Paul's Wall June 18, 2012

Paul's Wall June 18, 2012

The UK Gambling Commission is exploring the pros and cons to regulating social gaming, i.e. Facebook type gaming initiatives. "The key question lawmakers must ask is whether or not it is gambling". I would think that the key answer is that it is only a matter of time before it is.

Delaware has moved to the top of the list of states that are close to regulating and taxing the i-gaming industry, on an intra-state basis. "The Delaware state house passed a bill that authorizes internet gaming under the control and operation of the Delaware Lottery."

The Ontario Lottery and Gaming Corporation (OLG) is embarking on a most ambitious program to modernize its business. It is exploring all varieties of management models, including outsourcing a much larger portion of the business to commercial operators. "While the new lottery and gaming model will include the expansion of regulated private sector delivery in the province, OLG will retain complete oversight of the sector including responsible gaming initiatives.”

Congratulations to the Georgia Lottery Corp. for winning an Emmy Award for its television special “Georgia Lottery’s All Access Music Search", a state-wide, “American Idol”-style music competition that aired in January 2011. Blazing new trails, winning awards for its efforts, and delivering consistent YoY increases in funding to education is par for the course for the Georgia Lottery!

Gary Loveman, the CEO of Caesars Entertainment is taking his "crusade" to federalize the regulation of internet gaming to the public via interviews on major news outlets like CNN. "But here's the biggest incentive of all: a windfall from taxes. Loveman estimated that under a federally regulated scenario, the U.S. online poker industry could rake in $6 billion to $8 billion a year. If states did this on their own -- and that's looking the most likely -- the revenue would be $2 billion to $3 billion to start." But why is that a good thing for the states?! The commercial interests that are lobbying for federal control of the industry appear to be using Nevada standards as a guidepost and that grossly devalues the economic benefit to all the other states. For instance, Nevada charges just 6.75 percent tax on gross gaming win (the amount casinos keep after paying customers’ winnings). It is true that results in a "windfall from taxes" for a state with a total population of less than 3 million. But the reason for that is that Nevada is taking a disproportionate share of the economic benefits of the gambling industry out of the national consumer market. Nevada's gambling tax revenues do not come from the indigenous population of Nevada (which is less than 1% of the U.S. population). They accrue from a national consumer base, people from all over the country who come to Nevada to gamble. That may have been acceptable for the casino gambling industry in the past (though many states are getting wise to that and acting to take back the market for themselves). Nevada now wants to do what the little countries of Malta and Gibraltar have been trying to do in Europe. That is to appeal to a higher authority (in Europe it is the European Union Commission; in the U.S. it is the federal government) to force states to accept a regulatory framework that is unfavourable for everyone but Nevada because it results in the lion's share of the economic benefits being channelled to Nevada. The little nations of Gibraltar and Malta were dangerously close to getting the EU Commission to do in Europe what the Big Casino and Nevada interests are attempting to do in the U.S. And they would have succeeded for sure if the EU member states did not take aggressive action to install their own jurisdictional regulatory and taxation frameworks. Now, thankfully, the high courts of Europe are affirming the rights of individual member states to regulate the industry within their own country (see story on Belgian court authorizing the blacklisting of illegal i-gaming operators like BwinParty).

The low-tax, high-volume model only works if the goal is to channel the economic benefits to a select few. An equitable regulatory and taxation system allows each state to do what it can to channel the economic benefits of the industry to its own citizens. States like Indiana, Pennsylvania, and New York, for instance, have far fewer casinos than Nevada and yet the casino industry in each one of them returns more money to its state than do Nevada casinos. States do not want the Nevada model for casinos to be imposed on them in the casino business. And the situation in i-gaming is even more dire. Physical proximity to the consumer markets is irrelevant when it comes to internet gaming. So if the regulatory and taxation framework were to favour one state's system over another, and allow access to the national consumer markets, then all the business would flow to the one state. And in the world of e-commerce, even a very small competitive advantage can yield market domination.

Coincident to this whole discussion, another one of today's headlines refers to the low licensing fee that Nevada imposes. Unless we want an internet gaming industry with all the operators to be licensed in Nevada, and all the states to adopt a low-tax and high-volume model in order to compete, we need to convince state legislators to take action to regulate and tax this industry. It's not enough to fight against the federalization of the i-gaming industry. Unless some states act to take control, that fight will eventually be lost. At this point, the only responsible public policy is to intelligently regulate and tax the i-gaming industry. And if the states don't do it, then the federal government will. www.lotteryplayersalliance.com is PGRI's effort to rally support for this position. Poker Players Alliance is our counterpart that is trying to rally support for a federalized framework (see story in today's Morning Report). In fact, we post stories almost every day on the way these issues are unfolding all around the world. For instance, the Australian government just published a report that recommends a strict licensing regime for the primary purpose of minimizing problem gambling and protecting the consumer from fraud. The Canadian provinces also have that as the primary objective. For them, it is much less about raising money for government and good causes as it is about eliminating the illegal markets and protecting the consumer. There is no shortage of reasons why the i-gaming industry should be regulated and taxed.

Thank you all for your support. I welcome your feedback, comments, or criticisms. Please feel free to e-mail me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Mark your Calendars (Oct. 22-25) for Lottery Expo 2012 in Miami. Click on www.PublicGaming.org for more info.