Mass Snubs Caesars: 3 Implications for Regulated US Online Gambling

Why?

While online wagering is not part of Massachusetts’ current foray into gambling expansion, state lawmakers have taken a number of shots at regulating online gambling, most recently in July of 2013. And State Treasurer Steve Grossman has been publicly supportive of regulation.

In short, Massachusetts looks to become part of the regulated online gambling landscape sooner than later. And even if the state stays on the sidelines, the issues raised by Massachusetts regulators regarding Caesars could reverberate through other American jurisdictions considering online gambling.

With that in mind, here are three possible iGaming implications stemming from Caesars’ stumble in Massachusetts.

Massachusetts iGaming could vary greatly from the norm

Obvious, but worth noting regardless.

Caesars is an anchor in the Nevada and New Jersey markets for online gambling. The WSOP brand is easily the most valuable in the nascent regulated online poker space.

But a key individual driving that brand – CIE head Mitch Garber – merited notice from Massachusetts regulators.

Garber certainly wasn’t the only issue regulators raised. And we have no way of knowing how material Garber was to Massachusetts’ effective rejection of Caesars.

What we do know is that Garber wasn’t an issue for Nevada regulators, and does not appear to be one for New Jersey regulators.

The implication is clear: Just because an operator or technology provider has received a green light from Nevada and / or New Jersey doesn’t mean they’re guaranteed a spot when Massachusetts decides to regulate online gambling.

And that carries serious ramifications both for the eventual makeup of  the online gambling industry in Massachusetts and for the roster of forces willing to push for regulation.

The UIGEA brightline is dimming

I’ve long argued that attempts by lawmakers (see Nevada) and industry forces (see the AGA opposing PokerStars in NJ) to employ the UIGEA as a “bad actor brightline” are misguided, legally baseless and transparent.

And Massachusetts regulators appeared to validate that point of view in their snubbing of Caesars.

What “matters related” to Garber concerned Massachusetts regulators? From the report:

Garber was the CEO of two companies that came under scrutiny by the DOJ for illegal Internet gaming operations while he was their CEO. Both companies entered into non-prosecution Agreements which included statements that the companies’ activities violated prohibitions against Internet gambling in the United States, prior to the implementation of the UIGEA. Both companies relinquished significant sums of money as part of the non-prosecution Agreements ($105 million for PartyGaming, $19 million for Optimal).

The nitty-gritty on Garber starts at page 241 of the report. Some excerpts of note:

• “In Garber’s estimation, the law was unsettled as to the legality of accepting bets from U.S. customers if the server was located outside of the U.S..”
• “[Garber] also was aware that at least five states prohibited Internet gaming and that PartyGaming did not use blocking software to prevent taking bets from residents of those states.”
• “Despite [Garber’s] stated view that UIGEA represented a change in the law, the Commission may choose to view [Garber’s] action in initiating contact with the DOJ as recognition on his part that pre-UIGEA Internet gambling activity would not be forgiven altogether.”

As an article over at Bluff noted, there’s even a chance that this report could have an immediate impact on the UIGEA brightline in New Jersey.

Fragmentation ahoy

The first two points clearly lead to this third and final implication: On its current trajectory, regulated online gambling in the United States is headed for a level of fragmentation that will do harm to both consumers and the industry at large.

Consider just a few of the logical outcomes if Massachusetts had rejected Caesars for an iGaming permit instead of a land-based application:

• An online poker compact between MA and a state like NV – where Caesars has been approved – would become a far more complicated, and potentially contentious, affair.
• Massive casino interests with far-reaching networks of globe-spanning partnerships – like Caesars, Wynn, Las Vegas Sands and MGM – could decide to pass on states like MA altogether.
• Regulators in states that are a part of the second wave of online gambling regulation (think Illinois, California and New York) might follow Massachusetts’ lead and cast a far stronger light on pre-UIGEA activity by companies such as 888 and bwin.party.

The result: Consumers in one state end up with a radically different set of options for online gambling than consumers in a neighboring state, creating confusion and inefficiency that undermines the viability of Internet-based gambling – especially poker.