The Long And Tortuous Road Of U.S. Online Gambling Expansion

Michigan Gov. Rick Snyder's online gambling veto highlights the slow and difficult path states have taken toward regulation in the U.S.
winding road

Just before Michigan’s legislative session wound down for the year, lawmakers passed a flurry of bills that would, among other things, legalize online poker and virtual casino gambling.

After years of debate, the Wolverine State had seemingly finally gotten iGaming legislation across the finish line, becoming the fifth state to regulate some form of online gambling since the Department of Justice (DOJ) handed down a landmark reinterpretation of The Wire Act in 2011.

But the celebration was short-lived. A week later, Republican Gov. Rick Snyder stunned the bill’s proponents by vetoing the measures, sending stakeholders and advocates back to square one.

The episode, which stopped iGaming momentum in its tracks, was not only a major blow to the legislation’s supporters, but also serves to highlight just how slow and agonizing the process of regulating online gambling in the U.S. has been over the past seven years.

Optimistic beginnings

In April 2011, U.S. authorities staged a major crackdown on several offshore online gambling providers, seizing the web domains of the world’s top three internet poker providers. The operation essentially wiped out the online poker industry in the country, leaving behind only smaller cardrooms with few customers.

Later that year, however, the Department of Justice made a surprise announcement that gave both online poker and casino gamblers some hope that the verticals would officially be regulated, creating a safe space for patrons by putting the industry into the hands of licensed operators.

After an inquiry by New York and Illinois officials on whether The Wire Act, legislation that prohibits interstate betting over telecommunications systems, precluded them from selling lottery tickets online, the DOJ issued a new interpretation of the law.

In short, it stated that The Wire Act only pertained to sports betting, and not to online lottery sales or iGaming. The pronouncement essentially gave states the green light to regulate online gambling within their borders should they choose to do so.

At the outset, it looked as if both online poker and virtual gambling would be quickly adopted by several states, especially those searching for new revenue streams. With the worldwide poker boom not far in the rearview mirror, online poker, for its part, was seen as an especially lucrative proposition.

A handful of states jumped on board and pushed through legislation in the following few years — Delaware’s governor signed an online gambling bill in the summer of 2012, with Nevada (online poker only) and New Jersey coming along in February 2013 — but things quickly ground to a halt.

The online poker disappointment

While those first-mover states got their industries up and running, others, like Massachusetts, California, Illinois, and New York, began debating the possibility of legalizing some variations of iGaming themselves.

But as time dragged on, iGaming bills came and went across the U.S., with lawmakers reluctant to open up the industry inside their states.

The slow pace of expansion was especially hard for online poker, which is dependent on large player pools for its survival.

Up until 2017, when interstate compacts between sites were formed, poker players were only allowed to play against competitors inside their own state, something that severely limited game options. The restriction made it tough for poker operators to turn a profit and has nearly snuffed out the industry.

With NJ, Delaware, and Nevada now sharing player pools, the offering is somewhat improved, but without larger states in the mix, the situation will remain dire until more populous ones join in.

California, which is seen as the potential crown jewel of online poker, would be a perfect addition, but the state’s disparate tribes and gambling stakeholders have not been able to come to a consensus on who should be allowed to participate in the industry. Year after year, Golden State online poker bills have succumbed to infighting.

Instead, online casino games like blackjack and slots have brought in the bulk of the profits, with iPoker raking in peanuts by comparison. Case in point: In 2014, poker made up 24% of total iGaming profits in New Jersey; now, it makes up a paltry 7%.

Even worse for online poker are the rumblings that the Trump administration DOJ may reverse its 2011 opinion, which, if true, could end interstate poker competition altogether. Fortunately, this is so far only a rumor.

New blood

After Chris Christie signed NJ’s iGaming bill, all was quiet on the online gambling front for a long 4½ years, until, finally, another state decided to join the party.

Pennsylvania lawmakers, eager to keep pace with their neighbor to the east and plug a sizable budget deficit, voted to regulate a wide range of iGaming verticals in October 2017, including online casino, poker, and even sports betting.

But even that victory was bittersweet. In their wisdom, PA regulators implemented fees and tax rates that are so high they likely will prevent the industry from reaching its full revenue potential. This could be just as damaging to the state as it is to everyday players, who might be presented with games with worse-than-average odds.

That said, nearly all of the state’s land-based casinos have purchased a license to offer some form of online gambling, while over a half-dozen others have paid the fee to offer sports betting.

Even so, the industry in PA is rolling out at a snail’s pace, even slower than it did in NJ. More than a year after the governor signed the landmark gambling package into law, online sites have yet to launch, and may not do so for another several months.

Will the pace pick up in 2019?

With the passage of the Michigan bill came renewed excitement, and perhaps even momentum for other states to follow. But in the end, the harsh realities of pushing through online gambling legislation came to the forefront.

This year, Rep. Brandt Iden, the champion of that bill, promises to reintroduce the legislation. But while the state’s incoming governor is seemingly open to iGaming, getting everyone back on board could be a long process, and passage could take years.

Apart from Michigan, there are a few other viable candidates.

New York lawmakers prefiled legislation for 2019 that would regulate online poker, giving a shot in the arm to that industry, although efforts over the past six years have proved fruitless.

Illinois, the other state to initially inquire about The Wire Act, is another potential candidate for both online casino and poker. In October, the state held a hearing to discuss an omnibus gambling package that has been floating around the statehouse for several years. If the stars align, Illinois might get it together and join the fray.

Sports betting on the fast track

While only a handful of iGaming bills have made it to the desks of U.S. governors since 2012, there is considerably more momentum and excitement for sports betting, which was made a legal possibility after the Supreme Court overturned the Professional and Amateur Sports Protection Act in May 2018.

Already, seven new states have launched sports wagering, some of them allowing for online betting. Many more states are looking into the prospect and are expected to quickly pass their own bills in the near future.

The enthusiasm to act quickly on sports betting is in stark contrast to regulating other iGaming verticals, which, as we have seen over the past seven years, is like pulling teeth.


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