For those following the travails of Internet gaming, you are likely aware of the progress Nevada, New Jersey and Delaware have made in getting their acts together somewhat for an intrastate Internet gaming industry. While each state offers limited liquidity based on their populations, hope springs eternal that other states may follow suit to help create a viable and legitimate U.S. Internet gaming market. Despite these advances, the last couple of months have not been kind to those looking for a clear beacon as to the direction of U.S. gaming technology, but some efforts are being made to stem that tide and provide some assistance for brick-and-mortar operations on a state-by-state basis.
For those Internet gaming proponents, dimming prospects in the California legislature on an Internet bill have frustrated industry players who have invested the past few years to the effort. The federal courts have also offered more of the same with the August ruling in U.S. v. DiCristina. Last year, this case saw a 91-year-old maverick federal judge rule that poker was a game of skill, immune from federal prosecution under the Illegal Gambling Business Act. The opinion offered a crack for those hoping to exploit a potential weakness in federal law to pursue Internet poker judicially. The 2nd District Court of Appeals recently threw cold water on his 100-plus page order and reversed it, finding that poker was a game involving skill but predominated by chance due to the randomness of the shuffle and deal of the cards.
The result of the case is essentially a return to the status quo across the country and, absent some act by a state legislature or Congress, poker will remain a game subject to prosecution under federal gambling laws if it is part of a business enterprise. The appeals court did note the legislative history of the federal act, which provided comfort language preventing federal law enforcement from storming the corner home game; those games will remain policed as they are today by local law enforcement. However, the legal scheming around the prospects of this case for Internet poker has concluded due to the continuing prospects of federal enforcement of the act against poker businesses.
In the grand scheme of things, at the federal level this case is a vignette in the broader story about the general dysfunction in Congress, the Department of Justice and the federal courts over exactly what to do with gambling technologies and, specifically, Internet poker. With Nevada, New Jersey and Delaware going live for their residents, it is becoming more and more apparent that some of these licensees will push the envelope in the quest for players and increased liquidity for their Internet games. Pressure is mounting on California advertising companies to allow Nevada-based licensees to advertise to California citizens.
With the requirements for age verification and geo-location confirmation in the Unlawful Internet Gaming Enforcement Act (UIGEA), it is only a matter of time before the Department of Justice and gaming enforcement officers begin sending cease and desist letters in an effort to keep these businesses within their borders. At some point, a legal challenge will be filed, asserting a host of federal constitutional arguments that have evaded review since the passage of UIGEA. In the wake of the California difficulties and the federal court opinion, the U.S. Internet gaming market will continue to be starved of needed liquidity, which can only be found in the wallets of players in the large states like New York, Florida, California and Texas that are cut off due to inaction at state and federal levels.
As it relates to machine manufacturers and commercial casino technologies, some silver lining may be on the horizon thanks to efforts by the Association of Gaming Equipment Manufacturers (AGEM). Recently, AGEM has been promoting modernization of state rules regulating gaming equipment manufacturers. This effort included drafting best practices guidance for regulators and has led AGEM recently to Florida.
Having created select gaming committees in the House and Senate in 2013, Florida is poised for a dramatic rewrite of its gaming code and a reshaping of its gaming economy. As part of these efforts, I am working with AGEM and its members as they invest in this state to codify some of the best practices that will help progressive gaming technologies find their way to the Sunshine State in a cost-effective manner for manufacturers and casino operators. AGEM is providing data to Spectrum Gaming, which was hired by the Florida Legislature to evaluate Florida’s gaming market, in an attempt to help recommend ways that can improve revenue generated to the state coffers by the various racetrack casinos in Miami-Dade and Broward Counties. There has been a chronicled lack of financial production in Florida, according to various industry sources over the years, due in large part to a burdensome regulatory environment on manufacturers and properties.
Since the change in the governor’s mansion in 2010, Florida has actually begun to ease the regulatory burdens on the industry. Successful rule challenges with which I have been involved on behalf of AGEM members have led to rule repeals, allowing deployment of new technology such as electronic table games. Favorable treatment by the influx of new blood at the state regulator and the legislature gave AGEM an indication that this is a jurisdiction worth pursuing for even greater reforms. It has identified a host of potential changes that are left over from the old anti-gaming policies of prior administrations that cause delays in shipping slot machine parts and software and prevent deployment of wide-area progressive slot machine jackpot networks (WANs) in Florida’s racinos.
Estimates indicate that Florida is losing millions per year due to these policies. Here is a look at a few of them that AGEM is looking to address to help modernize Florida’s regulatory code and allow for modern gaming technologies to be deployed in this budding commercial gaming market.
Currently, Florida law authorizes wide-area progressives (WAP) but places a restriction on revenue-sharing arrangements between slot machine manufacturers and racinos. In addition, prior rules promulgated by Florida’s gaming regulator prevent the use of “independent play,” or “buffered play” technology. These combined to be a practical ban on the deployment of robust jackpot networks that are highly sought after by the savvy slots player. Since WAPs are expressly legal under Florida law, but practically disallowed due these impediments, AGEM hopes to educate Florida policymakers on this inherent inconsistency in the hopes of unlocking this market to its membership with WAP product offerings. Industry statistics indicate that this simple tweak could increase revenue by 20 percent to 40 percent on machines tied in to a WAP network, which could result in a nice windfall for the state in additional revenue by merely allowing the practical implementation of technology Florida has previously expressly legalized.
Shipping and Receiving
Florida currently employs dated methods for shipping gaming technologies, their hardware and software. Machine changes on the gaming floor and RAM clears are also burdened by unnecessary regulations. The current approval method, which incorporates various forms provided by the casino regulator, creates an arbitrary delay in machine shipment and installation. This delay creates an inability for a Florida casino to timely receive new products or conduct even basic RAM clears without regulatory oversight (and in the case of some machine repairs, a requirement of literal regulatory oversight is an employee of the regulator must watch the activity take place). This leads to an extended period of loss of game time that impacts the productivity of the machines for both the casinos and the state, as gross gaming revenue is taxed at 35 percent.
The aforementioned regulatory structure imposes a minimum 5-day delay prior to the shipment and installation of any new product, machine or theme. As Florida’s seven casinos will change about 20 percent their slot machines and change themes on 30 percent on the floor each year, an inability to make changes (or a significant delay in making such changes) certainly hampers the casinos’ ability to grow revenue. AGEM is pushing for more modernized shipping rules and hopes to prevail upon Florida’s policymakers so that the integrity of the regulations will be preserved while at the same time maximizing the state’s return on its legal gaming stations.
The electronic table game (ETG) market in Florida has grown significantly since the introduction of the first games (SHFL entertainment’s Table Master and Bally Technologies’ Roulette) in 2009, following the successful rule challenge to the arbitrariness of some of the state regulations. Since that time, other manufacturers have come into the marketplace, including Aruze, TCSJOHNHUXLEY and Interblock, with themes including electronic blackjack, roulette, craps, baccarat and sic-bo. Versions of these games are already operating at various south Florida casinos, and indicators suggest that an electronic table game (which under Florida law is required to report each “seat” at the game as an individual slot machine) can generate revenue at a rate in excess of 30 percent higher than floor average.
In previous years, Florida’s gaming regulators have pushed legislation that would require each slot machine to possess an internal random number generator (RNG). Such legislation would effectively ban electronic table games in Florida, and one estimate suggested that tax revenues would decrease by more than seven figures. AGEM is working to educate Florida’s policymakers on the merits of maintaining its vibrant ETG market and allow for its responsible growth and oversight.
All indications suggest that Florida’s 2014 legislative session could mark a line-in-the-sand for Florida’s casino operations. Significant time and expenses have gone into the study conducted by Spectrum Gaming, and the report will be released this month. Regardless of the legislature’s decisions, major issues will certainly be in play in Florida’s state capitol, including authorizing table games, reducing the tax on gross gaming revenues, etc. How a modern regulatory code could stimulate deployment in progressive gaming technologies remains to be seen, but Florida could be the incubator for other states on how to hit a hard reset in their state’s gaming industry.
Whether it’s Internet gaming, gaming technologies or modernizing the regulatory structure governing the industry, much is going on across the country and, unfortunately, not all in the same direction. Until Congress gets its act together, the state-by-state approach seems to be the best way to move the needle for advancing the deployment of progressive gaming technologies, be they web- or brick-and-mortar-based.
Dunbar is a member of the International Association of Gaming Advisors (IAGA). Visit www.theiaga.org to learn more about this prestigious organization.