Will the U.S Ever Fully Legalise Online Gambling

Posted by Harry Kane on Friday, March 30, 2018

Let’s start with a basic assertion; the online gambling represents one of the biggest growth markets in the world. Having generated around $50.65 billion globally last year, it’s expected to peak at a cumulative value of $56.05 billion by the end of 2018.

This will make the online gambling market more generative that mega-brands such as Disney, and this achievement is all the more remarkable given that North America (along with other lucrative regions across the globe) have yet to fully legalise the practice. In fact, just four major states have deigned to legalise online gambling since the global boon began in 2010, with Pennsylvania the most recent addition to this list after Governor Tom Wolf signed a comprehensive expansion bill at the end of last year.

With this in mind, there’s no doubt that the online gambling market would grow exponentially if the U.S ever saw the widespread legalisation of the practice. In this post, we’ll ask whether this will ever happen and consider the impact that this would have on the global market.

North America and Online Gambling – The Story so Far

The concept of online gambling and virtual poker first became popularised back in 1994, after the passing of the Free Trade and Processing Act in Antigua, Barbuda. This gave the Caribbean nation the legal power to grant gaming licenses who wanted to launch online casinos, and this instantly gave birth to a number of prominent industry players including Microgaming.

It was barely one year later that the early market leaders began the gold rush to bring virtual gambling to the North American market, with brands such as Bodog, PokerStars, Full Tilt Poker at the forefront of this charge. This turned to be a decade-long, and ultimately fruitless, campaign by these brands, with the concept of online gambling met with serious opposition from lawmakers nationwide (particularly in the deep south).

As the battle to legalise online gambling, sports betting and virtual poker became increasingly intense, the U.S. government took the decisive step of introducing the groundbreaking and comprehensive Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). This was designed to prohibit companies from offering Internet-based poker, sports books and opportunistic games of chance to an American audience, while deterring brands from lobbying U.S. lawmakers and attempt to this potentially lucrative marketplace.

The U.S. government faced numerous challenges to this legislation in the subsequent years, although it proved that it was more than willing to aggressively tackle these and prosecute operators under the broad terms of the UIGEA. This came to a head in the autumn 2011, when U.S. Attorney General Preet Bharara alleged that the founders of PokerStars, Full Tilt Poker and Absolute Poker has committed acts of bank fraud and money laundering when transferring funds to and from players through the Internet.

This was considered to be a dramatic and largely spurious claim, but with the weight of the U.S. government behind it PokerStars and their fellow defendants were forced to forfeit in excess of $731 million in order to settle the case and continue their global operations.

While seemed to shut the door on online gambling and virtual poker in North America, operators were given hope as 2011 drew to a close. This was thanks to the amendments made to another piece of long-standing, anti-gambling legislation, namely the Federal Wire Act of 1961. This has preceded the UIGEA and initially banned the placing of telephone wagers, but an update from the Department of Justice enabled individual state authorities to legalise and regulate online gambling if they wished to.

Within two years, social gaming and online poker giants Zynga (whose Gibraltar-based gambling firm had generated €770 million in 2012) has tried unsuccessfully to launch in the American market, while Nevada, New Jersey and Delaware had established fully regulated and lucrative virtual gambling sectors.

The path to widespread legalisation in the States in a winding one, however, and the last four years have seen numerous authorities frustrated in their bid to regulate virtual gambling. Potentially game-changing players such as New York, California and Michigan have tried and failed to push through numerous bills during this time, with these states buoyed by the potential tax revenue that could be generated through online gambling.

Pennsylvania finally ended this drought in the autumn of 2017, however, with Governor Wolf keen to tap into the lucrative nature of a legalised and well-regulated market and ultimately close an estimated budget deficit of $2.2 billion..

What’s Next in the U.S. Marketplace?

If recent history tells us anything, it’s that the legalisation of online gambling in one state does not necessarily mean that others will follow suit. After all, the initial spurt that followed the revision of the Federal Wire Act of 1961 in 2011 was expected to drive widespread legalisation nationwide, but even the most proactive, pro-gambling lawmakers have proved unable to capitalise on this momentum in the years that have followed.

Despite this, the decision of Governor Tom Wolf as the state of Pennsylvania has caused widespread optimism within the marketplace, particularly with the local authorities already prepared to commence the application and acceptance process for prospective licensees. In fact, this process will begin on April 2nd, 2018, and enable land-based operators with an existing license to enter the burgeoning iGaming marketplace on the provision that they collaborate with listed third-party software developers.

This way, the state can maintain high regulatory standards and drive job creation within the industry..

This, and the open admission from Governor Wolf that online gambling is to be regulated as a way of bridging the state’s budget deficit, means that the legalisation of virtual betting in Pennsylvania is being considered as a pivotal turning point in the industry as a whole. As a result, advocates are expecting some form of domino effect in the country, with a number of further states having already taken the initial steps to force through legislation and embrace the bounty offered by virtual gambling.

At the head of this queue is New York, which endured a number of set-backs in a sustained bid to legalise gambling (and particularly online poker) in the states. There’s no doubt that the Big Apple remains the biggest contender in the marketplace, and one that could seriously influence others to follow suit.

The groundwork for legalising online gambling was laid last year, when lawmakers were able to pass an important piece of legislation that is commonly referred to as S 3898. This will be reintroduced for more serious condition in 2018, and at its core is an attempt to regulate online poker and virtual sports betting within the territory of New York going forward.

Having been passed in the Senate, the bill initially failed in the Assembly before returning in the New Year. This has since been passed to the Finance Committee with a comprehensive vote of 10/1, with determined State Senator John Bonacic known to be the driving force behind this legislation.

Bonacic is adamant that the bill will pass muster this time around, with one of the key stumbling blocks having been hurdled successfully in February. More specifically, the huge Resorts World Catskills Casino opened officially on February 8th, becoming the fourth and final land-based establishment in the state after its approval back in 2013.

A number of iGaming campaigners believed that lawmakers have been waiting for all four casinos to open their doors before approving the S 3898 bill, in order to create a vibrant. lucrative and ultimately competitive marketplace..

Not only this, but it’s fair to surmise that New York’s land-based casinos have delivered disappointing and diminishing returns since their launch, creating a short-fall in terms of taxable revenue. As a result, online poker and sports betting could well deliver a much-needed shot in the arm for the state, while paving the way for other authorities to follow suit in the near-term.

Elsewhere, the state of Michigan is also processing a number of bills that have the potential to change the local gaming landscape. While Republican Brandt Iden is not proposing to fully legalise virtual gambling in the state, he is suggesting that online activity could be allowed through fully-licensed, land-based casinos. This would help the state to regulate activity and tax it accordingly, while also ensuring that a practice currently performed illegally can be done with the law.

This may also lay the foundation for more comprehensive legalisation in the future, which represents excellent news for the burgeoning, online gambling market in North America.

So, while former trail-blazers California may have placed the issue of virtual gambling on the back-burner for now (there are no plans to push through legislation in 2018), the developments in Pennsylvania, New York and Michigan offer genuine hope for the future of the marketplace.

How Would Legalisation Change the Global Market?

As we’ve already said, the global online gambling market is already forecast to generate in excess of $50 billion again this year. This is indicative of a thriving growth industry, so even without further expansion of the North American market the sector would continue to enjoy sustained success in 2018 and beyond.

Still, the acceptance, legalisation and full regulation of virtual gambling nationwide throughout the U.S. would swell the global coffers considerably. To understand this further, we need only look at states such have New Jersey, which have profited hugely from online gambling and established the activity as a pivotal source of taxable revenue.

Last year was a seminal one for New Jersey, which saw it’s regulated revenues grow by nearly 25% in 2017. Over the course of 2017, total online revenue increased to £254.6 million, breaking the $200 million barrier for the first time in the process. This was also achieved despite a decline in online poker revenues, which is part of a wider, longer-term trend from across the globe.

Interestingly, last December also saw licensed gaming site generate cumulative revenue of $20.75 million, which in turn represented the 10th consecutive month in which the $20 million threshold was exceeded.

With Nevada and Delaware also recording similar returns from online gambling, the potential of the market is clear for all to see. Not only this, but the addition of New York and Michigan will enable the U.S. market to become a billion dollar in its own right, creating huge opportunities for future collaboration and expansion across the globe..

One of the key trends in the current market is liquidity pacts, through which alternative countries and markets pool their resources in order to optimise growth potential. Italy, Portugal, Spain and France have already forged an agreement on the continent, for example, and one that will ultimately see operators share data and technology on a potentially huge scale.

Similarly, the UK Gambling Commission (UKGC) has announced its intention to pursue potential liquidity agreements with all four U.S. states that have previously legalised online gambling. This is something that regulators have attempted before, when the UKGC met with New Jersey’s Division of Gaming Enforcement (DGE) in 2015 to discuss lending their regulatory expertise to the state as part of a wider liquidity sharing agreement.

Talks between the two groups eventually fell through, of course, but the landscape has changed considerably since this time. Firstly, New Jersey, Nevada and Delaware have agreed a groundbreaking pact of their own, with Pennsylvania also likely to join this once online gambling is up and running in the state.

Secondly, Brexit has begun to hit British industry hard and forced the nation to seek out new growth opportunities, while minimising the chances that the UK gambling market will ever be able to agree liquidity pacts with EU member states. This creates incentive for all parties to agree a trans-Atlantic deal, and one that could increase global revenues further and exacerbate the pace of legalisation in North America.

The Last Word

The North American market has been here before, of course, and operators are too savvy to believe that the latest developments will drive the widespread expansion of the domestic or global marketplace.

If New York and one or two other states choose to legalise online gambling and poker in 2018 and the UKGC makes official moves to develop a trans-Atlantic liquidity sharing pace, however, we may finally see a long overdue breakthrough in the potentially huge U.S. market.

This is certainly an interesting space to watch, and there’s no doubt that the widespread expansion of the U.S. market could drive exponential global growth.