A tangled web of duplicative and outmoded gaming regulations stifles innovation, inadvertently leading players to bet with shady operators, members of a G2E panel said Monday.
“Innovation is easy enough and regulators are behind,” said Dan Hartman, a longtime gaming regulator in Colorado, now associate partner for regulatory and government affairs at GMA Consulting. “If you’re not allowing innovation (and) technology … you’re sending great technology to dark spaces where people will go to play, because it’s better.”
Hartman spoke at a panel discussion titled “Overcoming Innovation Barriers in the Gaming Industry.” Also on the panel were Alexander Kane, CEO of Sporttrade, a regulated sports-prediction market operating in New Jersey, Arizona, Colorado, Iowa, and Virginia; and Davis Catlin, founder and managing partner of Discerning Capital, a Las Vegas-based investment firm focused on regulated gambling and associated industries. Kelly Kehn, founder of Defy the Odds, which advises startups with new approaches to regulated gaming, moderated.
All panelists agreed that having to pay for the same background checks or investor profiling in several states multiplies the licensing costs for small companies attempting to introduce innovative approaches, but lacking the full-time compliance teams common to major operators.
“There are reasons we have protections in this industry,” Catlin said. “If we use those protections too tightly, we’ll force people outside (the regulated industry).”
Kane told of having to perform the same geolocation test four times, each one costing about $10,000 and requiring a 1,699-mile road trip tracing the borders of Iowa. The first was to show the geolocation software worked, the second that it worked with the Sporttrade network; the third and fourth, required when the company launched a web application, repeated the first two. “How does that protect the customer?” he asked.
The three endorsed the idea of allowing the findings of one state to expedite the process in another. “Maybe share that background; use it and not redo it,” Hartman said. Acknowledging that “bad people and bad organizations” were behind casinos decades ago, “now we’re talking about publicly traded companies.” He added that legislators must also be involved in the effort, because they set the policies that regulators enforce.
Hartman suggested a tier-based licensing system that would allow a startup with a new technology to be granted a gaming license without all the requirements of a full-fledged operator. “Good technology can change the industry. Let’s give them a pathway to do it by creating a different license or a different tier of licenses.”
Kane said setting a lower tax rate for the lower tier of licensees, possibly lasting five years or so, would also encourage developers of new technology.
Catlin said early-stage developers of web-based gaming apps often face a choice: Do they want to take 18 months to raise $10 million for getting licensed everywhere or do they want to spend $1 million and go live immediately with no taxes, no controls, and no blocks to innovation? “If you think across a 30-year horizon, either we make it easy to innovate within the walls of our nice comfortable garden or all of the innovation will happen outside.”
Kane said one roadblock to changes in the licensing process is the political influence of land-based operators. Allowing winners of a gaming license in one state to automatically qualify as a background check for any other state would reduce costs for new operators, as would eliminating requirements to license vendors and investors. “The problem is that casinos and those that control the legislatures are never going to let that happen.” Changing an established process is difficult, he said, because it’s easier to keep doing things the way they’re done now.
Catlin says that comes with a cost and “the cost is my point here. The cost is the innovation.”
