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Tuesday, July 22, 2014

GIGSE 2014 San Francisco Conference Summary

 The 2014 GIGSE   online gambling and social gaming conference lead off debate set an interesting tone to this years  conference in an unexpected way. Three former politicians; Willie Brown former Mayor of San Francisco, Edward Rendall former Governor of Pennsylvania and Robert Miller, former Governor of Nevada dove right into the hotly debated topic of legalized online gambling in the US. The debate reflected some of the on-going political debate  on the subject recently intensified by Sheldon Adleson's flat out attack on the roll-out of online gambling in the US.

Edward Randall and Robert Miller took a very different  stance in regard to online gambling relative to Mr. Adleson and were strong proponents of it. Nevada has already legalized online poker and may very well legalize online casino games in the near future. Edward Rendall  was also an advocate of responsible online gaming legislation based on his state's strong and financially beneficial roll-out of land based casino gambling.  He sees no conflict between the land based and online gambling industry pointing to research that there is no evidence, at this time, that online gambling will impact offline gambling revenue. 

Willie Brown took the contrarian view that "if you can not see it or touch it you can not regulate it". Mr. Brown, being the passionate  public speaker that  he is, was quite animated diving right into the potential dangers of online gambling to land based casino revenue and the prospect of organized crime syndicates laundering online gambling proceeds.  He also wound-up the crowd with the threat that every child under the age of 12 years old would be gambling on their mobile phones. Many of  the conference attendees  were shocked by his position and his passionate defense of land based casino and objection to legalized online gambling.    However, I am sure there are plenty of land based casino business affiliates that harbor the same feelings. Bringing these fears to the surface in an animated way helped to drive home to a sympathetic audience that the "every" day person and voter may not see the world in the same way that the audience does.

 Despite the former mayor's impassioned critique of online legalized online gambling in California it is unclear what position average California voters take on legalized iGambling in California. The debate in California thus far has been primarily in Sacramento. The track record there has not been great given the indictment of a number of state senators that have supported online gambling in the legislature.  This has further muddied the waters in the state capital even though the State has hired Richard Schuetz as Commissioner of the California Gambling Control Commission to sort out the mess and to give credibility  to the effort.  

Social Casino Games - The conference held a complete multi-day track addressing the ever growing strength and growth of the  "social" casino industry. For those not in the business, social casino games are gambling style games where you can place a bet but you can not cash out any of your winnings. In many cases the games are almost identical to slot games and table games found in land based casinos and online gambling sites. This allows social casino games to be unregulated. The sector has actually outgrown the online gambling market in recent years in terms of game play. It's revenue is somewhat muted because of the small transactions involved in the games however the worldwide estimate of revenue from this sector is 4.1 billion USD.   

 I had the pleasure to chair some of the program  and was struck by the growing "maturity" of this sector. It is clearly getting harder to break into this space and the businesses that have been in this sector for some time appear to be getting a solid hold on the market. Ironically, many of the established European online gambling operators,  US land based casino operators and game suppliers to the land based casino industry have become very active and successful in this sector.  However, the maturity of this sector is also leading to stiff competition because the game content that consumers appear to enjoy is very closely related to traditional online slot play and easily copied.   It will be very interesting to see how and if consolidation occurs  in this sectors over the next year.  There are also forces at work internationally that are advocating some form of regulation of this market. However, the reasons for regulation have been hard to substantiate. There is no concrete evidence that social casino play contributes or leads to a propensity to play "real" online gambling games.  In addition, online gambling operators in Europe have tried unsuccessfully to convert social casino players to "real" money gambling venues.  

US Online Gambling(iGaming) - Online gambling has been introduced and is operational in Nevada, New Jersey and in Delaware. However,  the roll-out of online gambling in these states has been less then stellar based on perhaps unrealistic  expectations set prior to legalization. This situation is placing a drag on the further roll-out of online gambling in the US and consolidation within the states that have legalized it.

This debate was carried on in a number of venues at the conference with state compacts being considered to potentially pool players and increase liquidity.  However, it is clear that after the shock,  confusion and in some ways muted response by online gambling consumers in the states where online gambling is legal there is hope that lessons have been learned and the "fix" is on the way.

 Liquidity is the overriding culprit for  the slow start. However, the liquidity issue is really a symptom caused  by poor planning,  credit card transaction oversights, overly zealous IP and location based rules and the misunderstandings between land based casino operations and online gambling operators.  Also, expected numbers of concurrent players were exaggerated going into launch. The experience in the European market should have been taken into consideration when prognosticating  the impact of a country by country or state by state online gambling model in the US.  

 Although the issues with the way the roll out has occurred and the actual content that the consumer has access to is greatly responsible for the lack of robust player numbers most iGaming experts will agree that  the industry can restore consumer confidence in legalized US online gambling allowing it to move forward in a responsible and profitable way.

States like Delaware and Nevada are somewhat challenged because of their relatively small population base. We have seen how the balkanization of  online gambling in Europe from a .com approach to a country by country implementation has resulted in extreme consolidation in the online gambling business in that region. The US is starting out without having gone through that phase. However, the discussion about state "compacts" is being bantered about conceding that US online gambling in its current state by state format could be challenging.

Native American Indian Tribal Representation - GIGSE has had very strong representation from the American Indian tribal groups over the past several years. This group is heavily dependent on their land based casino's supporting and funding many American Indian initiatives. In many  ways their casino's have helped to sustain many tribes and create jobs for their community.  Consequently, they are very interested in the impact and  or opportunity that online gambling poses. The prickly aspect of online gambling for them is "liquidity" given their relative small geographic  focus.  The success of relatively small online casinos launched in Malta, Isle of Man and Alderney may point to an indication of how an Indian casino could flourish in online gambling in the US. In addition, there has been no proof that online gambling negatively impacts land based casino gambling.  

It could be argued  that the US online gambling sector is already over regulated in the US and the  social casino sector under regulated. The interesting dynamic and friction  that this creates could lead to one group being penalized for being successful and the other group being given leeway to relax regulation to increase revenue. For example, are state compacts inevitable?  Will social casino be subject to some form of taxation to offset lowered online gambling revenue? Will social casinos have to conduct age identification, etc. ?  However, after listening to the politicians it could be very challenging to get states to agree to cross state lines on revenue share, regulation and player ownership.  Also, constructing and enforcing regulation is a time consuming and expensive undertaking making it less likely that social casino will be subject to regulation unless the regulation is very simple. Making voters undergo more referendums before the iGaming model has proven its worth is unlikely.

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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