A discussion of the strategic approaches to securing legal internet wagering in the US.
THE internet has revolutionised the delivery systems for a wide variety of products and services around the world. Music, books and dating partners are but a few of the multitudinous items that have become primarily sourced through the internet in our modern world.
While many jurisdictions around the globe have embraced allowing for the legal delivery of wagering over the internet, the United States continues to be the most notable exception to this phenomenon.
There are certainly a number of reasons for the US lagging behind in internet wagering, however, none is more compelling than the resistance imposed by the established brick-and-mortar casino industry, and the governments that are dependent upon these entities for their tax revenues. Over the course of the last several years, there has been a great deal of noise regarding a would-be clarifying federal solution to the internet wagering issue in the US: the so-called Reid/Kyl bill. To date, a federal solution has yet to materialise and has left many would-be internet participants asking the question, what now? As recent activity in both Nevada and New Jersey seems to suggest, the answer to the “what now?” question, at least for the foreseeable future, may very well be a state-by-state slog. This model, similar to the method by which brick-and-mortar casinos migrated across the country, will require participants hoping to operate in the US internet space to consider augmenting their strategies to become less dependent on a federal solution and instead move to develop a plan with states where internet wagering would be most advantageous.
Regardless of the state in question, all tentative participants will have to operate within the basic US gaming regulatory model which expects all applicants to demonstrate compliance with the following requirements: • The games offered are fair, honest and operate at the highest levels of security. • All associated owners, managers, financial sources, and vendors are held to the highest moral and ethical standards, and are free of inappropriate past practices and associations. • The financial and operational controls of the entity are reasoned and sound. • All fees, taxes, and related payments are appropriately accounted for and properly paid. • Appropriate safeguards are in place to protect the vulnerable.
Beyond these threshold determinations, those wanting to participate in this space must also understand two additional points that differentiate the US from its international counterparts. Boundary lines on maps have meaning in the US and companies cannot afford to treat these boundaries with indifference. Additionally, there will only be one relevant regulatory entity within each state and the option of shopping for a regulatory authority will not be present.
If a firm is confident it can meet the above prerequisites, the next step involves beginning the process of approaching a state legislature to secure the laws needed to legalise the desired form(s) of internet wagering. The traditional approach for this is the Lobby Model. The Lobby Model is one where a firm hires lobbyists to approach the legislature of a state to plead their case for legalisation. The Lobby Model is the model that was used for the expansion of casino gambling across the US, and continues to be a tried and true method of generating desired results from the political process.
In working toward this legislative solution, a firm and its lobbyists should work with state legislators towards two primary goals to ensure that the legalisation effort is successful. The first is that the law be commercially viable for the operators. If a business cannot expect to make a fair rate of return on invested capital, it simply will not bother, and the legalisation effort will be met with market instability and a host of related problems. Secondly, the game(s) offered must be right for the players. If a viable business model is not constructed and the game is lame, then underground and illegal games will continue to thrive, and the regulated and sanctioned games will die a painful and expensive death.
An additional challenge presented to those seeking to secure legal environments for internet wagering has to do with the regulatory challenges that surround the online space. It is imperative that all prospective participants understand that regulators will play a key role in the future of the industry, and that presently many regulators in the US have very weak backgrounds on the topic of internet wagering. This can prove to be a significant problem for an industry that is making an effort to legalise for the simple reason that if the regulators are uninformed and uneducated, the regulation that follows will be unreasoned, illogical and inappropriate.
Internet wagering has a great many moving parts and regulatory assets within the US understand little of it all. Furthermore, the technology is not well understood by the representative demographic of the typical regulator. For this reason it is suggested that firms augment the traditional Lobby Model with a Lobby/Regulator Model. The Lobby/Regulator Model requires firms to add “regulatory lobbying” to the legislative lobbying process. What is implied here is that as firms work with lobbyists to secure their legislative agenda, these firms and lobbyists must work simultaneously with the regulatory body of the state to educate regulators to ensure they are current on the intricacies of the industry with regards to internal controls and technical standards.
The Lobby/Regulatory Model will in turn allow these newly educated regulators to educate legislators and lobbyists on the necessary tools regulators will need included in any legislative fix to develop appropriate regulations and ultimately implement the legislation in a timely manner.
Successful use of the Lobby/Regulator Model will be particularly important once a firm has been able to secure an internet wagering law within a state. If the firm has done a poor job of educating regulators during the legislative process, implementation of the law will be seriously handicapped by regulators who now own the process but are under extreme time constraints and are both unfamiliar with the technologies and requirements of an internet wagering system.
For the firm looking to legalise internet wagering in the US it will most probably be a frustrating yet necessary journey through the political processes of multiple states. This will most certainly involve the use of lobbyists. It should also include a strategic plan that will help educate regulators as to the many details and nuances of internet wagering, for it will be these regulators that actually have the greatest control over the eventual destiny of this emerging industry.
