Is it time for federal oversight of online gambling regulation?

June 6, 2024 8:52 AM
Photo: Shutterstock
  • Hannah Gannagé-Stewart, CDC Gaming Reports
June 6, 2024 8:52 AM
  • Hannah Gannagé-Stewart, CDC Gaming Reports

A report compiled by the Campaign for Fairer Gambling (CFG) and Yield Sec has concluded that the state-by-state regulation of gambling in the US has done very little to ward off the presence of black-market operators in each state.

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This will come as little surprise to those who, way back in 2018, pointed out that clawing back market share from an already established market of illegal offshore operators was not going to be easy.

The iGambling Marketplace Report 2023, published on May 30, looks specifically at the level of illegal gambling in New Jersey, New York and Minnesota.

The three states were chosen because of their differing regulatory statuses and to demonstrate that, despite their differences, the illegal market is comparably strong in each state.

The report claims that illegal gambling operators in those three states usurp $9.5bn of potential gross gaming revenue (GGR) from the legal market. That represents almost a quarter of the total $40.92bn in illegal GGR that the two organisations say was generated across the U.S in 2023.

In New York, where only online sports betting is legal, 49% of total marketplace GGR ($3.4bn) went to illegal online casino gaming in 2023, with a further 27% ($1.9bn) going to illegal online sports betting, according to the report.

In New Jersey, which has legalised both online sports betting and online casino, 22% of the total online marketplace GGR ($996m) went to illegal online sports betting and 16% ($719m) to illegal online casino gaming.

Finally, in Minnesota, where neither online sports betting or online casino are legal, 38% ($929) of the state’s online gambling GGR comes from illegal online sports betting and 62% ($1.5 bn) from illegal online casino gaming.

With illegal gambling apparently ubiquitous across all states, it does somewhat beg the question why are any of them holding out on legalising icasino? It’s clearly not an effective way to prevent online gambling in a given jurisdiction, so really all it serves to do is miss out collecting tax on a proportion of that market.

That’s not the central argument in this report though. For the CFG, which has a responsible gambling remit, the argument is that players are more at risk from illegal operators and that they need stamping out.

For that reason, the CFG advocates for federal oversight of online betting and gaming, arguing that state legislation, regulation and enforcement are too weak to ward off illegal operators. Whether federal oversight would change that perhaps remains unclear, given that the illegal market seemed to have been thriving prior to the repeal of the Professional and Amateur Sports Protection Act in 2018.

With West Flagler Associates’ Florida sports betting case making its way up to the Supreme Court and scheduled for a June 13 discussion, one might also argue that federal oversight isn’t out of the question under the current regime.

Nonetheless, in a statement accompanying the report’s publication, CFG founder Derek Webb said: “Sector-friendly legislation, regulation, and tax rates have not made much of a dent. Despite wildly different legal regimes, these three states continue to accommodate over 800 illegal operators who operate with zero regard for state law.”

He has a point, whether or not federal oversight would help, that level of market penetration by illegal operators does seem problematic.

Yield Sec, which was commissioned by the CFG to gather the requisite data on U.S. online gambling activity, argues more for a crackdown on illegal operators to level the playing field those that are licensed.

Speaking to CDC Gaming Reports this week, founder and chief executive of Yield Sec Ismail Vali said illegal operators “always have the economic-upper hand”, because they have years of loyalty among users and offer a range of products that legal operators struggle to compete with in terms of price, product and promotion.

Moreover, they can offer unrestricted bonuses and incentives. They can offer crypto betting to appeal to gamblers that wish to bet anonymously, without the constraints or friction caused by know-your-customer procedures.

Vali also points out that Yield Sec’s 2023 monitoring revealed that illegal operators are often dominant in online conversations, especially during key sporting events where up to 85% of social media content linked to betting was found to be tied to illegal brands.

“This normalization of illegal gambling interaction poses a significant threat to any prospects for levelling out the playing field across the marketplace for legal, licensed brands,” Vali explains.

“The slow growth in GGR for legal operators – from $12.27bn in 2022 to $16.88bn across sports betting and casino in 2023 – highlights the persistent influence of illegal operators as they are deeply engrained in consumers daily lives. Combined with the limited availability of legal products, these factors collectively hinder a greater transition to the regulated market,” he adds.

Vali says there needs to be more effective monitoring, policing, and enforcement against illegal gambling.

“Every stakeholder has a role to play in reclaiming the marketplace from criminal elements. By understanding their position within the market and working collectively, legal stakeholders can effectively combat illegal operators and promote a safe, fair, and regulated online betting and gaming ecosystem.

“The priority must be cleaning up the crime at the source, in real time – and only a sophisticated technological approach can offer oversight of the total marketplace at any given time.”