The Paradoxical Case Of Legalized Online Gambling In The United States

Given all of the experience that can be garnered from legal online gambling in European countries where online gambling, especially in the United Kingdom, has been very successful it is shocking that the US states have not taken advantage of  that experience and knowledge when launching or considering  launching online gaming businesses in the US.  Having personally spent time in the UK launching online gambling sites in the UK for US based casinos taught our teams a lot about what it takes to make an online gambling business work. Of course, the US and European markets are different in terms of size, history and gaming content  preferences. However,  certain lessons are transferable from the UK market and recent events may accelerate that process.  

Population Size,  Liquidity, Lead Generation And Poker - The UK has a population of 65 million people and capable of supporting liquidity dependent games such as poker and blackjack. In Europe. sports wagering  has been the primary source of  liquidity dependent online gambling as opposed to poker. However, poker  has become very popular in the UK.   This works because  of the size of the participating audience.  In the US  online sports wagering ,for the most part, is illegal. Thus eliminating that as a source  of leads for online gaming companies and especially those launching liquidity dependent game content. The lack of a liquidity pool requires US poker operators to become more creative in their approach to creating "liquidity".

Consolidation To Create Liquidity -  Pokerstars recently announced  it will combine it's UK poker players  with it's New Jersey players indicating how important "liquidity" is to making poker a viable commercial proposition. This "inter" country move is both creative and bold challenging regulators on both sides of the atlantic on how to regulate game play  and impose taxes across jurisdictions.     This will likely lead to a consolidation  with Rhode Island  (population 1 million), Nevada (population 2.8 million ) and Delaware  (population 1 million) creating a viable US and  enhancing the UK online poker market. Will blackjack be the next liquidity based game proposition that will witness intra country player sharing. 

Online  Casino Games - In contrast to poker and perhaps blackjack most casino style games  are "solitary" experiences and in many ways the money makers for online  and offline casino operators. The average slot machine  produces $240 dollars a day.   In June of 2016 New Jersey online casinos generated 14 million in gross revenue from slots.  In contrast poker produced 2 million in revenue. Paradoxically, the popularity of poker does not translate to significant revenue for either land based or online operators. However, "casino" style slots are not popular amongst European players. This dichotomy  is most likely another  reason why the we are seeing a consolidation of poker players across countries. 

Online Gaming Impact On Land Based Casinos - Clearly, consumer trends to experience gaming as an online activity as opposed to a land based activity is exerting  pressure on  regulators and land based operators on how gaming and gambling is managed in the US.   There is no denying that the land based gaming experience is becoming subservient to the online experience.  The Atlantic City situation is a primary example of this trend. It is difficult to say how Vegas is reacting to this shift in consumer preferences as they have withdrawn from poker as an online offering and have refused to consider consolidating online poker plays across state lines or launch online games other then poker.

The need for liquidity in an online poker environment and the contradictory signals that US land based casinos have conveyed  in relation to online gambling has truly created a paradoxical situation that can only be understood if one studies the history of gambling in the US and the role that land based casinos play in terms of  online gaming regulation.  Unfortunately, the current situation leads to US player confusion as to what is and is not legal. This unfortunate paradox has lead to a flourishing  illegal online gaming business sector taking advantage of the mixed messages conveyed by regulators and land based casino operators. It has also lead to a Euro based intrusion to acquire US based poker players sapping the US from a potentially robust, large and successful interstate poker offering.

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.

How Will the US Justice Department's Arrest of PokerStars, Absolute Poker and Full Tilt Employees Impact The Impending New US Internet Gambling BIll?

Many people in and around the online gambling space are pondering how the recent US Department of Justice allegations and arrest of  PokerStars, Full Tilt and Absolute Poker associated individuals will impact the new US online gambling legislation being drafted and debated in congress.   

You have to step back a bit  and consider how close Senator Kyle and Senator Reid  came to tacking on an  online gambling amendment to an existing bill in the  fall of 2010 and the debate that  transpired  preceding the drafting of a proposed online gambling bill to understand the timing of this move.  

One of the hotly debated issues during the deliberations was the inclusion of existing online poker sites that where taking US wagers in the legislation. This would have allowed  the PokerStars of the world to turn their large trove of existing US gamblers into legitimate online gamblers when the  legislation was enacted. Many of the existing US casino operators have no online gaming players and no expertise in running online gambling operations. Obviously, Full Tilt, PokerStars and Absolute Pokers have players and expertise providing for a good partnership.

This lead the normally conservative casino operators to change their lobbying position relative to the acceptance of apparent violators of UIGEA to reenter the US market under  US casino brands. Some of the US casino brands lobbied hard for this and brought attention to the fact that for years companies like PokerStars had being taking US wagers despite UIGEA.

This added attention was a blessing and a curse for companies like PokerStars because people started to ask questions about UIGEA and why it was not being enforced.  Rumor has it that the Justice Department did not go after these companies because the law was essentially unenforceable and the Justice Department was concerned that if they did try to prosecute and lost a case then everyone would realize that there was really no US online gambling law.

I have no idea if this is true or not. However, apparently, people in a position of power started to ask questions and  challenged the Justice Department to either enforce the law or admit that it was unenforceable.

It appears that the Justice Department has decided to go forward  taking on Pokerstars, Full Tilt and Absolute Poker  in a court of law to determine once and for all if the UIGEA is viable.

Is this a good or bad thing for the current gambling legislation being debated in congress?

Oddly one could argue that the Justice Department move could improve the likelihood of a new bill being enacted that would open up online gambling in the US providing all operators and systems providers licenced to do so have no prior history of taking US wagers after UIGEA was enacted. In fact, this may be the real reason for the Justice Department 's swift move to identify which operators could and could not run online gambling operations in the US.

Of course, one could make the argument that all bets are off for new legislation in the short run. The dust may have to settle for a bit before anyone ventures forward. If this is the case Zynga once again becomes the big winner. They are making a fortune selling virtual poker chips in their poker room. No there is no cash out so no legal issue for them.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively 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.

Are US Land Based Casinos In Jeopardy Of Losing Market Share To Online Gambling Sites?

The recent holiday retail store and online e-commerce sales numbers highlight the steady march of consumers moving away from purchasing products at brick and mortar shops to purchases online. This year's comparison numbers are lower for brick and mortar shops and higher for e-commerce transactions.

The inclination to transact online as opposed to transacting in a conventional store represents a growing trend for individuals to interact virtually as opposed to interacting physically. The pendulum is swinging steadily in the direction of more online activity.

Is the same phenomena occurring in the gambling sector?

Online gambling has been alive and growing since the mid 90's. Some of the earliest e-commerce sites were gambling based. The growth in online gambling has been brisk despite the attempts by governments to render online gambling illegal.

In contrast to traditional retailers that have embraced online e-commerce by launching online stores of their own the US casino operators have avoided embracing the online model. Land based casino operators have not established online brand identities.

In defense of the US land based operators state and federal regulations have been greatly responsible for prohibiting land based operators from entering the online market. However, casino operators have also been reluctant to fully embrace online marketing of their land based properties and introducing legal options for consumers to experience gambling online.

Conversely online gambling sites continue to grow at an ever increasing rate. PartyPoker estimates that they are adding 5000 US players to their free play model every week. Fulltilt and PokerStars continue to allow US players to wager in their poker rooms.

Online gambling operators such as PartyGaming are now entering the legal online US gaming market through the purchase of the WPT property.

Certainly the recession has had a negative impact on the land based casinos. Their drop in revenues can be attributed to a deflated US economy. However, is this the only reason for their loss of revenue?

Online gambling revenue have steadily grown through this recession. Have they taken market share away from US land based operators and will that traffic return to Vegas when the recession abates?

The synergy between the offline and online gambling experience is strong. Playing online helps educate players on how to play the games and will improve their performance in skill based games at the casino. There is no complete substitute for the land based experience. People want to go to Vegas. So a marriage of online with offline(The Walmart model) makes sense. In fact a marriage of the two is almost mandatory for the land based operators to once again become growth mode companies.

The question is who will move first and if a merger of the business models occur who will initiate the merger? Will the online gambling operators be acquirers of land based US operators or will US operators begin to form partnerships with online gambling operators? What will be the dominate brand? Will it be online or offline?