Pennsylvania regulator confident in ability to oversee internet gambling

This morning’s hearing by the Pennsylvania Senate Community, Economic and Recreational Development Committee was perhaps most notable for the confidence shown by officials from the Pennsylvania Gaming Control Board in their ability to licence and regulate intrastate online gambling.

Executive director Kevin O’Toole, in his testimony and under subsequent questioning, made the following points:

*    Having carefully studied the online gambling regulatory scene, and in particular the experiences of other US states that have legalised, the PGCB is confident that it is capable of regulating and safeguarding consumers in an intrastate online gambling vertical.

*     Internet gambling is a dynamic industry, and it would be wise to have a flexible regulatory regime capable of change to remain relevant.

*     The Board believes that legalising bill SB900 should include a mandate for the Pennsylvania Gaming Control Board to negotiate shared player pools with other legalised states.

*     The state’s overall gambling industry delivers revenues in excess of $3 billion annually and appears to have plateaued, remaining reasonably steady.

*     The PGCB would like to see the duration of licenses increased from 3 years to 5 years.

*     It would be beneficial if the Legislature permitted the Board to outsource slots testing to independent laboratories.

*     A regulatory regime could be up and running 9-12 months from lawmakers passing the necessary legislation to sites launching, but it involved a great deal of work.

*     Geo-location technology is now well developed and has impressed the Board.

*     Noted the in-person registration of players in the SB900 proposal, and flagged possible enforcement problems with such a system, commenting that other legalised states allow online registration and have experienced few problems.

*     Technology for ID and age verification on registration is well developed and effective, and there are supplementary techniques that can also be deployed.

*     In other legalised states payment processing was initially a problem, but many of the difficulties have been, or are in the process of being, ironed out – mainly with card processing companies.

*     Has not seen any evidence that suggests that legalised online gambling will cannibalise the business of land casinos in the state, and several industry executives with experience in the field advise that the contrary is the case.

*     The online business needs time to develop and grow in revenue terms; advises not to start with expectations that are too high.

R. Douglas Sherman, chief counsel for the Board, gave members of the committee a thorough and professional briefing on the various laws surrounding online gambling in the United States and their impact on the industry, noting that the federal UIGEA has carve-outs for fantasy sports and intrastate online gambling.

He opined that the December 2011 Wire Act opinion from the Department of Justice and UIGEA’s intrastate carve out allows online gambling expansion, but warned that so far unsuccessful federal moves via the Restoration of America’s Wire Act could, if passed, create hurdles.

Concluding, Sherman observed that the majority of Pennsylvania’s twelve land casinos already operate social and promotional gaming websites with free-play and prize attractions

Next up was Kevin Kile, the PGCB’s head of racetrack operations, who took the discussion away from online gambling to some extent, although he did observe that he did not see internet gaming having any adverse impact on the state racing industry, and that in fact racinos and internet gaming could be good for each other. The exchanges then went off into the pros and cons of Off Track Betting and its impact on the state and the racing industry.

Michael Cruz, who is the CTO of the Board, recommended that Pennsylvania considers the efficacy of the New Jersey regulatory model for online gambling; he answered technical questions on geo-location put to him by Senator Wiley, and commented that he had confidence in the technology and his department’s ability to oversee it and shield it from hackers.

A problem gambling expert working with the Pennsylvania Department of Drug and Alcohol Problems, Dr. Ken Martz, briefed the committee on addictive behaviour and suggested that legalised online gambling may make it necessary to increase the problem gambling contributions of operators beyond the current $150,000 each makes annually. Problem gambling was better prevented than treated, he said.

Martz did not appear to be up to date with the latest research on internet gambling, suggesting it might have higher addictive potential due to its easier accessibility, although he did acknowledge that over time the initial interest in i-gaming stabilises at a lower level.

The PGCB’s head of Compulsive and Problem Gambling, Elizabeth M. Lanza could not put a figure on what sort of additional funding might be required for problem gambling contingencies if i-gaming in Pennsylvania was legalised.

Arguably the most hostile politician at the hearing was one Senator Tomlinson, who appeared to disbelieve (or be ignorant of) the now convincing research and empirical reports that cannibalisation of the brick and mortar business is not a consequence of the legalisation of online gambling.

The Senator claimed – without giving sources or other evidence – that an unnamed Pennsylvania land casino has lost 20 percent of its player base to legalised online gambling in New Jersey. He went on to exhibit a similarly misinformed attitude to differences in taxation, expressing fears that if legalised online gambling is approved it will persuade land operators to focus on internet gambling.

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