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Slow burn: What’s the hold-up with online casino?

Insight | Analysis

With online casino legal in a measly seven states while sports betting continues to sweep the nation, why is it the former seems to have stalled?  ZAK THOMAS-AKOO investigates

You might say that when American regulatory law dies it comes back stronger. Efforts to expand gaming have been disrupted and divided by the Wire Act, chopped and changed by mood-swings in the Department of Justice and the White House, and faced interference from the courts—yet as far as gambling is concerned, the tides of history have generally pointed in the direction of continued liberalization.

Some of the obstacles have been cleared at the federal level, and the state houses—those fabled laboratories of democracy—have churned out a kaleidoscope of different gambling models in the last few years.

Make no bones about it, though. In the sharp-eyed view of the law, not all gambling verticals are born equal. Currently, 21 US states have legalized online sports betting, 31 if you include in-person betting. This compares with just seven for online casino, or six if you think including Nevada—where poker is the only online casino product permitted—is cheating.

So what’s up? There are easy and hard answers to this question, but social responsibility concerns are often cited by legislators as important factors.

The social question

Legislators are naturally wary about putting a casino directly in their constituents’ pockets. In general, there are some aspects of online casino that raise social responsibility concerns lawmakers don’t want to get involved with.

For instance, an online casino is available all hours of the day, while a real venue may have closing times. And there is a journey to visit a retail site, as opposed to the small amount of time it takes to take a phone out of a pocket. This makes the gambling activity easier to hide from family members, as well as simplifying the process of integrating gambling into daily routines.

And while operators have data on customers, they can’t see their players face-to-face, creating distance from the gatekeepers, who might, for example, prevent an intoxicated person from gambling or even just offer at-risk players a moment to reflect. These concerns can make legislators think twice about having their name attached to the topic.

These considerations also apply to sports betting, of course, though often not to the same extent. Since betting is often tied to major events, it has less of a perception as an ‘always-on’ product. At the same time it has earned a reputation in the US as being more ‘social’ than online casino. While there are social responsibility concerns with sports wagering, legislators clearly view these as less of a worry than those that crop up for online casino.

Social responsibility is an integral topic, one that both lawmakers and operators could think carefully about when legislating or offering igaming.

However, online casino, when implemented responsibly, can offer new tools and methods to combat gambling harms that are either unavailable or rarely practiced in land-based venues, especially in the US. A user, through the technological nature of the medium, generates large amounts of data through their gambling spend that allows operators to track their activity and flag any potentially harmful spend.

This differs from land-based casinos where physical cash is still by far the most common method of transaction, which can be difficult to validate from both an anti-money laundering and social responsibility perspective.

There is also the important point that online casino exists and is already widespread throughout the nation through black-market offerings. With minimal technological skill, it is possible for American users in any state to log in and gamble on these unregulated platforms. Restricting the operation of legitimate igaming businesses arguably does nothing but deny the state much-needed revenue while channeling consumers to offshore sites.

B Global Market Advisors partner and director of government affairs Brendan Bussman frames the problem as one of tradeoffs of which interested parties need to be informed.

“There are advantages and disadvantages, but it’s about educating stakeholders on what those are and getting things in a formal fashion that makes sense,” he says.

Former Michigan legislator and Sportradar US head of government affairs Brandt Iden emphasizes education of lawmakers as a vital process.

“I think that there’s also a misunderstanding about what icasino is like,” he says. “I think it’s all about education. It’s about ensuring legislators [know] that this is already happening. Just as easily as you can get online and place a sports bet in some grey market in the Dominican Republic, you can get online and play poker or blackjack.

“And so I think there’s just that education hurdle that needs to be discussed more. It’s incumbent upon stakeholders to work with legislators to educate them on the issues and educate them on what the realities of the market are out there today.”

Online casino creates unique concerns that operators must grapple with if it is to get over the line in more states. That will involve ensuring that lawmakers are up to date and informed about how markets work in practice and how harms can be mitigated through well-written law, to create a system that works for both operators and consumers.

However, there are perhaps deeper forces at work than an entirely legislator-focused view would indicate.

Institutional differences

Interest groups and institutions are powerful forces that lobby for and shape legislation from behind the scenes. While both online sports betting and casino are united as part of the gambling sector, the groups that can potentially profit or lose out from the regulation of the markets are very different.

At the time PASPA was repealed, legal sports betting in the US was almost entirely the purview of Las Vegas sportsbooks. Subsequently, domestic sports betting businesses were a relatively small force to be reckoned with. Sporting leagues were a much more powerful lobby group, but as Entain SVP for American regulatory affairs and responsible gambling Martin Lycka notes, they came around to a pro-betting approach quickly enough.

“Despite their original resistance to the prospect, the major leagues and all other sports organizations ended up jumping on the bandwagon and effectively helped spread the burden, [they] evangelized about sports betting. No such proposition exists in the casino world,” he says.

In Lycka’s telling, it is the smaller casinos unable to compete with a significant igaming offering that are principally concerned.

“I don’t think that the big casino groups, such as our own partner MGM Resorts International, or Caesars, would be opposed to the regulation of online casino because it’s perfectly complementary to their existing offering. But I can imagine that there may be some concern from the smaller regional or even state-restricted casinos of online casino barging into the market and taking over,” he says.

Lycka also points to the experience of existing regulated markets.

“From experience with the likes of European regulated markets, also increasingly in the likes of Canada and other jurisdictions throughout the Americas, practice has borne out and proven that the rates of cannibalization, if any, between online and land based casinos are minimal. And once again the two complement one another.”

Cynically speaking

So where do we go from here? Ensuring that the law accommodates existing land-based interests may be a viable model going forward. Connecticut’s igaming model—the most recent to be enacted in the US—involved an explicit guarantee of exclusivity for the Mashantucket Pequot and the Mohegan tribes. In many other states, tribes hold strong positions and this type of model might be what works.

Iden, who was instrumental in passing legislation in Michigan that also offered tribes strong access to the market, agrees.

“The concept of it is certainly something that works and that we’ve seen the success of,” he says. “And so I believe that this is a model that can be replicated in other states across the country that have strong tribal gaming presence.”

Igaming legislation is no doubt a slow process in the US, and there’s little reason to think that its expansion throughout the country will resemble the sports betting boom in scale or speed.

But Lycka notes one path that could put more focus on the vertical, albeit one taking place as a result of unfortunate circumstances. In the context of high inflation and possible recession, states may decide on igaming as a route to fiscal stability.

Many states are required to balance their budgets, and those with legal sports betting are finding it isn’t that much of a cash cow. Casino, on the other hand, tends to bring much more tax revenue.

“I believe that once the sports betting dust has settled to an even bigger extent than post-pandemic and sadly, unfortunately and tragically, with the ongoing war in the Ukraine, that’s affecting not only prices in the US but prices worldwide, I’m sure a lot of states will be on the lookout for other revenue opportunities, perhaps in online casino,” Lycka says.

“Pragmatically, even cynically speaking, it might come in handy.”