11-Mar-2010
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The IGC Presents a Case for Regulation |
The IGC Presents a Case for Regulation
IS THERE A ROLE IN THE U.S. FOR STATE GOVERNMENTS IN THE DEBATE ON LICENSED AND REGULATED ONLINE GAMING?
The IGC Presents a Case for Regulation, Rather than Prohibition of Online Gaming before the National Council of Legislators from Gaming States
Two prominent U.S. lawyers – Frank Catania and Jeff Modisett -- represented the Interactive Gaming Council in testimony before the National Council of Legislators from Gaming States (NCLGS). This is an influential organization of state, not federal, legislators from states that have legal (land-based) gaming. This meeting took place in Rhode Island on Sept. 5, 2003.
Although neither Catania nor Modisett directly referred to this in their testimony, it’s interesting to note that both men at one time questioned the feasibility of licensing and regulating Internet gaming: Catania when he was Director of the New Jersey Division of Gaming Enforcement and Modisett when he was Attorney General of Indiana. Catania, a principal of Catania Consulting, changed his opinion on this issue many years ago after realizing that prohibition was not a workable solution and Modisett, former Co-CEO of TechNet, has more recently changed his mind on this subject.
The IGC, of course, hopes that the NCLGS will also change its position, which currently is opposed to online gaming. While opponents of Internet gaming in the U.S. Congress garner most of the headlines, the members of the NCLGS could become valuable allies in the IGC’s effort to pursue licensing and strict regulation of online gaming, especially because the regulation of gaming has historically been left to the states.
In opening the session, Florida State Senator Steven Geller, Chairman of the NCLGS Executive Committee, pointed out that NCLGS had previously taken a position in opposition to Internet gaming. The committee was now considering, he said, whether to confirm, modify or reverse that position. Geller said that NCLGS’s past opposition to Internet gaming was mainly based upon three factors:
· Public Policy - NCLGS was concerned that if one state licensed and regulated Internet gaming, it would infringe upon the sovereignty of other states that had not done so. The basis for this concern was that a state that did not approve Internet gaming would not be able to prevent its residents from betting at Internet gaming sites operating from states that did allow it.
· Competition - Internet gaming sites compete for the gambler’s dollar with licensed and regulated land-based casinos, lotteries and racetracks in various states. These gaming venues create revenue, both in the form of taxes and economic stimulus, and jobs, while Internet gaming sites offer no such benefits to the state. The NCLGS thought that revenue sharing, as is done in the various multi-state lotteries, would not be feasible with privately operated Internet sites.
· Consumer protection - NCLGS believed that the best protection for consumers from unscrupulous operators was to prohibit Internet gaming altogether.
Catania introduced Modisett and himself as representatives of the IGC, and then gave a thorough update of the recent legislative efforts in the U.S. Congress regarding online gaming. (A previous speaker had presented outdated and inaccurate information on this topic.) Catania then discussed the effect the Senate bill would have on states’ rights as applied to gaming. Gaming has long been determined to be a matter left to the states to regulate, under the Tenth Amendment to the U.S. Constitution. He also explained the role of various groups that are concerned with gaming, and the positions they have taken on Internet gaming. Two key groups that he discussed were the American Gaming Association and the National Indian Gaming Association. (Members of the latter organization’s Washington, D.C., staff were present.)
Catania stated that as a former regulator, he believed that there are various means – both technological and traditional -- available to state gaming regulators to regulate Internet gaming as well if not better than traditional casinos. He stressed that player protections were better achieved through effective regulation, as opposed to attempts at prohibition. Many state gaming regulators have gone on record testifying that they could regulate Internet gaming as well as the states regulate brick-and-mortar casinos.
Catania followed with a brief update of what was happening in other parts of the world, particularly in the UK, including that government’s potential regulation of the Internet gaming industry and the effect that UK regulation could have on players from the United States. Obviously U.S. players are not the only gamers contributing to Internet gambling revenues, proving that the proliferation of Internet gambling is not only a U.S. phenomenon. In fact many countries are embracing Internet gambling or tolerating it because there is no effective way to stop it, while some countries have concluded that modern technology has rendered their gambling laws obsolete.
During a question-and-answer period, Catania was asked how to achieve a uniform regulatory structure among the various states. He replied that the states don’t have a uniform regulatory structure now with brick-and-mortar casinos, but that the regulations are all similar. He said that would be the case with Internet gaming regulation.
Modisett discussed his background as a prosecutor, state attorney general and private consultant. He indicated that he was neither pro- nor anti-gaming, but that he had "almost reluctantly" come to the firm conclusion that the best approach to Internet gaming was to have it regulated, rather than prohibited. He said the IGC had asked him to appear before the NCLGS, but that the opinions he expressed were his own.
Modisett told the members of the Executive Committee that there were two key reasons for his views: First, from a law enforcement/consumer protection perspective, regulation by the U.S. or by the states was preferable to the current situation, in which there is little or no regulation of Internet gaming. Second, from a technology perspective, it is a bad precedent to prohibit online activity that is perfectly legal off-line.
Modisett said regulation would provide greater transparency than prohibition, which would simply drive more transactions “into the shadows.” Addressing the NCLGS concern about competition with existing state-licensed gambling, Modisett pointed out that states already have competition from offshore online gaming companies with no benefits -- tax revenues, jobs, or otherwise -- going to the states. He discussed e-cash and debit cards from foreign banks, credit card miscoding and other ways to get around the Kyl bill, the legislation in Congress that would prohibit U.S. financial instruments being used for online gaming. He emphasized that, while it won't be easy, it's better to set up a highly regulated regime in the U.S. and to gain greater control over these transactions.
Modisett answered a question about the mechanics of regulation by saying that initially, those Internet sites that wanted to take play from all states where Internet gaming is allowed would probably gravitate to the MOST restrictive state’s rules, so that they could operate in all states where it’s legal. But in the long run, NCLGS could play an important role in coming up with model rules and regulations, as well as drafting reciprocity agreements for the states.
On the technology front, Modisett said that state legislators and gaming regulators should view technology as part of the answer, rather than as an obstacle, to the conundrum they faced. He said that technology already exists to address the vexing issues of juveniles on the Internet, pathological gamers (with self-imposed betting limits), elimination of spoofing, and the sovereignty issues raised by various state legislators. He also discussed the consumer side (protections afforded by a highly regulated subscription service) and the industry side (due diligence through state licensing and bonding).
Modisett was followed by a speaker associated with the National Thoroughbred Racing Association, who mentioned his support for many of the positions presented by Catania & Modisett.
What Comes Next? Senator Geller and the Executive Committee of NCLGS requested additional commentary from various groups, including the IGC, within 45 days. Then the committee will examine all of the commentaries and be prepared to act at its January meeting. Geller also raised the possibility of a future public hearing on these issues, saying he would welcome the IGC’s involvement in such a hearing. What happens next is anyone’ guess, but at least licensing and regulation of online gaming is again part of this important debate.
The Interactive Gaming Council (IGC) is the leading trade association for the international interactive gaming industry, with its membership operating or supplying services to, most of the reputable gaming and wagering sites on the World Wide Web. Additional information about the IGC, including membership details, can be found at the association’s web site, www.igcouncil.org.
Rick Smith is the Executive Director of the Interactive Gaming Council. He is a former regulator with the Queensland Office of Gaming Regulation in Australia and a former New Zealand gaming regulator.
Keith Furlong serves as the Deputy Director of the IGC, and is the Vice-President of the Catania Consulting Group, Inc., a New Jersey-based gaming consultancy and lobbying firm. He is a former Public Information Officer and Legislative Liaison with the New Jersey Division of Gaming Enforcement. |
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