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The Legal Framework of US Online Gambling: Key Figures and Partnerships with Land-Based Casinos
Posted by Thandiubani on Wed 21st Aug, 2024 - tori.ngIn 1931, Nevada became the first state to legalize casino gambling, establishing a precedent that would influence future federal regulations.
The history of online gambling in the US has been very complicated and has involved many laws and partnerships and the work of important people in government who have driven the legislation forward.
Online gambling has developed differently in African countries, where it’s run in tandem with the functions of land-based casinos within the country, unlike the US approach. The US has combined the online and offline casino sectors.
Besides, this union is more than just competitive convenience but a lawful binding contract in several states that in turn, the traditional gambling houses are the main sources of revenue for the online gambling sector.
Because such collaborations are required by law for online platforms that are not based on location identification.
As a result, the United States has formed a system of gaming that no other country in the world has grounded on the principle of innovation and traditional approach.
Early Legal Challenges: The Foundation of US Gambling Legislation
The foundation of US gambling legislation can be traced back to the early 20th century. One of the earliest and most influential pieces of legislation was the Federal Wire Act of 1961.
The 1900s saw a growing concern over gambling, particularly with the rise of organized crime.
In response, several states began to introduce their laws to curb illegal gambling activities. However, the lack of uniformity across state lines created a complex legal landscape.
In 1931, Nevada became the first state to legalize casino gambling, establishing a precedent that would influence future federal regulations.
By the 1950s, gambling had become a significant source of revenue for organized crime syndicates, particularly in cities like Las Vegas. This prompted the federal government to take action, leading to the creation of the Senate Special Committee to Investigate Crime in Interstate Commerce, commonly known as the Kefauver Committee, in 1950.
Chaired by Senator Estes Kefauver, this committee held hearings across the country, exposing the deep ties between organized crime and gambling.
The Federal Wire Act of 1961: A Landmark in Gambling Legislation
The Federal Wire Act, signed into law by President John F. Kennedy on September 13, 1961, is often regarded as the cornerstone of US gambling legislation.
The primary goal was to combat the influence of organized crime in the gambling industry, particularly in sports betting.
The Wire Act was championed by then-Attorney General Robert F. Kennedy, who played a pivotal role in its development.
The Role of Key Figures in Early Gambling Legislation
Several key figures were instrumental in shaping the early legal framework of US gambling, particularly through their roles in the development and enforcement of the Federal Wire Act.
Kennedy’s efforts were supported by Senator Estes Kefauver, whose work on the Kefauver Committee in the early 1950s had already exposed the deep connections between organized crime and gambling.
Another key figure was Senator Oren Harris, who served as the chairman of the House Judiciary Committee during the passage of the Wire Act. Harris played a crucial role in navigating the bill through Congress.
UIGEA and the Beginning of Modern Online Gambling Legislation
The late 1990s saw the rapid growth of online gambling. The first online casinos launched in 1996, and by 1998, the industry generated over $830 million in revenue. By 2000, more than 700 gambling websites were operating worldwide.
Despite the rise of online gambling, federal regulations were still primarily focused on traditional forms of gambling. The Federal Wire Act of 1961, while impactful, was not designed to address the complexities of internet-based betting.
The Introduction of UIGEA: A Turning Point in 2006
The Unlawful Internet Gambling Enforcement Act (UIGEA) was introduced as part of the SAFE Port Act, a bill primarily focused on port security.
UIGEA was passed by the US Congress on September 30, 2006, and signed into law by President George W. Bush on October 13, 2006.
UIGEA did not make online gambling itself illegal but targeted the financial transactions associated with it.
The Act prohibited businesses from knowingly accepting payments related to “unlawful internet gambling.” This included
- credit card payments,
- electronic funds transfers, and
- checks.
The goal was to cut off the financial lifeline of online gambling operators, making it difficult for them to do business in the US.
Key Figures Behind UIGEA’s Passage
Several key figures were instrumental in the passage of UIGEA. One of the most prominent was Senator Jon Kyl of Arizona. A staunch opponent of gambling, Kyl had long advocated for stricter regulations on the industry.
Representative Jim Leach of Iowa was another key figure. As the chairman of the House Financial Services Committee, Leach was deeply involved in the legislative process. He argued that UIGEA was necessary to protect consumers and maintain the integrity of the financial system.
President George W. Bush also played a significant role by signing UIGEA into law. While the Act was a small part of the larger SAFE Port Act, its passage marked a significant moment in the regulation of online gambling in the US.
The Role of UIGEA in Shaping Future Legislation
UIGEA played a critical role in shaping future online gambling legislation in the US. Its focus on financial transactions set a precedent for how the federal government would approach the regulation of internet-based gambling.
In the years following UIGEA’s passage, several states began to explore the possibility of legalizing online gambling within their borders. New Jersey became the first state to legalize online casino gaming in 2013, followed by Nevada and Delaware.
New Jersey’s Breakthrough: Legalization of Online Gambling
New Jersey became a pioneer in the US online gambling industry in 2013. The state’s legalization began in 2010 when Senator Raymond Lesniak introduced the first bill proposing the legalization of online gambling.
However, the bill faced significant opposition and was vetoed by Governor Chris Christie in 2011, citing concerns over potential conflicts with federal law.
The breakthrough came in 2013 when Governor Christie signed a revised version of the bill into law on February 26. The law, known as the “New Jersey Internet Gaming Bill,” allowed Atlantic City casinos to offer online versions of their games to residents within state borders.
The Role of Atlantic City Casinos: Bridging Online and Offline Gaming
New Jersey’s approach to online gambling was unique in its requirement for partnerships between online platforms and Atlantic City casinos. The law mandated that all online gambling operations be tied to existing land-based casinos in Atlantic City.
Several prominent Atlantic City casinos quickly formed partnerships with online gambling companies.
Borgata Hotel Casino & Spa partnered with Bwin.Party, while Caesars Entertainment joined forces with 888 Holdings.
Tropicana Casino partnered with Gamesys, and Golden Nugget collaborated with Bally Technologies.
These partnerships allowed the casinos to launch online gaming platforms, offering a wide range of casino games, including slots, poker, and table games, to New Jersey residents.
In 2014, the first full year of online gaming operations, New Jersey’s online gambling market generated $122 million in revenue.
Regulatory Framework: Ensuring Compliance and Fair Play
The New Jersey Division of Gaming Enforcement (DGE) was tasked with regulating the state’s online gambling industry. The DGE implemented strict regulations to ensure the integrity of online gaming operations, including
- licensing,
- security,
- monitoring/audit, and
- consumer protection.
To operate legally, online gambling companies have to obtain a license from the DGE.
Economic Impact: Boosting Revenue and Employment
The legalization of online gambling in New Jersey had a significant economic impact. The state’s online gambling industry contributed millions in tax revenue, with a 15% tax rate on online gaming revenue.
In 2014, the state collected $10.7 million in taxes from online gambling. By 2020, this figure had increased to $91.8 million, reflecting the industry growth.
The partnership between online platforms and Atlantic City casinos played a crucial role in this economic success. The additional revenue from online gaming helped many casinos avoid bankruptcy and allowed them to invest in improvements and expansions. This, in turn, created more jobs and boosted the local economy.
Challenges and Successes: Navigating the New Landscape
While New Jersey’s online gambling industry has been largely successful, it has faced challenges. One of the main challenges was the initial reluctance of some Atlantic City casinos to embrace online gaming.
Another challenge was the competition from illegal offshore gambling sites. Despite the legalization of online gambling in New Jersey, many residents continued to gamble on unregulated offshore sites.
Despite these challenges, New Jersey’s online gambling industry has flourished. In 2020, the state’s online gaming revenue surpassed $970 million, a significant increase from previous years.
The Michigan Model: A Full-Fledged Approach to Online Gambling
Michigan’s path to online gambling legalization was long and complex. Discussions began in the early 2010s, but significant progress wasn’t made until 2019.
As the Jackpot Sounds team informs, the state’s first attempt to legalize online gambling came in 2016 with the introduction of House Bill 4311.
However, it wasn’t until December 20, 2019, that Governor Gretchen Whitmer signed the Lawful Internet Gaming Act into law, officially legalizing online casinos, poker, and sports betting.
Michigan’s online gambling law was comprehensive. It allowed for a wide range of gaming options, including slots, table games, and sports betting.
The Role of Land-Based Casinos
Michigan’s approach to online gambling heavily relied on partnerships between online platforms and the state’s land-based casinos.
The Lawful Internet Gaming Act required that all online gambling operations be tied to one of Michigan’s three commercial casinos in Detroit or one of its 23 tribal casinos.
These partnerships were crucial for the success of Michigan’s online gambling industry. Detroit’s MGM Grand, MotorCity Casino, and Greektown Casino quickly partnered with leading online gambling companies to launch their online platforms.
For example,
- MGM Grand collaborated with BetMGM
- MotorCity Casino partnered with FanDuel, and
- Greektown Casino joined forces with Barstool Sportsbook.
By January 22, 2021, less than two years after the law was signed, Michigan’s online gambling platforms were live. This rapid launch was made possible by the collaboration between the state’s established casinos and their online partners.
3. Regulatory Oversight: Ensuring Compliance and Fair Play
The Michigan Gaming Control Board (MGCB) was tasked with overseeing the state’s online gambling industry. The MGCB implemented a stringent regulatory framework to ensure that all operators complied with the law and maintained high standards of integrity.
To operate legally in Michigan, online gambling companies had to obtain a license from the MGCB. This licensing process involves thorough
background checks,
- financial audits,
- the submission of detailed business plans,
- monitoring the fairness of online games.
Boosting State Revenue and Casino Profits
Michigan’s online gambling industry quickly became a significant source of revenue for the state. In its first year of operation, the industry generated over $1 billion in revenue, with the state collecting more than $200 million in taxes and fees.
The Lawful Internet Gaming Act imposed an 8.4% tax on online gaming revenue, with an additional 3.25% for Detroit’s commercial casinos.
The additional revenue from online gambling helped Detroit’s casinos recover from the economic impact of the COVID-19 pandemic.
In 2021, Detroit’s casinos reported $1.29 billion in total revenue, with online operations contributing a significant portion of this figure.
Tribal casinos also benefited from the new revenue streams generated by online gambling.
Advantages of Partnerships Between Online Casinos and Land-Based Casinos
Increased Revenue Streams
Partnerships between online casinos and land-based establishments create multiple revenue streams. Land-based casinos gain access to the lucrative online market, attracting new customers without the constraints of physical space.
For example, New Jersey’s online gambling revenue in 2020 reached $970 million, a 101% increase from 2019, highlighting the financial benefits of this dual-channel approach.
The combined revenue from both online and offline operations stabilizes profits. For instance, in Michigan, MGM Grand’s partnership with BetMGM contributed significantly to Detroit casinos’ $1.29 billion total revenue in 2021.
This diversification allows casinos to weather economic downturns better than relying on a single revenue source.
Enhanced Customer Loyalty: Seamless Integration
Partnerships allow for integrated loyalty programs across both online and offline platforms. Players can earn and redeem rewards interchangeably, encouraging them to engage with both casino formats.
For instance, Caesars Entertainment’s Total Rewards program allows players to earn points online and redeem them at any of its physical properties.
This seamless integration fosters customer loyalty and increases player lifetime value. According to a study by The Analysis Group, customers who engage with online and offline casinos spend 20–30% more than those who only engage with one format.
Cost-Efficiency and Shared Resources: Leveraging Existing Infrastructure
By partnering with online platforms, land-based casinos can leverage existing infrastructure and brand recognition. This reduces the costs associated with establishing an online presence.
For example, in Pennsylvania, Parx Casino’s online platform benefited from its established brand, reducing marketing expenses compared to new entrants.
Additionally, shared resources such as customer support, marketing, and payment processing lead to significant cost savings.
The synergy between the two operations maximizes efficiency and reduces the overhead associated with running separate entities.
Market Expansion: Reaching New Demographics
Partnerships enable casinos to expand their reach beyond their physical locations. Online platforms attract younger, tech-savvy players who may not visit brick-and-mortar casinos.
In New Jersey, 30% of online casino players had never visited a physical casino before engaging online, indicating the potential to tap into new markets.
This expansion also extends geographically. Land-based casinos can attract players from neighboring states where online gambling is not yet legal, further increasing their market share.
For example, New Jersey’s online casinos attract players from New York and Pennsylvania, contributing to the state’s nearly $1 billion in online gambling revenue in 2021.
Regulatory Compliance: Strengthening Legitimacy
Partnerships between online and land-based casinos strengthen regulatory compliance. Land-based casinos, already familiar with state regulations, help guarantee that online platforms adhere to legal standards.
In states like Michigan, this compliance has been crucial in building trust with players.
The MGCB reported that the state’s online gambling market generated over $1 billion in its first year, partly due to the strict regulatory framework supported by these partnerships.
Innovation and Technology: Driving Industry Growth
Partnerships encourage innovation by integrating the latest technology into both online and offline operations. Land-based casinos can offer virtual reality (VR) gaming experiences, live dealer games, and mobile betting, enhancing the overall player experience.
This technological integration also allows casinos to stay competitive in a rapidly evolving industry.
For instance, the introduction of mobile betting apps by land-based casinos in New Jersey and Pennsylvania led to a 50% increase in online sports betting revenue within the first year.
Successful Partnerships: Case Studies
Caesars Entertainment and 888 Holdings: A Strategic Alliance
Caesars Entertainment partnered with 888 Holdings to launch the Caesars Casino & Sportsbook app in New Jersey in 2013. This collaboration was a significant step in integrating online gaming with Caesars’ established land-based operations.
Details
The online platform went live in 2013, shortly after New Jersey legalized online gambling. Within the first year, the partnership generated over $10 million in revenue for Caesars.
The Caesars Casino & Sportsbook app offered a range of games, including slots, table games, and sports betting, leveraging 888 Holdings’ advanced technology and Caesars’ strong brand presence.
The partnership utilized cross-promotional strategies, integrating Caesars’ Total Rewards loyalty program to reward both online and offline play, enhancing customer retention and loyalty.
MGM Resorts and BetMGM: Expanding Market Reach
MGM Resorts International teamed up with GVC Holdings (now Entain) to create BetMGM, a leading online gambling platform in the U.S. This partnership marked a major move to integrate MGM’s extensive land-based casino network with online gaming.
Details
BetMGM was launched in 2018, following MGM’s acquisition of a stake in GVC. In 2020, BetMGM generated approximately $178 million in revenue, contributing significantly to MGM’s overall revenue. BetMGM offers sports betting, casino games, and poker, leveraging MGM’s extensive land-based infrastructure for promotions and player engagement.
BetMGM expanded rapidly, entering multiple states, including New Jersey, Pennsylvania, and Michigan, utilizing MGM’s brand recognition and physical casino network to attract and retain online players.
DraftKings and Resorts Casino: Pioneering Online Sports Betting
DraftKings, originally a daily fantasy sports provider, partnered with Resorts Casino in Atlantic City to launch the first online sports betting platform in New Jersey. This partnership was instrumental in setting a precedent for online sports betting in the U.S.
Details
The DraftKings Sportsbook app went live in August 2018. Within the first year, DraftKings Sportsbook reported over $1 billion in total sports betting handle, with a significant portion coming from the Resorts Casino partnership.
The platform provided a comprehensive sports betting experience, including live betting and a wide range of sports markets, capitalizing on DraftKings’ technology and Resorts Casino’s established customer base.
The partnership set the stage for the expansion of online sports betting across the U.S., with DraftKings becoming a leading player in the industry.
Penn National Gaming and Barstool Sports: A Game-Changing Collaboration
Penn National Gaming acquired a stake in Barstool Sports in 2020, creating a powerful synergy between the land-based casino operator and the popular sports media brand. This partnership aimed to leverage Barstool’s vast online audience to boost Penn National’s online sports betting and casino operations.
Details
Penn National acquired a 36% stake in Barstool Sports in January 2020, with an option to increase its stake to 50% in the future.
The Barstool Sportsbook app, launched in Pennsylvania in September 2020, quickly became one of the top-performing sports betting platforms in the state, with significant revenue contributions to Penn National.
Golden Nugget and DraftKings: A Winning Formula
Golden Nugget, a prominent land-based casino operator, partnered with DraftKings to offer online gaming and sports betting in New Jersey. This collaboration combined Golden Nugget’s established reputation with DraftKings’ cutting-edge technology.
Details
The partnership launched the Golden Nugget Online Gaming platform in 2013, followed by sports betting in 2018.
In 2020, Golden Nugget Online Gaming reported over $300 million in revenue, with a substantial contribution from the partnership with DraftKings.
The platform offered a wide range of online casino games and sports betting options, benefiting from DraftKings’ advanced technology and Golden Nugget’s brand strength.
The partnership employed innovative marketing strategies, including exclusive promotions and events, to attract and retain customers in a competitive online gaming market.
Las Vegas Sands and Sands Cares: Integrating Social Responsibility
Las Vegas Sands, a major land-based casino operator, established Sands Cares, a corporate social responsibility initiative that integrated its online gaming efforts with community engagement and responsible gambling practices.
Details
Sands Cares was officially launched in 2017.
The initiative has helped strengthen Las Vegas Sands’ reputation, indirectly supporting its online and offline operations by building trust and community relations.
Sands Cares focuses on responsible gambling, community support, and environmental sustainability, ensuring that the company’s online and offline activities align with its social responsibility goals.
The initiative has set a standard for integrating social responsibility into online and land-based casino operations, enhancing overall brand integrity and customer loyalty.
The Future of US Online Gambling: Potential Federal Legislation
The US online gambling market has experienced remarkable growth since the early 2020s. In 2023, the market generated approximately $5.5 billion in revenue, driven by expanding state-level regulations and increasing consumer interest.
With more states legalizing online gambling, the market is projected to reach $8.2 billion by 2025, reflecting a compound annual growth rate (CAGR) of around 14% from 2023 to 2025.
Economic Impact: Projected Revenue Growth
If federal legislation is enacted, it could significantly boost the online gambling market. Here’s how potential federal regulation might impact the industry:
Federal regulation could lead to an increase in market size by consolidating state markets and attracting more operators. The market could grow to approximately $10 billion by 2027, representing a CAGR of 15% from 2025 to 2027.
A federal tax framework could introduce a standard tax rate, potentially increasing tax revenue. For example, a 15% federal tax on online gambling revenue could generate an additional $1.5 billion in annual tax revenue by 2027.
Impact on State Regulations and Market Dynamics
Federal legislation could lead to greater coordination among states, reducing regulatory fragmentation and easing market entry for operators. This might result in a more competitive market, with states benefiting from increased revenue and player engagement.
Summing Up
Enacting federal legislation would require overcoming significant legal and political challenges. The states with established online gambling frameworks might resist federal oversight.
Developing and implementing a federal regulatory framework would involve considerable costs. The industry would need to invest in compliance measures, and the federal government would need to allocate resources for enforcement and oversight.
In the next 1–2 years, federal legislation may face hurdles in Congress. However, if passed, it could lead to rapid market expansion. The online gambling market might see a 10–15% increase in revenue in the first year post-implementation.
Over the next decade, a federal framework could lead to a more robust and standardized online gambling market. The industry could see annual growth rates of 12–15%, with total market revenue reaching $15 billion by 2034.
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