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Chasing the American Dream

Does it still make sense for foreign firms to enter the embryonic online casino and sports betting market of the United States?

Chasing the American Dream

The United States Supreme Court’s revocation of the Professional and Amateur Sports Protection Act (PASPA) in May 2018 presented online sports betting providers from around the world with a plethora of new opportunities. This reversal cultivated by then-New Jersey Governors Jon Corzine and Chris Christie meant that individual American states and their dependent Indian tribes were free to begin approving and licensing firms for the local provision of online sports wagering entertainment.

The prospects for iGaming companies in the United States subsequently increased even further as persistent confusion over the tenets of the once-feared Federal Wire Act and Unlawful Internet Gambling Enforcement Act (UIGEA) led to a limited number of states taking the plunge into expanding this program to a diverse range of online casino games including slots, poker and roulette.

Current Character

Licensed online sports betting is today available in 36 American states as well as the District of Columbia, while six jurisdictions encompassing Pennsylvania, Michigan, New Jersey, Connecticut, West Virginia and Delaware allow residents and visitors to remotely wager on an assortment of casino games. This market brought in some $2.65 billion in aggregated revenues last year while numerous experts predict that the combined tally could grow to be worth more than $7.61 billion by the end of 2028.

Altering Attitudes

Gregory Gemignani

Gregory Gemignani from Las Vegas-headquartered law firm Dickinson Wright asserts that all of this was helped by the preceding proliferation of daily fantasy sports (DFS) games from providers such as DraftKings and FanDuel as well as changing social attitudes regarding sports betting.

Also an adjunct gaming law professor at the Boyd Law School at the University of Nevada, Las Vegas, the American iGaming-related legislation and regulation authority declares that a gradual shift in the way online casino games and sports betting were viewed played a major role in making such activities more acceptable to the larger body politic.

“It was a confluence of events that caused the shift in attitudes towards sports betting and iGaming in the United States,” Gemignani says. “DFS games, which have common elements with traditional sports wagering, had become widely popular in the run-up to New Jersey’s challenge of PASPA while the perception of sports wagering had undergone a dramatic change in the 2010s.

“Despite being deemed gambling by officials in 12 states, no DFS operator was ever prosecuted for illegal gambling, whereas live broadcasts of sporting events often discussed odds, spreads and over-under point totals.

“So, it was the combination of changing social norms, alterations in legal status and a reluctance to crack down on new forms of sports-related betting that coalesced into the rapid adoption of regulated sports wagering in many states and tribal jurisdictions. Some states and tribes became very comfortable with regulating online sports betting even when players were participating via their mobile phones, and this proficiency is now translating into other forms of remote wagering, namely online casino games.”

Governing Mish-Mash

Susan Hensel

One-time Pennsylvania gaming regulator Susan Hensel reveals that one of the most surprising aspects of the United States’ online casino and sports betting scene for potential foreign firms is the patchwork nature of its regulatory system.

Moreover, a former two-term president of the International Association of Gaming Regulators, Hensel affirms that her Hensel Grad Gaming Counsel law and advisory firm now assists clients in understanding how to achieve their entry goals by efficiently working with state-based gaming regulatory systems.

“The truth is that there is no such thing as a ‘United States market,’ as all of the nation’s gaming activities are licensed at a state level,” Hensel says.

“Companies seeking to do business in the United States must be licensed in each individual jurisdiction in which they are looking to operate and simultaneously comply with every one of these individual territories’ laws and regulations.

“Although there are similarities between the various states, there can also be significant differences. For instance, market access is not uniform, with some jurisdictions having relatively open access while others are more closed. Companies must understand the regulatory and business environment of a particular jurisdiction before making a decision to enter, and they must also take into account the time and expense burdens associated with obtaining licenses in multiple jurisdictions. We assist clients with these and other considerations.”

Perceived Potential

Hensel states that she and business partner Joe Grad, himself a past counsel for the Pennsylvania Gaming Control Board, advise a broad range of foreign firms interested in entering the United States’ online casino and sports betting sector. She says that companies are interested in this embryonic market because they have identified “a range of current and future opportunities” and that her enterprise’s clients have enjoyed a great deal of success.

“The spread of sports betting to most United States jurisdictions has attracted a lot of new companies offering products and services that touch different parts of the technology stack from operators to business-to-business (B2B) technology providers,” Hensel says. “There is also optimism that online casino will spread beyond the few states that currently offer it, and this is seen as a gaming vertical with tremendous growth potential.”

Fluctuating Fees

Adding to the mish-mashed nature of the United States’ online casino and sports betting market is the variation in costs associated with getting licensed. Gemignani pronounces such expenditures can vary widely depending on the identity of the applicant as well as their products and target markets, while most American jurisdictions additionally require applicants to pay for their own suitability investigation while simultaneously depriving them of any control over the process.

“As an example, the license application fee in Nevada is only $500 but the investigative charges can easily reach over $100,000 per person if the applicant is foreign,” Gemignani says. “This is because investigators will conduct forensic accounting on an applicant’s business interests while concurrently checking their sources of income to make sure such returns are consistent and legitimate.

“Regulators will moreover review all bank, credit card and investment fund records and work with foreign law enforcement bodies so as to look for any ties to criminality. Investigators may also inspect an applicant’s assets in foreign locations and scrutinize all computers, data storage devices, communications and cloud accounts.

“In other states, such fees are more significant, including in Pennsylvania, where applicants for a local online casino operator license must begin by paying $1 million. There are also different charges in many jurisdictions for manufacturers, service providers and significant investors. The net result is that the costs can vary widely, and it depends on the company, its executives and key people, its product or service and the target jurisdiction.”

Initial Introduction

Online casino operator Kindred Group was among the first group of foreign firms to enter the embryonic American iGaming market via the New Jersey launch in May 2019 of its Unibet brand, which came courtesy of an alliance with that state’s Hard Rock Hotel and Casino Atlantic City property.

The Malta-based firm subsequently secured business-to-consumer (B2C) licenses from regulators in Pennsylvania, Indiana, Virginia, Arizona and Washington before receiving analogous clearance for the Canadian province of Ontario.

Manuel Stan, the North America general manager for Kindred Group, explains that the iGaming market of the United States has some comparable particularities that stand out, including a provision that often requires B2C providers to partner with a local casino, racetrack or sports club before gaining market access.

“Another notable difference is the limited number of licenses in certain states, which when combined with the market access requirement, result in a different route to entering a market versus the European ‘more open’ model,” Stan says.

Future Form

Despite these hurdles, Stan believes that the American online casino and sports betting scene remains a very attractive prospect, as it is on pace to become the largest market in the world, and will hold alluring potential for any operator with global ambitions. He adds that this draw could be improved even further should large states such as California, Florida and Texas begin licensing online casino and sports betting entertainment.

“The early years in the United States provided a good indication of what is to come,” Stan says. “The increased rollouts of online casino gaming and regulation in some of the key states like California, Texas and Florida are likely to be the main drivers for future growth. Mobile sports betting is currently not regulated in states that represent almost 50 percent of the country’s gross domestic product, while online casino gaming is not regulated in jurisdictions accounting for nearly 90 pecent of this metric. The size of the market is likely to show a significant growth in the next few years simply based on geographical and product expansion.”

Careful Consideration

Evolution is a B2B online casino supplier that began offering its portfolio of live-dealer innovations to New Jersey players in 2018 before opening its inaugural United States studio in Atlantic City. The company’s North America chief commercial officer, Jeff Millar, asserts that this initial move was a carefully considered long-term project that had encompassed a great deal of work.

“For us, the decision to get involved in the United States market was an easy one as we were already a world leader in live casino and there was then the challenge of being a frontrunner in one of the most exciting gaming markets on the planet,” Millar says. “Our main goal from day one

hasn’t changed—to be the first online casino supplier to go live as soon as each state opens and, where permitted, with a fully operational live casino studio to offer world-class games tailored to each region of North America.”

Evolution today offers its live-dealer games to players in New Jersey, Pennsylvania, Michigan and Connecticut and claims that its American games portfolio has been greatly extended so as to offer operators an unparalleled mix of innovative live game shows and casino classics.

“Evolution is known as a B2B live casino partner that’s alive to every opportunity and this includes new and re-regulating markets, which we monitor closely,” Millar says. “In fact, we’ve built a reputation for being first to market in numerous jurisdictions.”

Attractive Aspects

CJ Fisher

CJ Fisher, gaming department co-chair for Atlantic City-headquartered Fox Rothschild LLP, agrees that it still makes sense for foreign firms to enter the American online casino and sports betting market even though the associated licensing requirements can often be seen as arduous.

He adds that obligations in some jurisdictions are nevertheless more reasonable compared to others while certain B2B providers may qualify for a lower level of license that is less burdensome.

“From an operator perspective, merger and acquisition activities may also result in the availability of additional skins/market access, which could make market entry costs more reasonable, while skins are not required in some jurisdictions such as Tennessee,” Fisher says. “There were a variety of first movers into the United States’ online sports betting market such as DraftKings, BetMGM and FanDuel on the operator side and Sportradar AG on the B2B side. These companies generally benefited from being experienced and regulated companies that could leverage existing customer databases and operations to help launch into the United States iGaming market.”

Lucrative Links

Fisher states that Fox Rothschild LLP has been helping foreign online casino and sports betting firms for over a decade to overcome a variety of transactional, operational, licensing, compliance and regulatory matters so as to secure licenses and go-live approvals in multiple jurisdictions throughout the U.S.

He says his enterprise’s former clients have run the gamut from Wynn Resorts Limited, MGM Resorts International and Hard Rock International to Mojo Interactive, Xpoint and Yahoo Sports.

Citing research from the American Gaming Association, Fisher explains that the U.S. market is furthermore attracting interest because its aggregated 2022 revenues from online casino and sports betting grew by over 50 percent year-on-year, although land-based receipts remained relatively static. Jurisdictions with legalized sports wagering added to this appeal as over 90 percent of their $7.5 billion in win was generated remotely, and takings from online casino gaming exploded by 35 percent to around $5 billion.

“Foreign iGaming firms are eager to enter the American market because there is still room for tremendous growth,” Fisher says. “While the initial rush towards licensing has somewhat subsided, new technologies, platforms and ideas such as esports and peer-to-peer wagering continue to impact the market, and many regulators have welcomed them. This has created new opportunities for both operators and B2B companies.”

Opportune Environment

Hensel agrees with this assessment, as online sports betting is continuing to expand across the U.S., including into Massachusetts later this year. The past licensing director for the Pennsylvania Gaming Control Board declares that the country’s market is still very new and evolving, and remains ripe for the addition and expansion of other gaming verticals.

“It absolutely makes sense for companies to look to the United States for new business opportunities,” Hensel says. “The competition for business in each state has operators searching for technology and products to make their sites more attractive to players.

“This creates demand for companies offering new content or twists on traditional gaming and sports wagering products that could help deliver a competitive edge for the operator. Although the online casino market in the United States is currently very small, I expect it will grow to create additional opportunities for firms providing platforms and other technologies, content and ancillary support services.”

Plump Prospects

Following a slow start to proceedings, Fisher admits to being optimistic regarding the likelihood of even more U.S. jurisdictions licensing online casino activities, and that such potential continues to attract interest from foreign iGaming operators.

He also predicts this lure will likely continue well into the future, assisted by the possibility of some states enacting legislation and regulations to facilitate further growth in the market such as the looming prospect of New Jersey introducing measures that would further expand its market for remote esports wagering.

“While the legalization of online casino gaming across the United States has been a protracted process, more jurisdictions are anticipated to legalize such activities in 2023 and beyond,” Fisher says. “In short, the future for the American online casino and sports betting market is bright due to the continued expansion of the market, as well as regulators’ willingness to help operators implement new technologies, products and ideas.”

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