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Online Poker Regulation in the US: Q1 Review

Posted on by John Lathram

US Online Poker Regulation2017 was supposed to be a breakthrough year for online poker regulation in the US, but to date the signs are it will another year without further progress.

In 2013, three states – Nevada, Delaware and New Jersey – enacted legislation regulating certain forms of online gambling. Since then, several other states have attempted to generate tax revenues by regulating online gambling and, despite their willingness to pass legislation regulating Daily Fantasy Sports (DFS), none have yet been able to push online gambling legislation across the line.

At the beginning of the year, there was justifiable optimism that at least one state would pass legislation in 2017 to regulate online gambling – or at least online poker. The states of New York and Pennsylvania had come close to passing legislation last year, while several other states were giving serious consideration to a selection of proposals or at least discussing the possibilities.

However, the first quarter of 2017 has yielded more obstacles to online gambling regulation than solutions. This is a quick review of what has happened so far this year.

New York has to Get Past Constitutional Objections

New YorkThe year got off to a positive start in New York when companion bills to regulate online poker were introduced into the Senate and Assembly. The Senate bill passed the first committee stage unopposed, but earlier this month the Assembly bill was removed from budget proposals and the debate about whether online poker should be regulated in New York was postponed until June.

The major obstacles to the regulation of online poker in New York are financial and constitutional. Governor Andrew Cuomo has expressed concerns about the cannibalization of New York´s fledgling brick-and-mortar casino industry, while issues remain about whether the legislature has the authority to reclassify online poker as a game of skill in order to circumnavigate a constitutional prohibition on the expansion of gambling.

Currently, a legal challenge is going through the courts, brought by opponents to last year´s regulation of Daily Fantasy Sports. The opponents claim that, as DFS includes an element of chance, legislators had no right to reclassify DFS as a game of skill. As this is the basis upon which the regulation of online poker revolves, the Senate and Assembly will likely wait until the legal challenge is resolved before moving ahead with the regulation of online poker – providing the courts find in the legislature´s favor!

Does Pennsylvania Even Know What it Wants?

PennsylvaniaIn the first three months of the year, there have been five bills introduced in the Keystone state that could affect the progress of online gambling regulation. The first two were practically mirrors of the bills that came so close to passing at the end of 2016, but a third proposal for the regulation of online gambling has reignited the debate about license fees and the tax rates operators should be charged.

To complicate the issues further, the largest brick-and-mortar casino in Pennsylvania – the Parx – came out in opposition to regulated gambling at a hearing at the beginning of March, and the Penn National has since declared its reserved support for legislation proposing the regulation of Video Gaming Terminals – a move that Governor Tom Wolf also seems to be in favor of.

The fifth proposal that could affect the progress of online gambling regulation in Pennsylvania is a bill introduced a couple of weeks ago to criminalize online gambling. The language of the bill prevents the Gaming Control Board from allowing any form of online gambling and introduces criminal penalties for operators providing a service to Pennsylvanians. Although unlikely to go anywhere, this bill is a time-consuming distraction that could delay the resolution of other issues affecting the progress of regulation.

Californian Proposals Ignore the Suitability Issue

California PokerThere was not a lot to get excited about when Assemblyman Reggie Jones-Sawyer introduced his proposals in February. Described as the Greatest Hits of Failed Attempts by some in the industry, Jones-Sayer´s bill repeated the mistakes made by Adam Gray last year by offering the horseracing industry a $60 million bribe, proposing a ring-fenced market, and making it a felony for players to play at offshore sites.

Worse of all, Jones-Sawyer completely ignored the suitability or bad actor issue that has plagued attempts to regulate online poker in California in recent years. Instead of dealing with it one way or the other, Jones-Sawyer decided to leave it up to the Gambling Control Commission to determine whether a licensee was suitable once they had applied for an operating license.

Jones-Sawyer´s attempt at a compromise was weak and drew widespread criticism from stakeholders, players and industry observers alike. Unsurprisingly, no other politician has attempted to introduce legislation since, and it is likely to remain that way. Although there was not a lot of optimism for regulation of online poker in California, it is hard to find any straws to clutch hold of at the minute.

Michigan Has Tribal and Constitutional Issues to Overcome

MichiganIt was a case of déjà vu in the Great Lakes state earlier this month when Senator Mike Kowall introduced practically the same proposals to regulate online gambling in Michigan as he had last year and they flew through the Senate Regulatory Reform Committee within a week, despite the low tax rates, the concerns of tribal gaming entities and the fact that an expansion of gambling without a statewide ballot is likely unconstitutional.

The tribal issues are the biggest stumbling block for regulated online gambling in Michigan. Tribal entities are unhappy they are being asked to pay 10% of gaming revenues on top of what they already pay for their exclusive rights to provide live gambling facilities outside of Detroit. Detroit´s casinos argue that a special deal for the tribal entities will give them a commercial advantage.

The situation in Michigan looks almost unresolvable unless Kowall can balance the books between tribal interests and those of commercial casinos – and overcome the constitutional issue, the possibility that the cost of regulation will be more than what regulated online gambling generates in tax revenues, and a new PPA-esque campaign to oppose internet gambling on moral grounds. Kowall says he is “cautiously optimistic”. I wonder if he believes in the tooth fairy and Santa as well.

Peripheral States Create Little Cause for Optimism

Among the other states that have flirted with online gambling regulation so far this year – or may do in the future – proposals for online gambling regulation in West Virginia were dropped almost as soon as they had been introduced, Massachusetts´ priority is to prop up its ailing lottery, and nothing has been heard from the likes of Illinois, Indiana, Connecticut, or Ohio – states that would likely join the north-west domino effect if legislation were to be passed in New York, Pennsylvania or Michigan.

Based on the events during the first quarter of 2017, the participation of these states in any short-term regulation discussion looks increasingly unlikely.

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