The 2012 iGaming North America conference closed on Tuesday. After a rather optimistic session on Monday, with speakers estimating the potential US online gambling market between $12 and $20 billion annually, Tuesday’s sessions focused on the operational and legal aspects of iGaming in the States. Not suprisingly, the focus on details brought a more somber, and skeptical, tone to the proceedings.
Of particular note was the afternoon session discussing the important – and underlooked – issue of payment processing for online gambling operators. As panelist Joel Leonoff, President and CEO of Optimal Payments, operator of eWallet provider Neteller, noted, payment processing has been “far down the list of priorities” in the rush to claim space in the potential online poker and lottery markets. Leonoff questioned whether overseas software companies such as 888, Bwin.party, and Ongame Network – whose acquisition by Shuffle Master was announced during yesterday’s session – had the proper relationships and knowledge to properly outsource such processing in the U.S.
Fellow panelist Robert Holmes, President and CEO of RaceUwin.com, an online wagering site for American horse racing, recounted his own “nightmare” in dealing with the country’s two major credit card companies, MasterCard and Visa. RaceUwin.com had originally been able to accept transactions from Visa cardholders, while MasterCard – for over a year – declined transactions to the completely legal, regulated, and licensed site. Finally, MasterCard relented; and as Holmes described, “we turned on one switch, and the lights went out on the other side.” Overnight, Visa began declining “100%” of payments, an issue that continues some 45 days later, according to Holmes. Six years after the passage of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), “you would think the industry would have all this sorted out,” commmented moderator Tony Fontaine of ProPick Racing.
It was clear from the panel that the industry is not even close to having it sorted out. Leonoff replied that the processing system, even for legal online wagering, is “vey broken; it doesn’t work.” Legislative bodies and regulatory agencies have “left it up to the banking system to be the judge and jury and what’s legal,” he added. Indeed, the travails of RaceUwin.com prove Leonoff’s point.
What would happen in the processing system should intrastate online poker and gambling – such as the system proposed in Nevada – come online? Wells Fargo Senior Company Counsel Ted Kitada noted that, eventually, “business considerations will probably override” the legal concerns. In other words, when the banks were able to get their piece of online gambling – and, if that piece was large enough to justify risk-taking in a slow-moving, highly bureaucratic industry – they would move. In the meantime, operators must face a dangerous level of uncertainty. John English, another panelist who is the Senior Vice President of American Wagering, noted that credit card rejection, or any other form of financial blockade, was “a doomsday scenario” for his company’s smartphone wagering business in Nevada. Holmes wondered later that if the current system offered such challenges to operators, how would the industry manage the multi-state compacts often assumed to emerge in the wake of state-by-state legalization? This session made clear that the rosy projections of the future for American online gambling don’t yet factor in the challenges and difficulties faced by current operators.
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In Monday’s session, a few panelists questioned whether the Department of Justice opinion reinterpreting the 1961 Wire Act’s effect on online gambling had quite the dramatic effect many industry observers had assumed. Tuesday’s session, “The DOJ Has Spoken – Who Wins and Who Loses?” attempted to answer that question. Three panelists – and later, law professor and CalvinAyre.com contributor I. Nelson Rose – were asked to comment on the statement, “The DOJ opinion accelerates the process for legalized, regulated iGaming in the United States.” Lobbyist Joe Brennan argued against the proposition, noting that the new opinion simply “created a different kind of ambiguity” versus the gray area in the law prior to the December announcement. “No one will invest in tooling up in this industry without additional clarity,” he added. Shuffle Master general counsel Katie Lever argued otherwise, playfully noting her own company’s acquisition of Ongame the day before as evidence of the industry movement following the DOJ opinion. Brennan rebutted her argument by noting that none of the well-known transactions – including IGT’s purchase of Double Down Interactive – had yet received regulatory approval. Nor could Shuffle Master deploy the Ongame technology in the United States without additional legal and regulatory action. There “is an almost irrational exuberance for online gaming in the United States,” Brennan concluded, using a phrase that conjures up memories of the original Internet bubble in the 1990’s. (In a sign of the audience’s awareness of the long road ahead for the industry, Brennan was overwhelmingly voted the winner of the debate, for which he received a round of applause and hopefully a free drink or two at one of the conference’s afterparties.
Rose was called up from the audience toward the session’s end; the respected professor was more positive about the DOJ’s effect. The Wire Act had been used to threaten Nevada and the US Virgin Islands against previously instituting intrastate online gambling, he noted. Under the new interpretation, that would no longer be the case, freeing legalization efforts in not only Nevada, but potentially in states such Iowa, Connecticut and New Jersey. The tone of the debate was respectful, and the panelists intelligent; but the divergence of opinions and the focus on utterly technical aspects of gambling law showed the continuing lack of clarity in the industry (with the added bonus of making many audience members thankful they had skipped law school.)
The lessons from the conference could be summed up by the title of the day’s final session: “Legalized Online Sports Betting – In Our Lifetime?” There are myriad possibilities and markets for US online gambling: poker, online lottery sales, games of chance, sports betting. The technical knowhow, the marketing ability, and the desire from business to invest capital in the industry all presently exist. The question remains: when will they be unleashed? And just whose lifetime are we using as a measuring stick?
Overall, however, the conference should be considered a major success. The panels were interesting, intelligent, and well-versed in the field. According to the organizers’ media guide, attendance rose nearly 50% year-over-year, reflecting the increased interest in the sector. While there are many thorny problems to be resolved, the potential for the market is clearly vast. In the meantime, the flurry of legal, regulatory, political, and economic issues surrounding iGaming will make the industry’s growth frustrating, lucrative, and most definitely, fascinating.
