Paul's Wall July 2, 2012

How exciting is it that the first U.S. state to officially regulate the comprehensive range of casino gaming has elected to entrust the implementation and operation of it to their state lottery?! Even the name of the bill, "The Delaware Gaming Competitive Act of 2012", captures the spirit of enlightened public policy as relates to the regulation and taxation of the gaming industry. The consumer is now surrounded by opportunity to gamble in casinos and online.

As a matter of public policy, state legislators need to recognize that they are competing with neighboring states which offer casino gambling and will soon offer i-gaming, with Tribal casinos that are even more proximate to the consumer, and also with illegal underground i-gaming operators.

We need to think regulation of the i-gaming industry as a "Competitive Act", one that asserts the rights of states to compete for the economic benefits of the industry and for the right to regulate the industry for the protection of their citizens. The alternative to such action is theoretically the default of federal "prohibition". In reality, it is simply ignoring the interests of the citizens and letting other states and private commercial interests control the industry for their own benefit.

It occurs to me that the public policy debate should be reframed. The U.S. federal law that prohibits all forms of gaming and gambling except that which is specifically legalized and regulated by the individual states forms the basis of the misguided premise that a lack of regulatory action on the part of the state results in a de facto prohibition.

What was true many years ago is no longer true because the consumer is now surrounded by countless gambling options. So now, when we hear someone state that "our state may or may not choose to implement internet gaming" as if that is a reasonable policy choice, we should understand that to actually mean "our state is choosing to channel all the economic benefits of the gaming industry to other states, to illegal i-gaming operators, and to tribal casino interests, and to deny our own citizens the economic benefits of this industry.

Furthermore, by giving the consumer no options other than to go to gambling operators that are not regulated by the state, we are choosing to ignore the need to protect our citizens from methods of operation that are not subject to our oversight." The problem is that the federal "prohibition" no longer has meaning or impact in the real world. It has little or no affect on either the marketplace or the behavior of consumers. Hopefully all other states will now recognize that and act upon the pressing need to regulate the i-gaming industry like the enlightened legislators and governor of the state of Delaware have done.

The U.S. is now entering the next stage in the formation of public and regulatory policy for the gambling industry. The effort on the part of commercial interests to federalize the regulation of i-gaming continues. But the battleground is also shifting to the individual states. Big Casino and tribal gaming interests are pointing their well-funded lobbying guns at state legislatures to steer policy in ways that are favorable to them. State lottery operators are not tasked with lobbying to protect the interests of their constituents. I would respectfully submit that the "constituents" of the state lottery includes all the citizens of the state.

Unlike commercial casinos, lotteries have an undivided, unconflicted focus on the mission of serving the interests of the state. The result is that the value that lotteries deliver to the state is exponentially greater than the model of legalizing and taxing multiple operators (witness the low tax rate and licensing fee that Nevada will be applying to the i-gaming industry).  In the Delaware model, there is a direct connection between the will of the legislators and the implementation of policy by the state lottery operator. That does not exist in the legalize, license, and tax model because the interests of private shareholders are not identical to the interests of the general public and the state government charged with protecting those interests. The state lottery operator has one singular mission: to implement the policies of the state which optimize the benefits to the public and the protection of the consumers. States already have their own expert team of gaming operators in the form of their state lotteries. Government lotteries have all the tools, the management know-how, and infrastructure to implement all forms of gaming and gambling as well as lottery. The facts bear this out. Just compare the economic benefit to the state under the license and tax model (Nevada and New Jersey) and the lottery managed model (West Virginia, New York, Rhode Island, Oregon, Maryland). Pennsylvania represents a third model: creating a "Gaming Control Board" separate from the state lottery that oversees all forms of gaming in the state including lottery, or oversees at least some portion of the gaming industry. A comparison of the benefits of the Pennsylvania "Gaming Control Board" model to the "lottery management model" quickly reveals the benefits of the "lottery management model". Hopefully, U.S. state lawmakers will study the pros and cons of the different models and select the one that optimizes the benefits to the state. It's challenge, though, because the model that clearly represents the best option for states does not have a well-funded lobbying machine. Fortunately, enlightened state lawmakers recognize the brain-trust and value they have in their own state lotteries and rely on input from the lottery leadership in guiding them to make informed decisions.

There is perhaps no better looking glass into the complexities of public policy in the i-gaming industry than Europe. Michel Barnier, Commissioner of Internal Markets for the European Union, is trying to steer a pan-European policy that harmonizes some fundamental aspects of the industry (preventing fraud, preventing minors from gambling, consumer protection, responsible gaming standards, etc.) but respects the rights of each EU member state to determine its own regulatory and taxation framework. Yes, there are differences between Europe and the U.S. as there between all jurisdictions and markets. But many of the principles, many of the public policy conundrums, are universal across all markets, cultures, and political structures. Mr. Barnier has been working with the parliament of EU member states and other interest groups to develop EU rules that rationalize the way the industry is regulated, hopefully with the result that the interests of the member states and the general public are protected. He is building towards a major announcement of guiding principles in September. The European Lottery Association has been an integral part of the process of shaping public policy in Europe. Policy-makers at both the EU and the national member state level appreciate and respect the insights of the community of state lottery operators. Their influence has truly made a huge difference. Without it, Europe would likely be a wide-open market in which i-gaming is treated like a commodity, delivering minimum benefit (like 1% of revenues!) to the public and little protection for the consumer.

The powerhouse of internet-based social gaming, Zynga, is moving into casino-style games like poker and slots. "Zynga’s position on cloning the games of others is clear. It intends to make its games more innovative and fun by moving into familiar genres and making its games more social." Sounds like a recipe that perhaps could also be applied to lottery.

The fiscal year for most U.S. lotteries closed on June 30. I think we can expect announcements of very good results for this past year. The visionary leadership of U.S. lotteries has pushed the industry into the future further and faster than ever and we can hope that the progress will continue. Congratulations for powering through the countless obstacles and working together to build new markets and exciting new ways to connect with the consumer.

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 onwww.PublicGaming.org for more info.