An operator servicing customers in what the DGE terms a “black market” will not be considered suitable for a New Jersey online gambling license.
DGE Director David Rebuck is candid about the difficulties of determining what is or is not a black market:
“Clearly, when a government agency attempts to divine the intentions of another sovereign jurisdiction through a critical evaluation of local circumstances and resulting actions or inactions, any conclusion reached is fraught with the likelihood of error or misinterpretation.”
In the bulletin he recognises that in many markets the legal position is not clear, a situation that has given rise to the phrase “gray” markets. Operators in gray markets will be deemed suitable for licenses.
The DGE will make its own judgement as to whether a market is gray or black. The criteria it has set out are not precise in any legal sense, but indicate the factors the DGE will use in its determination.
Types of action that satisfy this standard would include:
The difficult issue of the legality of online gaming law in the European Union is specifically addressed in the Bulletin.
Only this week, the Administrative Court in Wiesbaden, Germany, ruled that German gaming laws were in contravention of EU treaties.
Presumably, the court ruling would take precedence in the DGE’s determination, even though at first glance, Germany has satisfied the criteria by having laws prohibiting internet gaming and has defended its laws, albeit unsuccessfully, in court.
There is a wide gap between a successful prosecution under national gambling laws, and issuing a cease and desist letter. The gap gives the DGE considerable independence to make its own determination.
Cynically, it can be argued that this is necessary, because the U.S. itself is largely a gray market. Now that the 1961 Wire Act has been reinterpreted by the Department of Justice (DOJ), offering online poker and casino games to U.S. citizens may not contravene any federal laws.
Certainly, no offshore operator has been convicted of offering online gambling.
It was the reinterpretation of the Wire Act which led directly to the introduction of state-regulated online gambling in Nevada, Delaware and New Jersey. In the rest of the U.S. there may well be state laws against online gambling, but whether the action to enforce those laws has been “affirmative” or “concrete” is debatable.
These considerations may have forced the DGE to be somewhat imprecise in its definitions, but in practice, the U.S. market is definitely black.
With real money online gaming operations only in Nevada and New Jersey, WSOP is not at risk from these new criteria, but the other market players have global operations, many of which are in jurisdictions where the DGE will have to make a judgement call.
One factor in their favour is that they are also all licensed in the UK by the UK Gambling Commission (UKGC).
The UKGC was the first regulator to assess suitability by considering a company’s actions in other jurisdictions. If revenue from any jurisdiction exceeds 3 percent of the company’s total online gaming revenues, and the company does not hold a specific gaming license in that jurisdiction, then the operator must present a legal justification for its operations.
Even when the revenues are below 3 percent, operators must provide a written justification of the legal basis for their operations.
Since all the New Jersey operators have already passed the UKGC’s scrutiny, they have reasons for not worrying too much about this new suitability test. However, corporate and regulatory situations change rapidly.
GVC is the new owner of partypoker, and its suitability is still being determined by the DGE. Within a week of taking over partypoker, GVC restored the brand to 21 international markets which the previous owners had closed down.
Using the DGE criteria, several of those markets may soon shift from gray to black. Peru, Colombia, Russia and Brazil are all likely to implement or introduce online poker and/or gambling legislation this year.
There have been market rumors that GVC may not qualify for a New Jersey license. Whether rightly or wrongly, the rumors have been given credence by the Borgata’s actions in extending its partnership with GAN to include real money online gaming.
The new suitability criteria will add to investor concerns that GVC may not get a New Jersey license, and in the current climate in which former Amaya CEO David Baazov has been accused of insider trading, those fears may also make investors consider whether PokerStars is also at risk.
One reason why concerns over specific operators may be overblown is that the DGE’s new suitability criteria may be part of a regulatory trend.
At regulatory conferences and meetings over the last few years, the problem of dealing with unlicensed operators, whether gray or black, has been a constant topic of debate.
In 2013, Playtech developed a joint program with Italian regulator AAMS “to manage unlicensed operators to either withdraw from the Italian market in an orderly fashion … or to obtain a local license and migrate their players.”
This was followed by the UKGC regulations demanding that operators justify their operations in unlicensed jurisdictions.
Regulation of this type, if adopted widely, will divide the market cleanly into licensed and unlicensed operators. As national online gambling regulation spreads to more and more countries, the available market for unlicensed operators will reduce.
As a regulatory tactic, it is likely to have much more impact than the ISP and financial transaction blocking measures on which regulators now rely.