The growth of unregulated gambling, from so-called skill games to online sweepstakes casinos, threatens to erode public trust in licensed operations, while luring customers away from them and state lotteries, a panel of gaming veterans said Thursday.
“A system in which unregulated operators can become regulated … undermines the proven principle that a gaming license is a privilege granted to those who have affirmatively earned (it),” said Michael Pollock, senior policy advisor for Spectrum Gaming Group. “That principle is the foundation of public trust in gaming.”
Pollock spoke at a panel discussion titled “Committee on Emerging Forms of Gaming: Time to Regulate?” on the first full day of the National Council of Legislators from Gaming States summer meeting at Rivers Casino Pittsburgh. Also participating were Anthony Gaud, co-founder and co-CEO of Gaud-Hammer Gaming Group, which focuses on online gambling video games; Matt Hortenstine, general counsel for gaming-machine provider J&J Ventures; Jeff Morris, vice president of public affairs for Penn Entertainment; Kurt Steinkamp, chief of staff for the Michigan Gaming Control Board; and Eric Weiss, North America managing director for IC360, which focuses on gaming integrity and compliance. Oklahoma State Rep. Chris Kannady moderated.
The panel looked at three fast-growing types of unregulated gambling: retail “skill” games that are essentially slot machines; online “skill” games; and online sweepstakes that offer realistic casino-style games. Some jurisdictions are considering whether to license and regulate such games.
Morris, of Penn Gaming, said the top priority for already-licensed operators is tax and regulatory parity. He said one operator has suggested a 16 percent rate on retail skill games if Pennsylvania licenses them. That compares with a 54 percent tax on slots in licensed casinos.
“Candidly, I think they prefer the status quo, where they don’t get taxed and they continue to rake in millions of dollars.” Morris also suggested limiting retail skill games to establishments open only to those 21 or older and establishing “protection zones” around casinos, in hope of reducing the number of such machines to around 30,000 instead of the estimated 100,000 operating today.
Hortenstine said skill games, certain sweepstakes games, and video games get around the law by using an element of programming “subterfuge,” such as a skill game requiring the player to touch a button to win. “The law simply has not caught up with technology,” he said. “The attempt to shut these down through a criminal-prosecution methodology just turns into a game of Whack-A-Mole.”
He pointed to Kentucky, which updated its anti-gambling law to include slot-like games using any element of chance. One provider soon began offering a “no-risk” machine that tells the player whether the next spin will be a winner or a loser. “The only way you’re really going to solve it is to create a regulatory environment that speaks to the issue of proper licensure, a path to legality, and creating guardrails for protection of the consumers,” Hortenstine said.
Gaud said many online video games are clearly gambling and “completely unregulated,” with some companies making billions of dollars a year from them. The risks of underage and problem gambling are significant, Gaud said, but the bigger threat is that the games might be fixed.
“It’s a massive problem that is available to everybody in their home,” Gaud said, and that threatens physical casinos as revenue from licensed online gambling grows. While the suspect games are fun, “these are not Angry Birds,” he said. “This is casino gambling. I think we need to be concerned, not just for user retention, but also because they will start to overtake the efforts of the casinos for responsible gaming.”
Steinkamp said Michigan two unregulated online companies stopped offering gambling games in the state after receiving cease-and-desist orders. “There has been some hesitancy by the states to use that tool, but we found success with it.” Steinkamp said other unregulated sites continue to operate in the state. “We do have open investigations – some of the big names out there we’ll be looking at – and you’ll definitely hear from us in the future.”
Weiss explained that sweepstakes casinos get around gambling regulations by giving virtual sweepstakes points to customers who purchase tokens in an online video game. The video tokens cannot be cashed out, but the sweepstakes points can be used in virtual poker games, sports betting, slots, and table games, and winnings from those can be cashed out.
“People who think they don’t have online casinos in their states, they do,” Weiss said. “They’re playing in your state and it’s unregulated.” Eilers & Krejcik estimates sweepstakes casinos will net almost $3 billion this year in the United States.
Weiss said some advertising for online games often is deceptive, citing one in which a woman claims to have been on the verge of losing her home before winning significant cash at a skill game. “Can you imagine a regular sportsbook trying to do that?” he asked.
Pollock said regulated gaming companies have invested billions of dollars in legal land-based and casino operations based on established rules and demonstrations of honesty and integrity. “Changing those rules at a later date undermines that entire process,” he said, leaving legislators and regulators with three choices for addressing skill games, sweepstakes casinos, and the like:
- Maintaining the status quo
- Regulating and licensing them
- “Or the most difficult: take them out.”
He recalled when New Jersey became the first state outside Nevada to regulate casino gambling almost 50 years ago. No one doubted that illegal gambling had been occurring there, but the state gave “zero consideration” to making such operations suitable for licensing. “Quite the opposite,” Pollock said. “If you were operating illegally, you would be barred from licensure. And that type of simple, understandable premise became the basis for public confidence and the confidence to invest hundreds of billions of dollars in this industry.”
