Top-10 U.S. online gaming stories to watch in 2012
12 December 2011
The biggest topic in the gambling industry right now is when is the U.S. going to license and regulate online poker (and in some instances, online gambling). It is the number one topic of conversation among industry professionals, at industry conferences and at bars during industry conferences.
With that in mind, I've outlined the top stories to watch next year when it comes to licensing and regulating online gaming in the U.S.
10. Lotto chiefs
In many states, passing online gaming legislation involves more than getting commercial casinos, card rooms and Indian casinos to agree on legislation (and convincing Caesars Entertainment not to oppose the issue). State lotteries, which generate about a billion dollars in revenue (nationally) in revenue for state governments, are popular programs. State lotto commissioners and officials are well connected politically. But they haven't been courted as part of the legislative process. And until they are, they can be roadblocks to passing online gaming legislation.
Opposition from lottery officials tend to take two forms:
1. Online poker is a threat to lottery revenue that states rely on.
2. Lottery commissions are best suited to regulate gambling in the state, so if online poker is to be offered, it should either be offered by or regulated by the state's lottery body. There's no need for a gambling commission.
Massachusetts Treasurer Steven Grossman encapsulated the lottery revenue argument this summer during a hearing regarding bringing casinos to Massachusetts.
"(Online poker) is clearly a threat to the Massachusetts Lottery and the urgently needed local aid that it helps finance," Grossman said at the hearing.
Grossman is not the only person worried about how online poker could impact lottery revenue. These people come from the "finite pie" theory on gambling. And the theory goes like this:
Consumers have a finite amount of money they're willing to spend on gambling. And the more forms of gambling you give them the option to spend on, the more risk there is to splitting the revenue into smaller pieces, thus threatening the existence of existing gambling businesses.
There's only one problem with this theory. It's wrong. People that bet on horses don't necessarily bet on the lottery. People that bet on the lottery don't necessarily bet on poker. And people that play poker don't necessarily buy lottery tickets. The belief that all gambling customers are the same is a fallacy.
That’s especially true with online poker. People who purchase lottery tickets tend to have an average age in their late forties or early fifties. The average of age of an Oregon lotto customer, for example, is 47-years-old.
Online poker players are significantly younger. The average age of online poker players, according to a 2009 Harvard study, was 27.9 years old. The customer base just isn't the same.
Tackling the issue of whether state lotteries should offer online poker is much trickier. In states that don't have any other gambling regulatory body, a plausible argument can be constructed as to why the state lottery should either offer or regulate online poker. However, in states that have a separate gambling commission, online poker should be regulated by the gambling commission. But the lotteries will have to be given something to drop their opposition, like explicitly legalizing -- and perhaps monopolizing -- online lottery and keno sales.
There is no consensus among Native American tribes that offer gaming on online gambling. Some tribes want to offer a full suite of online gaming -- casino, bingo, poker etc. Some tribes want to offer poker only. Some want to wait to see what's "legal" before setting a strategy. Others want to do something, but are not in a position to overcome institutional inertia. And other are worried that online gambling will cannibalize or destroy their casino business, and are very leery of it.
Even with this lack of consensus, the biggest bone of contention for tribes regarding online poker legislation is sovereignty. Native American tribes bristle -- and rightly so -- at the idea of being taxed and being regulated by a third party. Tribes are sovereign nations, and they will protect their status as sovereign nations fiercely. Until this issue is fully addressed -- and it hasn't been fully addressed in proposed state or federal legislation -- it's hard to see online gaming legislation passing at any level.
8. Rep. Joe Barton
Barton, a Republican from Texas, has proposed federal legislation that would lead to the licensing and regulation of online poker. Barton is an influential House Republican. And as chairman emeritus of the House Commerce and Energy Committee, he has enough juice to get Rep. Mary Bono Mack (R-Calif.) to hold subcommittee hearings and markup hearings, and enough juice to get Rep. Fred Upton (R-Mich.) to hold a vote on the bill. But the big question is whether (and this is assuming the bill passes in committee), Barton has a enough juice to get House Speaker John Boehner to schedule a vote by the full House of Representatives. Barton told the Digital Policy and Gaming Summit delegates last week that he believed he had the votes to pass his bill. But he didn't know if Boehner would schedule it. And part of whether Boehner would schedule it was dependent on the Senate.
7. House Speaker John Boehner
Now we get to Boehner. Boehner is the leader of the Republicans in the House of Representatives. He's also worried about making sure Republicans get re-elected in 2012 so they maintain control of the House. In the context of the election, it's hard to see Boehner forcing Republicans to vote on online poker. Barton might be right that many Republicans support his measure. But during an election year, it's hard to see how Republicans will go on the record as "pro gambling" when they need socially conservative voters to turn out and help them stay in office. And will Boehner be willing to force Republicans to make a vote during an election year that their base won't like? I doubt it.
6. Sen. Jon Kyl
The conventional wisdom in political circles is it doesn't matter what happens in the House regarding online poker legislation. If an online poker measure is going to pass, it's going to come from the Senate, and it will have to be attached to must-pass legislation because it can't win a stand-alone vote in the Senate. The person who can stop all of that from happening is Kyl. The Republican from Arizona was one of the key architects of the Unlawful Internet Gambling Enforcement Act (UIGEA). And under Senate rules, individual Senators can easily hold up or derail legislation. So why would Kyl, who hates online gaming, be for regulating online poker?
The arguments from lobbyists goes something like this:
1. Kyl views prohibiting online gambling as a legacy issue.
2. The UIGEA isn't doing the job well enough. Americans are still gambling online.
3. In an effort to strengthen the legal prohibitions against other forms gambling, Kyl would be willing accept licensed and regulated online poker.
4. Online poker could also help some of the Native American tribes in Arizona.
These arguments sound plausible. But I have a hard time buying them. For Kyl, fighting online gaming is both a moral and a law enforcement issue. The DOJ had no problem cracking down on PokerStars and Full Tilt Poker this year. And then there's the very real argument that poker is a "gateway" game, and that if Congress regulates online poker now, in three years, Congress will regulate all online gaming and Kyl won't be able to do anything about it (Kyl retires at the end of next year).
5. Sen. Harry Reid
Senate Majority Leader Harry Reid wants to pass online poker legislation. He represents the state of Nevada. The big casinos companies in Nevada (except for Las Vegas Sands) want online poker. Therefore, Reid wants online poker.
Reid knows he can't pass online poker legislation through the regular process, so he has to find a bill he can attach it to. But he won't attach it to must-pass legislation unless he knows he can get the bill through with the poker provisions. There are a limited number of vehicles each year to do this. And if he can't get Kyl to support him on this, online poker legislation is going nowhere next year. Election year politics also complicate the equation next year. Democrats and Republicans alike might not appreciate being forced to vote for a pro-gambling issue during an election year.
They won't be talking about online poker during the presidential caucuses. But the state legislature might take up the issue in 2012. From a budget standpoint, Iowa is in the black, so they're not looking to online poker for revenue reasons. This is a matter of regulating gambling in Iowa.
State Sen. Jeff Danielson is hopeful that his fellow Iowa legislators will pass online poker legislation next year. But Caesars has yet to weigh in on the debate, and they could kill it. Caesars is a big operator in Iowa, they've lobbied hard to kill online gaming legislation at the state level.
Danielson says he hasn't heard from Caesars so far in Iowa. Apparently, they're more concerned with a regulation that requires them to offer dog racing in order to have a gaming license. Maybe there's room to nix the dog racing requirement in return for not opposing online poker. Buy my guess is Caesars lobbies hard to beat the online poker bill -- and they win.
3. New Jersey
State Sen. Ray Lesniak says he's fixed every element of his online gambling bill to meet Gov. Chris Christie's requirements (Christie vetoed it earlier this year), except for the one that requires a voter referendum. He's hoping to convince Christie that there doesn't need to be a referendum. But if he can't do that, he'll put it on the ballot for November of next year and let the voters decide. The one thing he's trying to avoid is the voters saying no, and the federal government saying yes a year later. If the voters approve it, Atlantic City casinos could begin offering online gaming in 2013.
In February, Nevada will begin accepting applications for online gaming licenses. By Nevada law, the licenses won't mean anything until the federal government explicitly tells Nevada that online poker -- intrastate or interstate -- is OK. The big question here, and this is what makes it such a good story, is whether Nevada will go rogue. The UIGEA explicitly allows states to offer intrastate poker. The legislative intent is quite clear. And once the licenses are reviewed and ready to go, I can envision a scenario where the Nevada decides the UIGEA is enough of a go ahead to allow the state to offer intrastate online poker. Going rogue my not make the Nevada casinos a lot of money. But it would give them a lot of operational experience, which would give them a head start on states like California.
With almost 37 million people, California is the largest online poker market in the United States. And they are keenly aware that neighboring Nevada is racing to offer online poker as soon as possible. As a result, this could be the year California makes the move to offer online poker. Pressure from Nevada (and New Jersey and Iowa) combined with a need for revenue and the fact that the stakeholders in California have had a few years to hash out the issue create the most positive environment for online poker the country -- and the state -- has ever scene. If California won't go first, they'll put themselves in position to go second. And that makes them the biggest online poker story to watch next year.