Insights | State by State

14 April 2009
The prospect of state-level Internet gambling regulation is one that has many industry players interested, especially in the European sector.

Since the recession hit, legislative focus has been on stimulus packages and relief efforts. Some argue that the current political climate is not one to consider intrastate Internet gaming legislation a priority. But with massive state budget deficits and a multibillion-dollar industry that presents a clear source of untapped tax revenue, the time might be right to push for regulation.

IGamingNews asked some commentators well-versed on the issue which states they predict will lead the pack in regulating Internet gambling on an intrastate basis, which games they’ll regulate and what opportunities regulation might open for the European commercial sector.

All name California as a frontrunner for licensing Internet poker, but opinions are disparate on what this will mean for European operators and suppliers.

California looks like it will be the non-lottery state that takes the lead in regulating intrastate Internet gambling. A member of California's Assembly is expected to introduce legislation similar to Lloyd Levine's legislation from last year that would legalize online poker.

New York is the leader for intrastate lottery wagering and Florida, I know, is exploring intrastate Internet wagering on a non-lottery basis, and if they were to go forward they would contemplate something more than mere subscriptions. It’s difficult, because not a lot of legislation has been filed. There are just predictions of legislation to be filed.

It will be interesting to see what Barney Frank does. I know he is a big player in the regulation of financial institutions, so I will be a bit surprised if he makes this a great focus of his efforts.

Internet poker and the lottery will definitely be the games most likely to be regulated, and I think poker could generate the greatest returns because I think it’s the most likely to happen. I don’t think that Internet lottery subscription play has been a remarkable addition to revenue in the states that have implemented it. I think it’s an improvement, but players that are buying online subscriptions would just buy them by mail if they weren’t available online. So, I don’t know to what extent it’s creative.

I would expect the European sector to push pretty hard for opportunities in the U.S. In California, it’s anticipated that the state will issue a procurement for the system to be provided by an outside vendor, and I would think that the famous players in Europe would be competing against U.S. suppliers of similar systems.

Similar to lottery systems in the U.S., there would be one system per state that would be authorized to conduct regulated poker, and there would be significant competition for the right to provide and operate the system for each state.

Mark Hichar | Attorney, Edwards Angell Palmer & Dodge

Immediately comes California -- that is open and shut. Then it will be light years to the next state. Next would be Nevada, and New Jersey might be willing, but it would be on the back burner.

California is in a different position, I think, because it really wants to legalize intrastate Internet poker, and I think they’ll make a fortune. Nevada could, of course, regulate the whole thing. New Jersey would probably concentrate on slot and video terminals.

As for what games could generate the most returns for these states, in California, it’s definitely poker. In Nevada it’s hard to say because studies have shown that Internet gambling doesn’t seem to be that popular. In New Jersey, as I mentioned, I would think they would concentrate on slots and video terminals, although this would have to be done in cooperation with the casinos.

I think it would be very, very hard for the European commercial sector to get involved in the states that regulated Internet gambling. Let’s just say California sets up intrastate Internet poker, and let’s assume the Department of Justice under President Obama doesn’t object because they might just be that much less interested. But once you start accepting customers from outside of California, it might open concern with the Department of Justice that this is something that’s gone beyond intrastate. So, legislators would be taking a risk, but they could make an awful lot of money.

Joseph Kelly | Business Professor, State University of New York at Buffalo

I think California, Florida and Nevada will be the three states that are most likely to regulate some form of intrastate internet gambling in the next five years simply due to their size, current involvement with gambling, social attitudes and political will. Video poker is the most likely to be regulated because of how the game is viewed by the general public. Bingo is next, for the same reason, plus the fact that charitable bingo is allowed in many states. And, given the current interest in poker, it’s probably the most profitable. As for the opportunities that could open up for the commercial European sector, I suspect the states will be somewhat protectionist in any legislation legalizing this activity, and limit it to state-side interests.

Larry Walters | Attorney, Weston Garrou Dewitt & Walters

I think California, Florida and possibly Pennsylvania will be the first states to regulate some type of intrastate Internet gambling. I would say we could be looking at licensed Internet poker in California inside a year.

The thing people have to understand is that the UIGEA has not killed Internet gambling in America. On the contrary, it’s nailed the door open for state regulation. And while we’re very much appreciative of Congressmen Barney Frank’s efforts, I think the states will approve Internet gambling long before it gets straightened out on national level.

Of the games that would get regulated, poker is the natural choice because in the American social narrative, games are judged by their perceived social threat. It’s helpful to look at it like the visual light spectrum.

On the harmful ultraviolet side you have your hard gambling like slots and craps, games where daddy can lose the house. On the other side, the infrared side, you have pure amusement games, like parcheesi. Poker is right in the middle. It’s an extremely popular game, and everyone plays it. Senators and judges play poker. Grandmothers play poker. And, there’s already a poker market worth over $12 billion, and more than half of this comes from the U.S. From a revenue and customer-protection point of view, state licensing and regulation is the way to go. Poker is a big enough and popular enough game to generate the sort of revenue to make it worthwhile.

Opportunities for the European commercial sector will definitely come up with the licensing of Internet poker. These states are going to need somebody who's got experience to come in and help them. There’s no point in building from scratch when you can get experienced, proven people. Secondly, my belief is that once one state goes ahead and authorizes Internet poker, other states will follow suit. They’ll begin to pool the market, and then you’ll have a national market, and then an international market. Right now everything is shut down, but once it gets going, I think it should go quickly.

Martin Owens | Attorney, Law Offices of Martin Owens

California is definitely looking at the possibility of Internet poker if they can get all the parties, which consist mainly of the tribes and card clubs, into agreement.

New Jersey might do something with intrastate, but they’ll be concerned about cannibalizing their casinos. I don’t see casino states like Mississippi or Iowa, or riverboat or mountain towns regulating Internet gambling.

Poker, on the other hand, would work on the Net, but you would need to get the critical mass of people, and this would limit it to larger states like California and New York. I could see a lot of the states going with the state lottery as the game to regulate. Other than that, we’re probably talking primarily about poker.

Bingo is another possibility, but the charities really can't do it and it doesn’t have the cache that poker has. The state lottery would probably generate the greatest returns, but poker has obviously got tremendous potential. Nothing makes as much money as a slot machine, but politically, that’s really difficult to get onto the Internet and into peoples homes.

The PartyGaming settlement really brings the question of the European commercial sector to the forefront. There is a problem for any company that took bets from the U.S. They’ve got the Department of Justice thinking it was all illegal whether it was or wasn’t, and the settlement is technically only with the federal government.

There are two problems. One is legality, and the other is competition against the homegrown operators. For example, if California were to license Internet poker, the licenses would be limited to California-licensed card clubs and federally recognized Indian tribes. So someone like PartyGaming would either have to buy a card club and get licensed, or get into a joint venture and get licensed.

I. Nelson Rose | Professor, Whittier Law School

Caroline Gallay is a staff writer at IGamingNews. She lives in Columbia, Mo.