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It's Game Time

State legislatures now hold the key to online gaming legalization.

It's Game Time

Now that the football season in America has ended in spectacular fashion, we turn our sights and head directly into the heart of the next league of fantasy statistics, bone-crushing hits and end-zone celebrations. That’s right: State legislatures are now in session in 50 capitals across the country.

This is the time of year when political intensity reaches its peak. Budgets are proposed, criticized and ultimately passed. Programs are slashed and new ideas are born.

In 2012, perhaps more than any other year, the stakes are at an all-time high. According to the Brookings Institute, states face a projected nationwide deficit of over $400 billion, which means more cutting, tax hikes and searchlights for revenue. The U.S. Department of Justice recently reinterpreted the Wire Act, essentially declaring that online gambling could be legalized, if states adopted the appropriate measures. Said differently, it’s now “game time.”

This explains why 2012 will be known as the year that at least one state—probably two or three—launches the first instance of legalized online gambling in the United States.

In 2011, the District of Columbia approved it, but had implementation issues. Nevada has also legalized and is taking applications from operators. New Jersey and Iowa were close to passing it. Now, at least 10 states are actively considering it. States are looking for the types of revenue that online gaming can bring—immediate, significant and well-regulated.

Reports by Morgan Stanley suggest that 15 million or more Americans today will log onto their computers and play poker online. This seems innocent enough, until you realize that it is unregulated, untaxed and completely unlawful. With smart technologies and the leveraging of existing state regulatory and law-enforcement organizations, online gambling could be taxed and generating revenues in any number of states quickly and safely.

Technology can monitor financial transactions, verify ages and locations, track play patterns and ultimately, prevent play from compulsive gamblers before they become problematic. Online, gaming is safer than Bill Belichick’s job security, and safer, too, than any other form of wagering, from casinos to horse racing, keno to lottery.

And why wouldn’t a state and its legislators approve a new source of revenue that is voluntary to its participants and critical to preserving programs or jobs?

Consider the revenue impact to California. We project that over five years, the potential tax revenue to the Golden State from online gaming could be $1.5 billion. That could fund a year’s worth of the state’s total highway repairs or the entire backlog of deferred maintenance at state parks. The needs in each state are different, as are the potential revenues. But every state certainly has a program in funding crisis, from law enforcement to health care or education.

The argument that this is an expansion of gaming that somehow corrupts the moral fiber of the nation is as old as the Wishbone Offense. It is no longer relevant, with 48 of 50 states having some sort of gaming, and 43 states having more than three types of legalized gambling. With millions playing online in their living rooms or offices without any controls, wouldn’t it be in the best interest of law enforcement and financial regulations to manage this subculture of illegal activity?

The states are crafting a smart and strategic game plan for initiating online gaming. They are evaluating the revenue projections and looking at how best to initiate the right regulatory framework to manage this. I applaud the review and analysis. The best route to success in launching a new industry like this is transparency, compliance and full buy-in from the private and public sectors alike.

We’re still in the first quarter of the state legislative cycle, but you can get a sense of the game and how it will be played. My prediction: the legalization of online gaming is imminent, probably a late-game play with a few ticks left on the 2012 clock. This critical outcome will create a highly regulated industry that will operate in the open, and generate critical tax revenues at a time when they are needed most.

That’s a winning score by any count.