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- FEATURE: Ontario Online Gambling
NJ’s top gambling regulator is currently balancing the impending launch of regulated real-money online poker and casino play with the oversight of the state’s sprawling – and struggling – land-based casino industry.
Marco Valerio conducted a wide-ranging interview with Rebuck at the World Regulatory Briefing, touching upon interstate compacts, the roadmap for iGaming in New Jersey and the complicated issue of how international companies like PokerStars and bwin.party fit into the picture for regulated U.S. online gambling.
Marco Valerio: Maybe we can begin, like I was saying, with this conference: The World Regulatory Briefing. It seems like the primary theme is interstate compacts, which you were asked about earlier today, by the way. You gave a very good answer which was: “Let’s not get too ahead of yourselves.”
David Rebuck: [Laughing] I was only here for the second day of the conference. I missed the first day where it seemed to be a bit more fireworks, with the quotes of various people coming out, and as it relates to the American Gaming Association, Massachusetts and Caesars, and that most recent action that Massachusetts is taking, and as it relates to the gaming regulation, let alone Internet gaming regulations.
On the second day that I’ve been here, I’ve sat through a couple of the sessions. I’ve missed a few of them too, but I concur with you that there’s a great interest by many people to have Internet gaming expand in the U.S. almost instantaneously.
My point too, which I think I tried to make again, is: “You need to move forward here a little cautiously.” I mean, I recognized it: Nevada is operational, Delaware is going to be operational on the end of the month, and hopefully New Jersey is as operational as successfully as those two states are at the end of November.
As our efforts move forward as regulators for those three states, I think the interest in compacting amongst those three will increase in the future; but I also believe that if we are successful, that other jurisdictions will be looking to make a determination of what model of Internet gaming they might be interested in pursuing. As those other states take a look at their options, then they’ll have the benefit of maybe seeing agreements between ether Nevada, Delaware, and New Jersey, or a combination thereof.
It’s not as easy as just flipping the switch and say you’re going to have an agreement. You really — I think we all recognize that you’re going to have to sit down with the executives from each of those states and come to a negotiated agreement on how to embark.
Once there’s an agreement, then we’re fine; but it’s going to take time. If either the three states are not real successful in their operations of attracting people who want to game on the Internet — don’t have to worry about compacting.
Now the interesting thing I did hear today (which I was never thinking of this) is there are some states that don’t have any gaming at all, don’t have any land-based gaming at all. It’s a way to get involved in gaming, would they just move to an Internet gaming partnership with the state (in this case, one of the three) that already has it, and there they would just be a revenue receiver. The oversight of their state — essentially their gamers would be playing on the platforms that exist in one of those other three states.
I think this is an interesting proposition because if I was that state, it would be: “I’m getting the revenue, I’m getting the high level of confidence that it’s being well regulated, and I just get a tax revenue source coming to me.”
Valerio: Could you give us an overview what’s going to happen, what’s coming up and when, in New Jersey?
Rebuck: Well, I’d say in November there’s three critical dates. Our first round of licensees that are going to be approved to engage in Internet gaming, whether it’s the platform provider, the payment processor, the geolocation service, we have 70 different companies in various forms of business transactions that are engaged in Internet gaming.
They’re going to come out and be approved through what we call the transactional waiver process which is essentially: “You’re good to go. Your investigation isn’t finished, but we have a high threshold to understand that your product’s satisfactory to meet our needs and your suitability, more importantly, is satisfactory.” Now, if we find something out we didn’t know at the time, we can always revoke their license, but it doesn’t happen that often. Usually when you get a TW, unless you engage in some egregious activity or you hid something that we should have known about, you’re going to be all right.
That should occur on or before the first week is over. Let’s say, I think it’s November 5th or 7th, I really don’t know the dates in there, but first week. When that comes out then you’ll know who’s good to go. Others, just because they’re not on there doesn’t mean they’re denied, it just means they still have material that has not been either evaluated by us or presented to us by them that gives us the confidence to give them a transactional waiver. They’ll continue to roll out after that date, but I want to get the first round done, then continue to move forward.
The second important date is November 21st. So any of the permit holders, and five have been approved so far (that is, the casinos are the permit holders), that is ready to turn on the switch to go live for limited play based on those who they invite will have a test period from the 21st for five days until the 26th. This is where we’re going to be pushing the system and testing it to see if there’s issues that have, if technological performance that are not satisfactory to us.
We expect to be some tweaks. We’ll make the tweaks and they’ll make the tweaks, but if they do not give us substantial confidence that they can pass our testing, then they won’t be able to go live to the full state on the 26th. Those that pass those tests and give us the confidence that we need, then they’ll be going live on the 26th to anybody who’s in the state.
I think one of the — I’ve heard this today and it confused me a little why people are thinking this, but some people are thinking that you have to be a resident of the state of New Jersey in order to engage in Internet gaming. That’s false. You can be a resident; and while you’re in the state of New Jersey if you’re a nonresident and in you’re in the state of New Jersey, whether you’re vacationing here or visiting here, or working here, you can engage in Internet gaming. You just have to be within the four borders of the state of New Jersey. You don’t have to be a resident.
I guess we’ll have to do a better job of getting that word out through the casinos because as they market their products they need to educate people that we don’t want you — even if you’re a resident and you’re working today in New York City — we don’t want you gaming, all right? But if you live in New York City and you commute to Hoboken and you want to do your gaming from Hoboken, more than happy to have you game.
Rebuck: So that’s a part that I learned today: a bit of confusion, and we’ll try to clarify that with the industry. I think the industry knows that it’s just that it’s moving so quickly that people get a little confused.
Valerio: On the subject of it moving quickly, with regard to the dates you just mentioned, let’s suppose that I wanted to keep track of a particular applicant. Now, being from the poker community I won’t deny that a lot of us have a special interest in PokerStars. Leaving completely aside any speculation over whether what’s going to happen with their application, how soon, be it for PokerStars or any other applicant who still has not received their approval, should we have an idea how they can proceed?
Rebuck: Well, certainly you’ll have a good sense by the 26th. Actually, by the 21st, but again, just because a company has not been approved by that date doesn’t mean they’re going to be denied. They may still owe us more information, they may not have completed our work and I’m going to have to tell them, “I can’t get it done.”
I would say that anybody who is not going to make it, you more than likely will find that out from the company themselves because you’ll see a situation very similar to what you just saw in Massachusetts where the company that is being evaluated withdraws from the process. That’s a common action in the gaming world.
Now, they may withdraw because they just don’t want to deal with you anymore and they figure that regulators are being unreasonable, they may withdraw because they see the handwriting on the wall, or they may withdraw because they don’t think there’s a business opportunity here for them anymore where they can make money. So I don’t want people to believe that a withdrawal automatically connotes that the company has findings of unsuitability because that’s not true.
More than likely, if we have the ability to do so, when you look at these companies, you look at the individuals who are running them to see if they have the right character, suitability, and what are the tentacles of the leadership as such that it taints the whole company, or if it’s such you just cut out the person and they get replaced by somebody who is of good character and honesty and integrity.
As a regulator, I don’t like to be in a position of killing a company unless I can show that the leadership, the tentacles of leadership are such that they have unduly influenced the operation of the company so that no matter who you take out, you can’t correct the problems that you’ve identified.
I think history will show that in New Jersey, a lot of times the person will divest their interest. They’ll leave the industry. They’ll separate themselves, or they’ll just take the company out and say, “We’re not dealing with you guys anymore. We can’t live under this oppressive oversight.” Okay, it’s their decision. That’s where we are.
Valerio: When I heard about some of these deadlines, it seemed — I always get the impression that the DGE and the overall New Jersey iGaming agency was serious about meeting these deadlines. So I’m wondering if we don’t hear from everyone, let’s say, by the 21st or by the 26th, what does the window of opportunity look like after that for the remaining applicants to be approved to go live?
Rebuck: I’m hopeful that more applicants come in. I said today that New Jersey sees […] an opportunity to be the linchpin or the hub from which this Internet gaming expands, legally, throughout the country, that we can be the state that leads this effort for the country.
If there are other operators, I hope, that have a better product, think they have a better product, or think that they have an innovation, that those who may be currently operational want to come in, that we see them come in to New Jersey and we can find them suitable, and we can find their product technologically sound to allow for that type of gaming to exist. Not just for the residents and visitors to New Jersey, but for other jurisdictions that so choose want to engage in agreements or partnerships with us. That’s what this conference is about today.
How’s that going to happen? Well, there’s a lot of hurdles to it. I think that this conference identified them, but that doesn’t mean just because there’s hurdles we’re not going to be able to do it. Like I said, I think we all got the sense that there’s this great rush to do it immediately; and I just don’t feel the rush right now. We’ll see what happens in ’14.
Valerio: In 14 days?
Rebuck: No, 2014.
Valerio: Oh, 2014.
Rebuck: [Laughing] In fourteen days? You’re kidding me! No.
I mean 2014, it’s a whole new year, you’ll have three states, same in that we’re all relatively small when it represents the total U.S. market, and we’ll have more time to then meet with other stakeholders or other interested parties.
I’ve said this before. We have to have a more of an open dialog with other regulators. We have to have an open dialog and further discussions with the United States Justice Department.
We’re going to be approached by countries to partner for liquidity issues. Then we’re going to have to have these negotiations to see if it can work for us, if it can work for them.
It’s just such a new area of regulated behavior that it’s going to take a little longer than people think it will, but I’m clearly — In this state, we’re not putting our head in the sand and saying, “Oh, well. We’re done. We don’t need anybody else and we’re not going to listen to anybody else’s suggestions on how we can improve the product, improve our opportunity to economically develop as the state of New Jersey in working with other states.”
We’re going to listen to everybody. We have to, in this day and age.
Valerio: You hinted at something earlier which I think is very interesting: the idea of maybe dealing with the members of companies or applicants rather than dishing out a blanket judgment on the whole company, perhaps being more surgical about it. It makes me think about the debate that took place just before Governor Christie signed the bill this time. The debate in the industry was very narrow in the sense of people said, “Oh well, he’ll sign it or he won’t sign it.” It turned out to be neither.
Rebuck: Right. CV.
Valerio: He turned out a conditional veto, rather, a postponed signature. The industry was a little obtuse in what it thought were the only two possible outcomes. I get the idea that maybe sometimes they fall for the same trap with respect to some of the applicants in New Jersey with respect to, “Oh, either they’re going to get licensed or they’re not going to get licensed,” if it’s at the finish. Can you maybe give me an idea of how flexible or how broader than that, the licensing process and the suitability research process can be?
Rebuck: Yeah, it’s not black and white. You’re absolutely right.
I fully expect that most large corporations or businesses who have been engaged in gambling or Internet gambling in their history will have some problems that they’ve dealt with, or maybe they haven’t dealt with. As regulators, it’s my expectation they disclose to us what those problems were because the goal at the end of the day is to ensure that their operations today give us full confidence about their integrity, full confidence about their ability and suitability to be engaged in this highly regulated business.
If that means that we have to put significant conditions on them which they can either accept or reject, then we’re going to look at that. It leads it in the hands of the company at the end to say, “Well, you’re telling me we have to get rid of this guy, that gal, and this partner?” “Yeah. Now you need to make a decision. You’re going to do that, or you going to come in?” It’s a business decision they have to make. I think that’s very common.
If you go back and look at the history of gambling regulation in the bricks-and- mortar world, states have been doing this for years. To the point now where if you look at the bricks-and-mortar world, essentially most of the companies that run bricks-and-mortar gambling, they’re large U.S. corporations that have boards of trustees follow, boards of directors, they’re on the U.S. stock exchange or NASDAQ, and they’re regulated by other entities throughout the commercial oversight rules that exist in any state.
It’s not like you had a mom and pop operation that is running a casino someplace, and you got to worry about all the relatives and where the money’s going. Those days are — I mean, you still got to be cautious, but I’m not worried about some of the problems that existed back in the ’60s and ’50s.
Valerio: Okay. Understood. Now, final question: Poker is fairly unique amongst games and especially online, in your experience as a regulator overall in crafting and forming and helping to format, maybe architect in part the New Jersey regulatory iGaming scheme, anything special about poker? What was the experience like with poker? Was the process to draft regulations, specifications for Internet poker as special, or in any way as special as the actual game was, or is?
Rebuck: When we brought in the most of the — well, we didn’t bring them in — when people came in and wanted to engage in the platforms here, their expertise in regulating poker — they have a business interest in this too that there’s not fraud, abuse, chip dumping, a robot playing, bot play — you know, all the things that you guys write about and read about.
I’ve had staff go over to their operations in London, Gibraltar, Malta, and see how they watch for the fraud, the potential fraud, to give us assurance that those models are going to be moved here (which they’re required to do) and put into play in New Jersey. They have to move those. They don’t have to move their operations here, but they have to duplicate those operations here. The reports we’re getting back from my staff are very positive on the actions that many of these companies have taken and the staff they have in play that’s watching this because they don’t want those problems, either. They have a true financial interest in not having those problems, whereas on my end, I don’t have a direct financial interest.
I mean, I like to tax money, but at the end of the day on poker, I’m just getting it off the rake. I’m not getting it off your win and loss. I have more of a concern with making sure the games are fair and fully overseen so that when there are complaints, disputes, that we have a mechanism to pull the information, to look at it and try to determine if the patron, the consumer, has a legitimate complaint, if it’s a misunderstanding, or maybe they’re just trying to misinform us.
I’m sure we’ll be hearing from poker players who feel that the systems of oversight are not as strong as they should be, but I can assure you that if they have any suggestions to make it better to protect them when they’re playing, I’m more than willing to listen to them. If they’re right, just know that it will be something that is instituted in New Jersey. So I’m pleased. I mean, my staff’s coming — they’ve been over there for two weeks and they’re coming back tomorrow and we’ll be getting regular reports from them and seeing all the platform providers and their day. My consultant had spoke very highly of what’s in play.
At the end of the day as poker players you’re going to have multiple sites to choose from. You make up your mind which one you like the best with your own money, okay, and then the other ones will adapt accordingly. Hopefully, we have some good ones in here that you guys feel are legitimate operators that give you an opportunity to be successful in your game playing.
Maybe there’s a company out there you’ll found that is the best one yet and bring them in. The Facebook of poker: “Bring ’em in man, we’ll take ’em.” I don’t know. Do you think that the only providers out there are the ones that exist today, or is there a chance that some spinoff or some unique entrepreneur might come up with something that is even better than what exists today? I don’t know, but sure as hell if they are, we want them here. Bring your case in, man, and hopefully they’re better than what exists today.
Valerio: Very well said.
Valerio: I agree, by the way.
Rebuck: I don’t know who’s out there, but somebody’s going to come up with a way or find a better way to skin the cat on this at some point in time because if they don’t and this gets stale, you have poker players who are going to find a different game to go to They’re going to get bored, or they’re going to switch to some other mechanism. Now that’s with technology, we constantly say this: “You need to keep moving forward.”
I’m not a technocrat, but I’m smart enough to see that if you don’t refresh your product and come out with something new, better, improved, faster, quicker: forget it. You’re in trouble as a business. I don’t have to worry about that. I’m the regulator. If I’m the business guy, they better be worrying about that because somebody’s going to pass them, but we’ll deal with them as a regulator.
Valerio: [Laughing] Let that go. You’re awesome, sir. Man, you’re blunt about it.
Rebuck: Oh, not awesome. It’s just —
Valerio: [Laughing] It’s really cool.
Rebuck: Listen, I take my lead from basically my leader. My leader’s the governor in the state of New Jersey. He loves our state. He’s dedicated to making things better. Why beat around the bush? This is what we’re trying to do. If you don’t agree with us, that’s fine. I accept your opinion, but we’re not trying to do this to hurt people. We’re trying to do this to allow for economic development and growth for our region at the state and for the state itself.
If it’s a business model that we’re successful at, we’re more than happy. At the end of the day, when I leave as director — I can’t work in this industry for four years. I don’t have any intention to work in this industry for four years.
By that point in time, who knows what this industry will be like, but we’re doing it to benefit the citizens of this state, and it’s an opportunity to grow. If we’re unsuccessful, we’ll be very disappointed, but I believe in with my heart that we will finish this and we will work as hard as we can to make it successful.
If it’s not, then I feel comfortable that somebody who comes to me and says, “You didn’t do this,” or, “You didn’t do that,” I can respond to them saying, “I think we tried all those things,” and I’ll hand it over to somebody else who can do it better, all right?