Illegal Online Gambling Sites Holding Back US Regulated Market

Home » Poker News » Illegal Online Gambling Sites Holding Back US Regulated Market

Monday, May 26th, 2014 | Written by Shane Larson

More than one year after the US state of Nevada launched Ultimate Poker, the country’s first ever legal online gambling website, the industry has continued to expand but so far has failed to match up to pre-regulation revenue forecasts. According to experts the reason for the slow start is the preponderance of numerous illegal offshore operators which continue to draw away customers from US regulated sites, in so doing siphoning off millions of dollars from the industry.

Speaking earlier this month at the East Coast Gaming Congress in Atlantic City, David Rebuck, director of the New Jersey Division of Gaming Enforcement (DGE), commented: “Internet gambling exists in all 50 states today. It’s just not regulated.”

New Jersey reports first decline in igaming revenues

Currently Nevada, Delaware, and New Jersey offer regulated igaming inside their own state borders, although a Nevada/Delaware interstate compact is scheduled to begin this summer as the two states seek to overcome the liquidity problem which threatens to drag their respective poker industries in the mire.

Meanwhile, New Jersey which has had an igaming market since November 2013, reported its first ever decline in revenues, with April’s tally of $11.4 million down around half a million dollars from the $11.9 million generated in March. As a result, the DGE recently took the extreme measure of sending out cease-and-desist letters to affiliate sites which market offshore sites to New Jersey residents. Amongst those affiliates targetted were PokerSource.com, CardsChat.com, Pokersites.com, RakeBrain.com, and RaketheRake.com, and commenting on the move, DGE spokeswomen Kerry Langan explained to OnlinePokerReport.com that:

“We believe this [promoting unregulated sites] may either taint legitimate sites by associating them with the illegal ones, and conversely may lend the appearance that these illegal sites are affiliated with authorized sites.”

Offshore sites enjoy unfair advantage

Furthermore, by operating within the unlicensed grey market, offshore companies are able to enjoy a range of benefits which furnish them with an unfair advantage over their licensed counterparts inside the regulated markets of Nevada, Delaware, and New Jersey. These benefits include a less restrictive player ID verification process, more payment processing options, no geological restrictions, and importantly no need to pay local taxes.

In addition, offshore sites continue to rack up profits denied to regulated websites, by continuing to operate inside states where no igaming legislation has been introduced, including the USA’s most populated and affluent state of California. According to California gambling control commissioner Richard Schuetz more than 1 million Californians wager illegally over the internet in The Golden State, and commenting on the situation, stated:

“That industry is between $300 million and $400 million. That’s a huge business that operates without any consumer controls or any benefit to the tax base. They can go and get online with an online site without divulging their identity or their address. Those sites exist. It’s a valid concern.”

Significant hurdles ahead

Amongst the numerous hurdles faced by legitimate US igaming websites, the sheer amount of personal information legally required by the websites, as well as the limited payment processing options afforded to gamblers from Visa, MasterCard and American Express, have perhaps had the biggest affect in slowing down growth of the nascent industry.

“People who come online have 20 minutes in the den; they don’t have three hours to work out payments,” said Paddy Power President Of North America, Eammon Toland.

There also exists an existential threat from lobbying groups keen to see a country-wide ban imposed of all igaming activities, championed by billionaire casino mogul Sheldon Adelson, even though fellow American Gaming Association (AGA) members such as MGM Resorts and Caesars Entertainment have already launched their own online gambling offerings and are pushing to see the practice legalized.

Still cause for future optimism

Nevertheless, proponents of online gambling are still optimistic for the future of the country’s igaming industry, with Toland describing America’s newly regulated landscape the “single most exciting happening in I-gaming in the world.”

Casing point, Morgan Stanley forecasts that legal igaming in the USA will generate around $8 billion annually in revenues, and already eight states have introduced some type of legislation hoping to capture a slice of the country’s potential online gambling windfall. Cautioning critics dismissive of regulated market revenue results thus far, California gambling control commissioner Richard Schuetz, said:

“The people who say it’s not doing well enough are like the two parents who look at their 5-month-old and say, ‘It doesn’t speak any languages!’ Let’s get our expectations in line.”