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Thursday, August 7, 2014

Is The Current North American And European Method Of Implementing "Legal/Regulated" Internet Gambling Fostering Illegal Online Gambling?

EU countries have had a legal structure for  Internet gambling for some time. It started cautiously with the UK setting up a regulatory framework  for sports wagering which was extended to casino and other forms of gambling formats hosted from British protectorates in locations such as Gibraltar, Isle Of Man, Malta, Alderney,  etc. This regulatory regime provided European citizens with a safe and audited Internet gambling experience. Apparently, EU countries who's citizens were gambling on these sites where less then happy about the prospect of their citizens gambling online without the countries themselves obtaining tax revenue from the activity. Thus, the move by countries such as France, Italy, Germany, etc. deciding to create their own legal Internet gambling infrastructure for  their citizens. The term "balkanization" has frequently been used to describe this trend inferring the  associated political and economic impact of this strategy. Unfortunately, a number of the regulated European Internet gambling properties have failed because of their lack of liquidity associated with the downsizing of their  gaming audience. 

During this phase of European repatriation of gambling regulation into individual EU countries the US and Canada were pondering the legalization of Internet gambling.  The Americans were heavily influenced by the direction that the Europeans had taken.  A debate ensued which pitted federalist against state's rights advocates arguing either for a federal or state by state regulatory regime. A similar yet muted debate had  occurred in Europe with some advocates wanting the EU governing body in Brussels to establish a pan European EU Internet gambling legislation. The EU governing body could not come to a consensus decision allowing for cross European Internet gambling law, therefore, each country proceeded on their own. Oddly enough the same situation has occurred in the US. No federal law is likely to be passed so each state interested in hosting  legal Internet gambling is charging off on their own. Nevada, New Jersey, Pennsylvania, Delaware, etc. have either legalized Internet gambling for their citizens or are about too.

One of  consequences  of this approach  to iGambling legalization by Europe, Canada and the United States is the unintended legitimization of illegal Internet gambling sites.  This legitimization is largely unintentional and caused primarily by a  combination of a "land" based casino  regulation bias and the assumption that the Internet can be "regulated".  Clearly the Internet is borderless despite the attempts to block IP addresses. In addition, clever ways to identify people that are or are not in a region that is gambling friendly are hard to implement and in many cases my deny people access that should have access to a legal online gambling property.  China has tried IP blocking  with limited success.

The other interesting challenge for governments attempting to restrict access to their Internet gambling properties is the lack of competitive rigor that is a normal part of competitive and open economies. Certainly there can be competition within the sanctioned online gambling properties. However, it is not to the level that an open economy offers. 

For example, I have spoken to a number of amateur and professional poker players that have decidedly migrated back to the "illegal" sites because of  the inferior quality of the poker experience on legal Internet gambling sites and the lack of "liquidity" on these sites. Poker and in some cases Blackjack and  Bingo require liquidity and "churn" to remain interesting.  Many online poker players have played on "illegal" sites for years and are quite happy with them. An incident where a potential player  attempts to access a"legal" Internet site and is rejected due to a close proximity to a border state that does not support Internet gambling also creates an incentive for that player to go back to their favorite illegal site or perhaps to search for one. 

 Hopefully,  governments that have either decided to "regulate" Internet gambling or are considering it properly assess their motivations for doing so in a commercial context. In the end, if the regulated jurisdiction wants to generate meaningful revenue, cultivate successful Internet gambling businesses and  actually protect their citizens from the dangers associated with illegal Internet gambling they need to offer their citizens a competitive, accessible,  safe and secure environment that rationally approaches the Internet gambling arena. Modeling Internet gambling regulation solely based on land based regulation models is admirable. However, the contrast between these environments is stark requiring specific regulatory consideration for each sector to ensure a safe commercially viable gambling experience. Illegal Internet gambling sites that initially were fearful of a regulated legal Internet gambling world have now realized it is actually good business for them as long as they are assessable and offer a superior online gambling experience relative to the regulated properties.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin, has developed, launched and operated Internet gambling sites in Europe.   Kevin and Gameinlane   develop "social" casino games for third parties. Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions. Kevin can be reached at kflood@gameinlane.com


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