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Monday, February 15, 2016

Will California Ever Legalize Online Gambling?

During the 2016 ICE conference in London I was approached several times and asked about the status of iGambling/Internet gambling in the US with special attention given to California as an important milestone state given California's population  of 38 million.   Internet gambling has been  legalized in New Jersey, Delaware and Nevada(sort of).  Thus, the assumption is that other US states(California) would follow suit. My advice to all wondering about iGambling in California is to do your homework before making any assumptions about the prospects of legalized Internet gambling in California. There are a number of factors impacting the likelihood of California legalizing online gambling. A number of these factors are unique to California others are more generic.

New Jersey And Delaware iGaming Revenues - Both New Jersey and Delaware have legalized online gambling and have posted results of their accomplishments. Overall, the numbers have been disappointing based on the assumptions going into the legalization of online gambling in these two states.   New Jersey has generated 42 million in USD since the 2014 debut. Not bad really but not what was expected.

 Of special note is the fact that  the majority of the revenue from online gambling in New Jersey and Delaware is coming from casino style games and not poker. This is relevant because the  proposed online gambling legislation  in California is focused on poker and not casino style games. This also points to  the need for  high "liquidity"  thresholds to sustain a vibrant poker ecosystem.  

Evidence of this can be seen with the introduction of poker in Nevada (Ultimate Poker)  and eventual closure of this business gaming model. The problem was primarily "liquidity".  There are simply not enough players in Nevada  to sustain a poker "ecosystem". This experiment also confirmed that US states with large populations such as New York and California may be the only US states where Internet poker will be a commercial success.  It also, points to a need within Nevada to allow players from other jurisdictions that visit Nevada to be able to play online in Nevada!!

California Poker Legislation -  California has had a a poker bill floating in the legislature for years and it continually gets rejected. The difficulty in getting any online gambling bill passed in California is influenced by the current constituents that represent "gambling" interests in California. There have been a series of California legislative forums conducted in the state capital in Sacramento in an attempt to sort out how to move forward on this legislation. Despite these open forums there is still no legislation. The challenge is getting all of the stake holders aligned and in agreement on how the legislation will be enforced and how the various vested interests in the state will be represented.  There is clearly a will but not a way at his time. The lackluster results from Nevada and New Jersey are not helping maters.

Native American Indians - California Native American tribes have become very successful land based casino operators. Native American's are essentially  a nation within a nation occupying land within the US that is deemed legally their land. This has allowed them to build land based casino's throughout the state. This special status is also granted throughout the US and is a rather unique status not completely understood by gambling businesses outside of the US.  If online poker is to become legal in California the tribes have to agree to it. Thus far the tribes are not keen on passing such a bill because they are unsure of the impact on their land based gambling business  or how revenues from perhaps only two tow California online poker rooms will benefit the tribes?  It should also be noted that the individual tribes do not necessarily cooperate with each other at the state level. Historically tribes have competed for territory and land rights. Thus navigating the politics of Native American tribal interests requires a unique understanding of this population segment.  

Poker Room/Card Rooms - California does host land based poker play  in "card rooms" within the state. This is a carve-out that allows gambling in certain locations in the state. The primary game played in these card rooms is Texas Holdem poker. This alliance also has to buy-in(no pun intended) to the benefits of legalized online poker if online gambling legislation is to pass in California. What will be their cut  be in a California Poker bill?

Status Of Online Casino Style Games(non poker related single player games) - There is virtually no meaningful effort, bills etc. addressing legalizing casino style games in California. The reason for this is that the native American business are not keen on it and the card rooms see no obvious benefit from casino games.  In some cases casino style games are perceived as a potential threats to  land based game play. 

Success Of  Alternative/Proxies for iGambling - In the absence of any substantive  legal online gambling regime in the United States alternative forms of gaming that mimic or act as proxies for "real" money gaming have become popular and attract large audiences of gamers. Even if Internet gambling became legal in the United States today  these other forms of gaming will still act as competition for real money iGambling.

  Social Casino - Social casino  became a popular form of gaming in the Facebook social        networking environment  leveraging virtual currency as a monetization tool. It has since spread to other social networks and as standalone games in  mobile social casino sites. With no cash out of chips allowed playing these games  the activity is considered legal in jurisdictions where gambling is not allowed.  The market is now estimated to be a 3.4 billion dollar business. Social casino has become popular in the US because of the ban on iGambling! The popularity of this form of "gambling" in the US is unlikely to diminish even if iGambling is legalized in the US. This suggests that businesses launching gambling operations in the US will have to determine how their businesses intersect, coexist or partner with this forms of gaming.  

  eSports - eSports is yet another form of gaming that has emerged as an alternative to iGambling. It is  a "console" style gaming environment that uses "controls" to play a series of what can be considered skill games.  Competitions are frequently televised garnering  large spectator audiences to viewing game play. This "sport" is relatively new. However, it is growing rapidly.

Fantasy Sports - Sports betting in Europe is big business and dominates iGambling in a number of ways in the EU. Sports betting of any kind in the US is prohibited due to a history of  organized crime being involved in this endeavor. In the US, fantasy sports has emerged as an alternative to traditional Sportsbook  wagering/betting. This form of gaming allows players to create their own teams based on existing sports teams and players. The "fantasy" teams then compete based on actual "real" time events to see who has picked the best overall teams. There have been challenges to its legality by a number of US states. However, it still remains an important part of the online gaming/gambling ecosystem in the US.

Player Acquisition - In Europe sports book operators play a big role in supplying players to iGambling business. Essentially, the Sportsbooks sell leads(punters) for a considerable fee. This is because these leads have proven that they will transact in a gambling context. This source of "leads" will not exist in the US when and if iGambling is legalized in California. So the questions is how will "qualified" leads be "legally" generated and where will they come from?

In summary, viewing online US gambling from the vantage point of existing European online operations is not the best way to evaluate the likelihood of the success of online gambling if online gambling is legalized in California.  In addition, gambling content that may be acceptable in Europe may not be interesting in the US. Certainly, poker will be popular. However, liquidity is paramount as we see from the Nevada failure of online poker and the lackluster showing in New Jersey.   This is not to say that iGambling will not be successful in the US. However,  Competing alternate  forms of "gaming/content/entertainment have arisen in the US and they occupy significant mindshare amongst gamers. These other forms of gaming need  to be taken into consideration when crafting a business plan for a launch of "real" money online gambling in the United States.

 It is extremely important for iGambling to 'work" in the states that currently have legalized online gambling before any expansion beyond the current "actors" can be achieved. New Jersey is especially important as an example state that needs to succeed. With this said, California is not New Jersey. With 38 million residence and a focal point for tech related business models what resonates in California may be completely different from what works in New Jersey.  However, organizing a coalition of interests groups to adopt legalized Internet gambling in California has proven to be very difficult.

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane  has developed, launched and operated Internet gambling sites in Europe,  social casino,   freemium and subscription gaming in the US.   The company engages with land based casino  operators, online gambling operators, social casino operator and game developers to assist them in determining their strategy and implementation  of game content in an online context.   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 in addition to launching online gambling operations in Europe. Gameinlane is also startup "friendly" understanding the unique value new gaming companies bring to the marketplace.  Kevin frequently speaks at gaming conferences around the world providing him with a unique perspective on this very interesting business sector. Kevin can be reached at kflood@gameinlane.com  and or twitter  at @kflow1776.


4 comments:

Reddy KQpoker said...

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Robert said...

Hi,

Great and sort of sad article for those of us who would like to see online gambling legalized in the US. There are many business reasons to advance online gambling but the politics of online gambling are not as cut and dry as we would like to think.

Gambling and prostitution used to be legal in California. It was finally outlawed not by the religious conservatives but by the Progressive movement under Progressive Governor Hiram Johnson. I think that is one of the things that most people to not appreciate with the left in California. It is in many ways just as anti gambling as the religious right.

https://en.wikipedia.org/wiki/Red_Light_Abatement_Act

Which leads me to today. I think the Presidential election will have a big impact on legal gambling in the US. Not taking sides on who you should vote for but in looking just at online gambling. You have one candidate who is running as a Progressive and another who has run casinos. At this point I think online gambling in the US would be more likely to happen if Trump won than if Clinton won. Sort of a switch from the previous positions each party has held for the last 40 years.

Robert said...

Hi,

Great and sort of sad article for those of us who would like to see online gambling legalized in the US. There are many business reasons to advance online gambling but the politics of online gambling are not as cut and dry as we would like to think.

Gambling and prostitution used to be legal in California. It was finally outlawed not by the religious conservatives but by the Progressive movement under Progressive Governor Hiram Johnson. I think that is one of the things that most people to not appreciate with the left in California. It is in many ways just as anti gambling as the religious right.

https://en.wikipedia.org/wiki/Red_Light_Abatement_Act

Which leads me to today. I think the Presidential election will have a big impact on legal gambling in the US. Not taking sides on who you should vote for but in looking just at online gambling. You have one candidate who is running as a Progressive and another who has run casinos. At this point I think online gambling in the US would be more likely to happen if Trump won than if Clinton won. Sort of a switch from the previous positions each party has held for the last 40 years.

Robert said...

Hiram Johnson. I think that is one of the things that most people to not appreciate with the left in California. It is in many ways just as anti gambling as the religious right.

https://en.wikipedia.org/wiki/Red_Light_Abatement_Act

Which leads me to today. I think the Presidential election will have a big impact on legal gambling in the US. Not taking sides on who you should vote for but in looking just at online gambling. You have one candidate who is running as a Progressive and another who has run casinos. At this point I think online gambling in the US would be more likely to happen if Trump won than if Clinton won. Sort of a switch from the previous positions each party has held for the last 40 years.