The iGaming Model

As more states consider iGaming, casino operators look for the right role of internet gaming in an online mix

This was supposed to be the year for internet gambling in the United States. Intra-state legalization arrived with the falling of the first three dominoes—Delaware, Nevada and New Jersey—in late 2013, and the rest was supposed to be history.

But instead, as 2014 draws to an end, the industry faces a new campaign for federal prohibition, and concerns abound with the alarming underperformance in the New Jersey market.

Yet, perhaps what’s most surprising about industry developments in 2014 is that any of this comes as a surprise. New Jersey—the state where gambling goes to die—has been a catalyst in what is to be a gradual adoption of legalized internet gambling in the United States, but the industry will fall way short of Governor Christie’s projection of $180 million for the fiscal year.

Performance can improve, but iGaming cannot really take hold in the United States until the demand for liquidity is answered by multi-state compacts. This reality doesn’t lean heavily on the rest of the dominoes said to be in line, but a few states might have enough gamblers to reach a critical mass without cross-border gambling.

Naturally, all eyes turn to California, with its population of 38 million, ongoing legislative efforts to legalize iGaming and a handful of tribes on board with the movement. Banking on California reinvigorating the stalling U.S. iGaming market in the immediate future would be futile, however, in light of perpetual conflict over who, why, where and how it will happen in the Golden State.

Meanwhile, as 47 states circle the pool awaiting the next jumper, Sands CEO Sheldon Adelson’s snowballing federal prohibition initiative presents still another reason to take a step or two away from the edge. Adelson’s crusade has gained momentum, drawing impressive support along the way, and has driven a wedge into the makeup of American Gaming Association, which has consequently withdrawn the enthusiastic support of online gambling it pledged in 2010.

History tells us that the hard-fought battle for the expansion of legal gambling doesn’t end after governmental approval. The worst-case scenario for iGaming is what took place in Australia, where the player protection model—the prototype for modern iGaming regulation—emerged in the late ’90s as a beacon for progress. It looked as though the launch of state-licensed online casinos in 2000 in Australia was going to shift the epicenter of the online gaming boom from the Caribbean Basin to Australia until the federal government abruptly slammed the door on the industry.

But unique circumstances led to the demise of iGaming in Australia, where “pokies” could be found at virtually every corner bar and the arrival of internet gambling was accompanied by the government’s growing commitment to addressing what studies had identified as a compulsive gambling epidemic.

The industry’s evolution in Europe probably presents a more realistic example of what to expect in the States: slow progress amid lofty expectations curbed by the ever-present deterrents and compromises. Not long after Australia went cold, the United Kingdom opened its doors to online gambling as part of the government’s massive overhaul of gambling policy, but the treasury was unwilling to prescribe tax rates that would enable the jurisdiction to compete with offshore alternatives. The same can be said for France. The common thread is the pushback that comes with progress in the gambling business, and it is happening now in the United States.

So where does the industry go from here? A deep breath is a good start. There was never going to be a watershed moment for the adoption of iGaming in the United States. Nor is there a panacea for overcoming slumping revenues. But despite the obstacles and setbacks, there remain pockets of great opportunity. Poker will take hold once a multi-jurisdictional model is put in place, but that won’t happen until the political climate becomes friendlier for cross-border gambling.

In the meantime, it will be interesting to see how well casino operators can leverage their marketing savvy to grow their online businesses through cross-platform synergies. Further, the exploitation of social media and the proliferation of daily fantasy sports offerings are promising alternatives to rolling out mega-casinos online. And amid the latest federal prohibition movement, tribal operators are more than willing to move forward online. Finally, New Jersey’s crack at challenging PASPA means the door isn’t entirely closed on sports betting.

Most importantly, the gambling industry as a whole needs to understand that regardless of the political climate for iGaming, technology and interactivity must be a central component in any gambling offering. Instead of looking at the internet as a potential distribution channel for the established gambling product, operators should look at real-money online gambling as a potential component of their established internet strategy.

That is, all parts of the gambling experience—promotions, customer service, player rewards, etc.—must be brought online, regardless of whether real-money gambling is allowed. Customers must be engaged in the internet/social media environment. Eventually, revenues from online gambling will come.

Mark Balestra is the director of publishing for Clarion Gaming. A veteran of 11 years in the online gambling business, Balestra is the editor and co-creator of Interactive Gaming News (www.iGamingNews.com) as well as the editor and co-author of Internet Gambling Report, a legal guide to interactive gambling.

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