Lipparelli: Congress Should Use This Brief Window to Legislate Internet Gaming
Nobody would deny that we live in a time of political divide. So I find some irony in the debates regarding Internet gaming regulation. When it comes to the meaty parts of the Gambling Prohibition, Poker Consumer Protection Act, floating around Congress, there is near universal agreement. Congress should act to pass it before the last days of the 112th. Here’s why.
All agree that legal Internet gaming regulation should — mirroring the 60-year success of our gaming industry controls — prevent underage gaming, assure game integrity and taxable revenue collection, and protect the vulnerable. Congress has a key opportunity to give law enforcement the power to arrest illegal gaming operators who have for years enjoyed unregulated tax-free access to U.S. consumers. Further, draft legislation requires that interested states “opt in” to participate, allowing states not interested in offering legalized regulated gaming to pass and remain gaming free.
There are certainly people who decry any sort of gambling in the first place. But a recent Department of Justice decision has opened the door for states to license and sanction gaming over the Internet. As it now stands, at least five states will have Internet gaming up and running within the next 18 months. Without congressional action, slot machines and roulette wheels will soon be spinning inside every computer and cellphone in America.
The legislation under review in Washington would prohibit casino-style gaming on the Internet and sanction only online poker and lottery ticket sales. This is a wise and advisable compromise. Those opposed to gambling on the Internet will see 99 percent of it removed. The brick and mortar casino industry — which may have a lot to lose if casino-style gaming goes online — will retain its health and the jobs that go with it. Lotteries will see business expand to a new customer base. And, importantly, states will derive much-needed revenue from online poker — an iconic American game enjoyed by presidents and many others for centuries and one in which the outcome can be determined by shrewd play and not necessarily by the cards set down by the house.
There is a brief window of time for Congress to legislate this win-win-win-win scenario before cash-strapped states begin to set individual regulatory frameworks, racing against time to get the bets flowing. Federal legislation is the equivalent of saving Humpty Dumpty from falling and fracturing into 50 pieces … because putting him back together will prove costly and frustrating.
And who wants Humpty Dumpty to fall? State lotteries.
Recently, representatives of lotteries from six states visited Washington to try to undermine the progress of federal legislation.
Lotteries have been around for a long time. As far back as the 1700s, they’ve been used to fund a host of state-level initiatives, including education. They usually enjoy great public relations even though the odds of winning are remote; odds in the recent Powerball jackpot were 175 million to one.
Very early in the discussion of online gaming legislation, lotteries worried that they wouldn’t have a seat at the table. With the DOJ opinion now in place, lotteries are positioned to enjoy a flow of new customers and increased profits as lottery tickets will become readily available over the Internet.
The problem is, with their seat at the online table ensured, state lotteries want to pull the chairs from under all other interested parties. Online poker is a market many seen as having very little crossover to lottery games; however, state lotteries see this as a means to become the Internet casino en masse. They want to use their argument to defeat federal legislation and cut competition from casinos, racetracks, Native Americans, riverboats, bingo parlors, and other private companies for state and multistate level i-gaming opportunities.
This is a political maneuver and a grab for market share at the expense of private enterprises. There are also many reasons it should not happen.
First, there are many serious policy questions about whether lotteries which are operated by the state governments should be in the casino business, particularly online.
Second, there is a role here for the federal government to establish a fair marketplace with a clear set of rules that holds legal operators accountable. Without it, there will be a patchwork of different regulations among states. Imagine a consumer’s confusion needing 15 different iTune accounts to access music from 15 regulated markets. It runs counter to general market principles. In another industry, such a plan would be soundly rejected. The varying regulations will make it more frustrating for companies to operate, much more difficult for them to innovate, and much harder for illegal operators to be caught and punished.
Third — and importantly — when the state government empowers itself as a casino, who is going to regulate the state government/casino?
We should look at how federal legislation on Internet gaming would benefit us all with funding for hard-pressed states, and acknowledge a pure exclusionary maneuver by the state lotteries for what it is. And we must recognize how very brief is the window of time we have to pass this much-needed federal legislation, the Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012. States are primed to move and independently set an array of state-specific guidelines that will not be effective across state lines, and illegal online casinos continue to exploit the U.S. consumer in an environment with little regulation or legal risk.
Mark A. Lipparelli is the former chairman of the Nevada State Gaming Control Board, who previously served as a senior executive with technology companies serving the worldwide gaming industry.