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Online On Course

Online On Course

The effort by Senate Majority Leader Harry Reid to push a federal bill legalizing online poker came crashing to a halt in December when he refused to attach it to a routine spending bill. Reid had taken a lot of flak from the media for spending any time on such a “trivial” matter. And it didn’t help that the bill was perceived to be a “payback” to the casino companies that helped him get re-elected in Nevada just the month before.

So where does that leave online gaming now? One thing is relatively certain. It’s going to be a long time before it ever advances as far as it did during this session, when a bill actually emerged from a House committee and was considered so strongly in the Senate.

With the Republican sweep of the House of Representatives in November, several key committee chairmanships that would consider online gaming are now occupied by GOP congressmen who have no love for online gaming. They are unlikely to present any bill that would approve any form of online gaming.

So it’s back to square one for the nascent online gaming industry in the United States. But all is not lost. In fact, it’s likely that online gaming will grow in a way that gaming has grown over the years, on a state-by-state basis.

One of the miracles of the U.S. Constitution is a little thing called “states’ rights.” This allows states to conduct activities within their own borders that aren’t specifically outlawed by the U.S. Congress. That’s why Nevada was allowed to legalize gambling in 1931. The feds did not have any control over what was conducted within the borders of Nevada. So even the Kefauver Committee in the early 1950s, which condemned illegal gambling across the U.S., could not touch the legal gambling activities in Nevada.

That’s how online gaming is going to become acceptable in the U.S. Already, the New Jersey legislature has approved a bill to establish online gaming within the state’s borders, conducted by the legal gaming establishments in Atlantic City. California looks like it will be the second state to get in the game, and it will be followed in short order, I would imagine, by other states anxious to keep online gaming tax revenues at home.

Some of you old timers will remember when the New Hampshire Lottery got started in 1964. It was small potatoes compared to the tens of millions offered by today’s lottery games, but it created a tremendous amount of excitement during those early years. It was soon copied by many other states—44 as of 2010.

This is how online gaming is going to grow. And then you’re going to have “Powerball”-style multi-state exchanges where online casinos will be able to pool their resources and create massive betting opportunities for the gambling public.

But great care must be taken while setting up this industry in the states. Luckily, New Jersey is the first state to get involved. The regulations, procedures and protections set up there will be a template for other states to copy. No one denies that the New Jersey regulatory system is one of the best in the nation (granted, at a high price), and there will be no shortcuts taken when establishing an online industry based in the state.

In the long run, the failure of a federal online gaming bill is probably fortuitous. Since the state taxes aren’t going to be cheap (New Jersey is considering a 20 percent tax), a federal levy on top of that might kill the industry before it gets started. So, legalization by the states may help to develop an industry that will mirror the land-based industry, which pays no gross gaming revenue tax to the federal government.

Also, each state will be able to develop an industry that will work for that state. In the failed Reid bill, the licensees were limited to large casinos, racetracks and tribes. Now, each state will be able to decide how to build an industry that benefits everyone in the state, not just the big gaming players.

So while there were those who lamented the failure of the Reid bill, there is a silver lining. Online gaming will grow organically and will create jobs, tax revenues and opportunities for gaming companies and communities alike.

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

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