THE FIGHT: Industry Sees Challenges for State-by-State Regulation

G2ELast week Nevada’s second real-money poker site, WSOP.com, launched play, officially becoming the second licensed real-money gaming operator in the United States. This week the Global Gaming Exposition – the North American casino industry’s largest conference and trade show each year – is taking place in Las Vegas this week. G2E kicked off in Vegas on Monday with a panel session devoted to the likely state-by-state future of U.S. regulated online gaming.

If there was one unifying theme that came out of Monday’s session, it was that federal legislation is unlikely to happen. The state-by-state framework is already too far out of the barn for the feds to close the door, with Nevada online since April, Delaware and New Jersey due by year-end, and California showing encouraging signs of passing a bill early next year. Alan Feldman, a vice president at MGM Resorts, noted that the current mood in Congress “is hardly conducive to getting the sun to rise”, never mind enacting federal i-gaming legislation. He called the lack of federal action a “tragic, wasted opportunity”.

There were some startling statements made, however, that show just how far regulation has to come.

For one, former Nevada Gaming Control Board chairman Mark Lipparelli said that regulated gaming operators (or U.S. operators that will eventually be regulated) view unregulated online gaming operators as their biggest competition. While that may be technically true – the casino industry certainly fears having to compete against PokerStars, a site that operated in the U.S. for a decade without a license – it ignores that most unlicensed activity came to an end in 2011. The unlicensed activity remains (Lock Poker, anyone?) shouldn’t cause licensed operators to quake in fear.

There seemed to be a pervasive fear from some panel members that unregulated sites will be a wrench in the works of regulated real-money gaming. Feldman raised the idea that unregulated operators would have a huge competitive advantage in the unfolding state-by-state regulatory model because they wouldn’t be paying the taxes and licensing costs that regulated sites would be paying, but the states would have no enforcement mechanism to shut them down without help from the feds.

The views of both Feldman and Lipparelli seem a little too simplistic for people of their rank and stature in the industry. In a regulated world, the regulated operators will have a significant advantage over their unlicensed counterparts: the ability to market through established, reputable mass-media channels, digital and otherwise. That marketing ability should allow licensed operators to gobble up market share that no amount of unpaid taxes can hope to overcome.

James Kilsby, the Americas Editor for Gambling Compliance, was the most hopeful for rolling out regulation with increased speed in the coming months and years. He described the launch of full online gaming in New Jersey as creating “seismic” pressure on surrounding states like Pennsylvania, Maryland and New York because of New Jersey’s “geographically significant” position in the mid-Atlantic region of the east coast. Feldman also said he can foresee an expedited process of interstate compacting out west, with Nevada leading the charge.

All told, the highly-attended session kicked off the industry’s most important trade show of the year by focusing firmly on the future. While the apparent consensus that federal legislation won’t happen (notwithstanding rumors of a last push by Senate Majority Leader Harry Reid and Sen. Dean Heller) isn’t likely to please poker players, it’s best to accept that news and to figure out how to accomplish getting as many states online as quickly as possible. That’s where the industry sees itself going over the next year.

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Kevin McGrady

Legislative and Politics Beat Writer: Kevin McGrady practiced corporate law in New York City for eight years before moving to Las Vegas in 2008 to join the gaming industry. Kevin is a graduate of New York University and Columbia University School of Law.
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