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Wednesday, July 18, 2012

US Internet Gambling - Should You Prepare For State or Federal Enactment?

No one really knows exactly how and when the US will legalize Internet gambling. Both Federal and State legislation is grinding through the political process. This is causing businesses, individuals, investors and politicians to speculate on what legislation will be enacted first. In the case of State legislation; what State(s) will legalize Internet gambling first and what type of gaming will be legalized? In the Federal scenario what type of  gaming will be legalized and what will be the relationship  between a State mandated law and a Federal law?

There appears to be a high level of certainty that the States or Federal government will pass legislation soon(soon meaning withing the next year).  However, the exact nature of this imminent legislation is unknown.

Many businesses are moving ahead with plans to launch Internet gambling operations in the US assuming one scenario or another. The consequences of  building,  partnering and  or launching, etc. an Internet gambling operations based on the correct  assumption could be very important providing a company with first mover advantage, allowing a company to build brand and liquidity faster then the companies that waited for the absolute legislative outcome. On the other hand, if a company invests heavily assuming an outcome that does not happen that business could potentially diminish the overall value of that investment or not be ready for the gambling proposition that is legalized. A wrong decision or strategy could be devastating to a business. It may even set a business back forcing them to start all over again with another strategy.

So how do you address such an unknown legislative outcome and still come out on top in the competition for the hearts, minds and wallets of US Internet gamblers no matter what the legislative outcome?

Unfortunately, there is no easy and absolute way to completely mitigate your risk without taking no risk at all and not doing anything until it is clear what the legislation will be.  Doing nothing until legislation unfolds is in and of itself a very high risk decision.  However, there are some tactics a company can engage in to move them closer to a competitive first mover status and at the same time create expertise and asset value that can be leveraged no matter what the outcome of legislation. 

Understand How To Run An Internet Business - This has very little to do with State versus Federal gambling legislation because it applies in both scenarios. No matter what the outcome of legislation a company that wants to be successful in the online gambling space has to understand how to successfully run an Internet gambling property. Learning on the fly or waiting for the exact day for either a state or federal law to pass is already too late. Other companies know how to acquire customers, understand  player behavior, have sophisticated analytics system, marketing staff, etc. and understand Internet gaming or gambling. They will be ready to go no matter what. You should be as well. If you have not run a full-on Internet business before it is a steep learning curve and requires staffing changes, infrastructure, business model modifications, etc. Get all of this behind you before the gun goes off at the starting line.

The Freemium Option - We are all witnessing the meteoric rise of  free gambling games in Facebook, web and mobile environments.  Many companies in the gambling and outside the gambling space have launched free gambling style Internet gambling properties. No you cannot take real wagers. However, the game mechanics are very similar and launching within these environments is almost identical from an operations and marketing perspective. Get into these environments now. Learn how to survive and thrive here.  When gambling becomes legal these first freemium movers will already have a portion of the real gambling players in their databases. Granted there are differences in the freemium and real gambling experience. However, in the absence of real gambling in the US. Potential US gamblers are playing in these environments.

European Internet Gambling - Companies in Europe have been running legitimate gambling operations for decades. They are now being pushed by legislation in the EU to go from a .com open gambling environment to a country by country model. Learn from them. Do not make the same mistakes European gambling operators made. They were no  prepared for country by country(equivalent to state by state) legislation. They are currently determining how they are going to survive in both a pseudo .com and country by country model. Many of them will not survive. Some of them are launching real gambling games in iPhone, Ipad, Android etc. They are also launching  freemium game in Facebook and in mobile environments. Why?

Certification And Hosting - No matter which way legislation goes your gaming property and game hosting environment  will have to be certified by a third party auditor. Do this now even if it is in a specific state such as Nevada or New Jersey. Other states will adopt this model and the Feds will follow. Get this behind you and demonstrate a leadership position by being proactive.

 Casino And Poker - No one knows what gaming proposition will be legalized first on either a federal or state level. Could be casino style games could be Poker and Bingo? Assume any scenario and have an answer for all the scenarios.

 Management Team - Build a management team  that really understands all aspects of Internet gambling. The skills you need are as follow; legal, financial, technical, marketing and strategic planning specific to this sector.  Educate your team  on Federal versus State implementations and a need for a balanced strategy that anticipates  either or both outcomes. Staff with people that understand the "traditional" Internet gambling business, the freemium business model, mobile, Facebook and web development  deployment environments.

Budgeting - Develop an Internet gambling budget that anticipates either a Federal or State legalization outcome and the real possibility of both. Do not underestimate the cost of being a first mover and staying there. Your marketing budget alone will be a surprise.

Strategic Planning - At the very highest level in your organization make it clear that your operation has to be prepared for either outcome and perhaps both. Make sure your executive team gets it and if you have investors make sure they get it as well. Breakdown the costs of a strategy that anticipates either outcome individually and a combined outcome. Also, create a budget scenario for a state by state only and federal only and a combined outcome. You do not want to find yourself in a situation where you bet on one outcome and another one unfolds. Going back to the board will not be fun if you have to reverse your strategy and at the same time ask for more money to execute it.

Cultural Shift - Unfortunately  for many companies interested in gaining a foothold in the US Internet gambling space a tectonic company culture shift will have to be undertaken to encourage an agile and responsive reaction to any number of potential outcomes. Speed to market will be incredibly  important with little time for debate. Retreat may be required from one position and an advance in another.  Reaction time will have to be quick. If you have a business culture that is not currently agile you will have to make changes.

The above strategy may seem obvious. However, many companies are making all of their bets on one outcome or the other. Clearly, this is a dangerous approach. That approach is easier to make although potentially more expensive in the end if you have to completely shift gears. I would take on more expensive up front creating a directional approach allowing me to be more flexible in delivering a minimum viable product in either scenario. In the end the cost of the decision may be more then a bet on one outcome. However, I would incur the extra up front cost  just in case.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes  about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications. 

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