New Jersey: The Signature State

A blueprint for regulated iGaming in the US market

A blueprint for regulated iGaming in the US market is set to be rolled out in the state of New Jersey in March, as the Intra-State Internet Gambling bill sits on Governor Christie's desk just one signature away from passage into law.

THE NEW YEAR has brought with it a renewed optimism for the industry as its largest emerging market is finally showing signs of acceptance that a regulated iGaming landscape is the only true means of progress for US states.

Despite renewed efforts towards the end of 2010 to reignite the federal campaign, it is now clear that state level regulation will form the basis of the new iGaming framework in the United States. Indeed, the intra-state model being proposed in New Jersey would see a future regulatory landscape of'United States', or 'States United', if you will, being developed through connectivity with neighbouring states, but for the time being, we can only look as far as the desk of Governor Chris Christie who now has the final say on the passage of the Intra-State Internet Gambling bill into law.

One signature away

January 10, 2011: the Intra-State Internet Gambling bill, co-sponsored by Senators Ray Lesniak (D) and Joe Kryillos (R), finally finds its way to the desk of Governor Chris Christie, of New Jersey, after being approved in the Senate by a majority of 34-2 (the vote in the assembly was approved by 63-11-3 margin).

Governor Christie's signature would give the green light for New Jersey to officially become the first state in the US to regulate Internet gambling, allowing casinos in Atlantic City to provide online versions of their games to state residents. It is also the case that should the bill be left unsigned after the 45 day period, it will automatically pass into law.

Safe passage of bill S3167 would herald the dawn of a new era for the iGaming industry in the US market, as it finally emerges from the shadows cast by the Unlawful Internet Gambling and Enforcement Act (UIGEA) of 2006.

One of the bill's most influential propenents has been the Interactive Media Entertainment and Gaming Association (iMEGA), which seeks to foster cooperation between the iGaming industry and government at all levels. Its Chairman, Joe Brennan Jr, spoke of his delight at the approval of the bill thus far.

"Congratulations to New Jersey's legislators on their overwhelming vote in favour of the Intra-State Internet Gambling bill. It's clear that New Jersey's representatives want their state to be at the forefront of the online gaming industry, both in the US and globally.

"With the combination of the top regulators in gaming, great information technology infrastructure, a highly-educated workforce, and the strong foundation and leadership of the Atlantic City casino industry, New Jersey is certain to lead this industry's growth in the US, while creating high-paying, skilled jobs in the technology sector and also attracting investment to the state."

Writing in his article, "New Jersey: the Lartd of (iGaming) Opportunity?", in the Jan/Feb issue of iGaming Business magazine, Brennan lays out the reasons why New Jersey would be "the best state in the entire US for establishing a permanent base of operations for existing firms to eventually extend their reach into the next states to permit online games.

"New Jersey, which is the second largest casino market in the US after Nevada, has arguably the toughest regulators in the gaming industry," he explained. "The value of NJ licensure to an iGaming firm is the regulatory surety it demonstrates not only to players, but also to subsequent state governments that may permit the activity, as well as to the financial markets, which would likely place a higher valuation on NJ-licensed firms.

"New Jersey also has the highest IT infrastructure density of any jurisdiction in the world. This is due to the massive post-9/11 build up of capacity to support the financial centre on Wall Street, creating surpluses of bandwidth, storage and servicing firms."

California has previously hogged much of the limelight from European-based operators seeking a state solution in the US, mainly because it boasts the largest population. However, the 36 million inhabitants of 'The Golden State' represent an 11 percent shortfall on the potential 40.8 million people that New Jersey (8.7m), in combination with New York (19.5m) and Philadelphia (12.6 million) would provide for a regulated iGaming market, should both latter states follow in New Jersey's steps as expected. Additionally, New Jersey's massive head start ahead of California on legislation is drawing undeniable attention from the industry.

All eyes will be on the progress made in New Jersey should S3167, as expected, pass into law. It will form the test bed for the intra-state level gaming model being considered, but so far unsuccessfully implemented, in other states forementioned such as California and Florida, where an intra-state poker bill that failed to garner any support is to be reintroduced by Representative Joseph Abruzzo this year.
Where New Jersey's bill is set to make a distinct difference is in stimulating the state's ailing economy, something that the rest of the nation's states will be keen to monitor in forming methods to revamp their own financial interests.

Michael Waxman, spokesperson for the Safe and Secure Internet Gambling Initiative, added to New Jersey's plaudits. "We applaud the New Jersey legislature for adopting legislation to regulate Internet gambling activity, creating a commonsense framework for protecting consumers, creating jobs and stimulating the state's economy," he said, before going on to suggest that a federal solution remains a key priority.

"This is clearly a much better approach than the failed attempts by the federal government to prohibit the activity. And while it is encouraging to find New Jersey at the forefront of efforts to regulate Internet gambling activity in the US, the optimum solution we'll continue to pursue is an all encompassing federal regime to control the activity and protect every American. We hope our nation's elected leaders at the federal and state levels take notice of this responsible policy approach and follow suit."

"Governor Christie's signature would give the green light for New Jersey to officially become the first state in the US to regulate Internet gambling, allowing casinos in Atlantic City to provide online versions of their games to state residents."

The arguments in favour of regulation at the state level have been largely fiscal, accounting for (and seeking to find a solution to) the economic deficits being endured by most states post-financial crisis.

Naturally, a similar, precursory line was taken in Congress as the federal proposition sought to levy a blanket marketplace to implement a new national revenue stream. Yet, interestingly, the first and most resounding federal legislature to have trodden a path through the floors of Washington DC and implemented by the most fiscally-orientated member of the House of Representatives, Congressman Barney Frank (then Chairman of the Financial Services Committee), was sold not on the potential tax remuneration, but on the notion that it infringed on the personal freedoms of adult Americans. However morally significant this appeared at the time, it did not carry much weight where it mattered most and for all its 'selling', the idea was never bought, even despite belated tax companion bills.

Even as recently as December, a brand new federal bill was entered by Senate Majority Leader, Harry Reid, which has gone much the same way as the various amended versions of Frank's solution to iGaming regulation.

Yet, as time has passed, it has become clear that in resolving iGaning policy via federal means (a blanket solution to a blanket prohibition), 'fighting fire with fire' is the least effective route. Indeed, one need only cast a glance at the current European market to see how difficult a proposition it is to find a general legislation that caters for the needs and demands of each individual state (Member States, in this case).

Perhaps events in Europe have had some influence west of the Atlantic, but having spoken to various Congressmen and even those seeking local regulation, the EU has not been a market that has attracted significant US attention in terms of its manner of legalisation. Despite this, the US looks set to mirror Europe's fragmented local approach, intentionally or otherwise.

The likelihood is that states have grown to realise, or perhaps have even realised from the outset, that federally regulated and taxed Internet gaming puts them at a notable financial disadvantage. If controlled locally, states have full control and access to their domestic tax revenues, rather than them going to Washington for redistribution.

It follows, perhaps tenuously, a growing trend in localisation, where more domestically tailored solutions are being created for local markets - the iGaming industry concentrating on localised products and service offering, and the markets honing, and in some cases, legalising, their domestic regulations (albeit with some pressure from the centralised authorities, where Europe is concerned).

Where similarities may still exist between the EU and the potential US market, if we consider Michael Waxman's suggested federal regime, is that although state level regulation has been largely accepted as the most practical route ahead, a federal (US/ EU-wide) set of guidelines encompassing consumer protection and corporate responsibility would be a welcome addition to local licensing systems.

Land of opportunity

2011 has ushered in the first real signs of breakthrough for the US market and the ability (read willingness) of powers-that-be to encourage and stimulate an environment to regulate, and not prohibit, the business of gambling on the Internet.

By the time we will know more about the longer-term viability of iGaming in the US through New Jersey's lead, and we fully expect to be reporting on the industry's newest regulated market - a refreshing change from the speculation, theory and supposition of the past four and a half years. Until then, we remain just one signature away.
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