The Mouthpiece

By Martin Owens
Contributing Editor

  • Recent Articles

    Martin Owens

    Are the States Ready for Mobile Gambling?

    Kahlil Gibran

    Just when you're in sight of the goal, they move the goalposts. Happens with you, happens with me, and now it's happening to state governments in the USA as they finally begin to come to grips with Internet and interactive gambling. As usual, much of the damage is self-inflicted. In state houses all across the country, the issue was simply ignored, or condemned out of hand with the statement that "Internet gambling is illegal in America". So never mind that no fewer than 32 states use licensed services to help with their race horse betting, And that this has been going on for the last 10 years.

    No, the forms of Internet gambling they're talking about are online, person-to-person live poker , and virtual versions of slots and table games. New Jersey has just authorized sports betting within its own state borders, but that will be a while coming: the new law directly conflicts with the federal Professional and Amateur Sports Protection Act (PASPA), and so a lengthy court fight is all but guaranteed. But it's clear sailing on poker and table games anyway, right?

    Um, not really. You see, the particular law the state governments are relying on, to authorize this expansion of Internet gambling, is the Unlawful Internet Gambling Enforcement Act (UIGEA), which specifically exempts state licensed Internet gambling from the definition of "unlawful" but there's a catch. The gambling in question can only be offered to the residents of that particular state. And that leads to two problems. The first is called liquidity, a.k.a. " is there enough of a market here to make a buck?" This is especially important with poker- when Mr. Customer goes online looking for poker action, he's not going to play at a poker site where there aren't enough other customers to make a game, even if it is state licensed. Obviously this is not a big deal for high population states like California or Florida. But what about small states like New Hampshire or Rhode Island?

    The next problem is jurisdiction, a.k.a. "Who gets to tax and/or arrest whom?" Which leads to the really big question- "where does the bet take place?"One of the big stumbling blocks to legislative approval is the idea that unauthorized gamblers from outside the state may be able to dial in and play without permission. It has even led to prohibitions on play when the particular customer is outside the state of his residence. British Columbia was the first Canadian province to use this approach, and it is being copied in proposed US programs as well.

    This is a bad idea.

    For openers, it runs counter to the way technology is moving today. Today mobile is the new normal. People are putting more and more of their social and business lives- including entertainment and finance- into completely portable devices like iPads and 4G smart phones. And that also includes gambling and the money to pay for it.

    But more important, we have to ask - is it really necessary any longer? There are two main reasons that a given government - state, local, national - asserts its jurisdiction over a given activity. Most important is the protection of citizens - regulation and laws to prevent harm. And that has been the main reason behind licensing and regulation of gambling. Unless government is there to supervise, we are told there's no telling what those unscrupulous gamblers will do to poor John Public. The only thing to do with gambling operations is license and supervise them, make them behave. That has at least some plausibility when we're talking about gambling online. Although the vast majority of the online gaming operations are honest, for the simple reason that that's the way to keep customers, it can't be denied that from time to time there are slow pay, no pay, fly-by-night operations, or major controversies like the Full Tilt prosecutions that tend to undercut confidence in the whole industry. So in that context, of course, it's much better to have regulation and supervision by the home government. So that if a customer has a complaint, there's somebody in the same town, or the same state, that he can call and complain to, and that exercises some control over the gambling companies.

    But when individual states begin licensing online, and especially mobile, gaming, the justification of customer protection essentially disappears. The licensing authorities of, say, New Jersey, can be presumed to be every bit as scrupulous and honest as the authorities in Nevada, Florida, and so on. And in any case, the actual gambling is taking place at the server of the state licensed gaming company. So let's say New Jersey licenses Internet poker, and only allows New Jersey residents to register, open an account, and play. In that case, what's the difference whether the bettor is physically located in New Jersey when he makes his plays? What if, for example, he should go fishing in New York State? The actual gambling is taking place at the server of the online poker company, which is physically located in New Jersey- which means that no gambling is taking place in New York. No citizen of New York is being enticed to gamble on that New Jersey site- only New Jersey residents who register an account and properly identify themselves can play in the first place. So, technically, no New York laws are being broken.

    Right let's go to the other reason for jurisdiction: "That guy over there is making money and we want some." If gambling within the state is taxed, and gambling located outside the state is not, that is somehow "unfair", even if the person doing the gambling is not a state resident and will soon depart. (The "unfairness" could, of course, be removed by lifting the taxes on the in-state gambling, but somehow this is never suggested). How can a formula be arrived at, to equitably share jurisdiction and the cash flow for gambling that crosses state lines?

    Answer: there already is one. Remember all those states that cheerfully license horse racing bets online? It's been going on since the end of the last century, even before. There already is a system in place that divides the legal authority and the money of such betting, to the satisfaction of all concerned. How do we know they're satisfied ? Precisely because nobody ever hears about it. Those guys can bet over here, and we can bet over there, and nobody's quarreling. They just count the money.

    Again and again, we hear that technology is outstripping the law. But oddly enough, it's not true for online and mobile gambling, the very area where you would expect it. The day that US state (or even national) authorities wake up and realize that the only sane thing to do with mobile gambling is to allow and license it, even across state lines, they will not have to reinvent the wheel. Internet horse race betting offers a working structure that can be easily copied.

    All they have to do is build on the existing success


    Copyright 2012

  • FRANK: California Colts early Derby Favorites