Online gaming will expand to include more states, analyst says

Gaming law analyst Kevin Cochran is optimistic the fledgling U.S. online gaming business will expand to include more states over the next five to 10 years as California, Pennsylvania, New York and others consider legalizing online poker and other Internet gaming.

“We’ll see two to three of the bigger states approve online gaming,” said Cochran, a senior legal analyst with Gambling Compliance in Washington, D.C.

Cochran predicted California and Pennsylvania would be next in line to approve online gaming within the next two to three years, he said Sept. 28 during a presentation at the Global Gaming Expo at Sands Expo and Convention Center.

So far only three states allow residents and visitors access to real-money wagering sites. Nevada became the first in the nation to pass online poker legislation in 2011. New Jersey and Delaware online offerings include casinos games such as blackjack and roulette in addition to real-money online poker.

Cochran said the U.S. online gaming market remains relatively small, because the three legalized markets have small population bases, making liquidity difficult to achieve.

He said Nevada and Delaware tried to expand the base of online poker players last year by signing a Multi-State Interstate Gaming Agreement, a first-of-its-kind arrangement that established a framework for the states to share regulatory standards for online poker. The agreement also lets both states control the number of entities that offer online gaming.

Cochran said Delaware gaming regulators are working on a similar agreement with New Jersey. However, initial financial results from online gaming have been unimpressive. New Jersey was hoping to bring in $80 million, but through November had earned $6.1 million in tax revenue from about $40 million in total revenue.

Delaware generated $1.9 million in tax revenue, while Nevada took in $10 million, according to Casino City’s 2015 Global Gaming Almanac.

“There has not been the great monetary returns that were expected,” Cochran said during an hourlong presentation titled “The Legal Side of iGaming: Consequences, Opportunities and Concerns” at the Global Gaming Expo.

The annual gathering, commonly known as G2E, brings together industry executives looking for new products to use in their casinos and resorts, as well as to discuss the latest industry trends.

G2E this year also featured an “Integrated Resort Experience.” The exhibit was divided into six sections, one each for hotel room, food and beverage, entertainment, meetings, spas and gaming.

Cochran said where the U.S. has been effective is regulating online gaming. He said those regulations have created an effective way to monitor a player’s age and location and enact responsible iGaming programs, such as limits, timeouts, self-exclusions and warning messages.

“Preventative measures are working in the U.S. and Canada,” he said. “New Jersey, for example, allows a player to exclude themselves while signing up for an account, or exclude themselves without admitting a gambling problem in case of background checks.”

Cochran said online gaming regulatory models deal with who to license, types of games to license, cooperation, liquidity pooling, black listing, player protection and advertising. In the United Kingdom, regulators license companies, including William Hill, to provide online gaming, while the Philippines licenses offshore gaming operators.

The Philippines doesn’t allow online gaming, but hosts servers for offshore companies as long as they keep an account with a bank in the country.

“In the U.S., online gaming licenses are tied to a land-based casino,” Cochran said. “That’s because states want to protect their land-based casino tax revenues.”

Cochran said while online gaming is highly regulated, fantasy sports is not being regulated. He said FanDuel, DraftKings and other fantasy sites have the best of both worlds — they are allowed to process payments online and operate in an unregulated marketplace.

Cochran declined to say whether he believed real-money fantasy sports is gambling, but he noted that Rep. Frank Pallone, D-N.J., has called for a congressional hearing to examine the relationship of fantasy sports to gambling and professional sports.

In a letter requesting a hearing, Pallone wrote, “Fans are currently allowed to risk money on the performance of an individual player. How is that different from wagering money on the outcome of a game?”

The Professional and Amateur Sports Protection Act of 1992 (PASPA) prohibits sports betting nationally except in Nevada, Delaware, Montana and Oregon, where it was grandfathered in because gambling was legal there before PASPA was passed.

PASPA carved out an exemption for fantasy sports as a game of skill, which Pallone believes has blurred the lines between fantasy sports and gambling.

Cochran said Nevada gaming regulators are analyzing the legalities of real-money fantasy sports. The Nevada Gaming Control Board hasn’t taken a position on daily fantasy sports. He said California and Massachusetts also are considering regulating fantasy sports.

“It’s on everybody’s radar,” Cochran said, adding that so far Kansas is the only state to legalize daily fantasy sports. The Kansas bill was introduced after the Kansas Racing and Gaming Commission said daily fantasy sports games constituted an illegal state lottery.

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