the traditional definition of consideration, chance, and prize. Without going into a detailed legal analysis here's the bottom line: it works. Zynga's social games version of version of Texas hold ?em, offered via Facebook, is estimated to be worth $7 billion a year. By comparison, the entire Internet poker market worldwide is estimated at about $16 billion. Last year at this time, there was talk of Zynga negotiating with established gaming interests. This week, the talk was of Zynga merging with an online operator- as the buyer.

    Summary

    It may indeed make sense for certain states or tribes to put up new casinos or license new formats. But if they do not have a place for online, interactive, and social gaming, and include these things in the plans for the future, they may very well be in the position of those harness-makers which were perfecting the buggy whip, just as that fresh kid Henry Ford opened up shop across town.

    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 2012


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