Answering The Demand For Legitimacy: Online Gambling

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Answering The Demand For Legitimacy: Online Gambling


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Early November of this year saw a number of key developments in the online gambling industry. These developments stem from the two diametrically opposed regulatory perspectives on how best to deal with this monster of an industry and the social concerns that accompany gambling.

One perspective favours regulation of the industry rather than an outright ban of online gambling. The United Kingdom has fully embraced this perspective. The UK’s Department of Culture, Media and Sport confirmed that Antigua and Barbuda will be added to its Whitelist. A Whitelisted jurisdiction is one which the UK has allowed to issue a license to market remote gambling in the UK itself. The fact that a jurisdiction is whitelisted indicates that their regulatory measures have been evaluated and approved by the UK government. There are now four jurisdictions whitelisted by the UK: the Isle of Man, the Island of Alderney, Tasmania, and the jurisdiction of Antigua or Barbuda. In addition, any licensee of a European Economic Area (EEA) jurisdiction which regulates online gambling can lawfully market in UK; the most notable EEA jurisdictions are Gibraltar and Malta.

While the UK continues to open its doors to legitimate and regulated remote online gambling operators around the world, the United-States favours the opposing perspective, and has kept the doors to its market firmly shut. The Bush Administration just recently completed a “Midnight Rule Making Session” which had the effect of finalizing the regulations that accompany the UIGEA (Unlawful Internet Gambling Enforcement Act). The regulations will take effect on the day before President Elect Barack Obama takes office. In their press release the Poker Players Alliance condemned this action and characterized it as a finalization of a bad and unworkable public policy, and it continues to lobby for a reversal.

Without addressing the politics and motivation behind these regulatory perspectives and speculating on future developments, it may be more useful to make observations about some of the possible practical effects of the current regulatory framework and how they can translate into opportunity for investors.

The reality of the Online Gambling Industry is that it is here to stay, regardless of the US market. In spite of US efforts to restrict the development of the online gambling industry domestically, permissive regulatory frameworks in the UK and the EEA have fostered the industry and it continues to grow. Above all else, a competitive online gambling brand wants to inspire player confidence, and the best way to do this is run their business in a legitimate and transparent manner. Players want to be certain that their funds are secure, and that they face no systematic unfairness while playing. The existing regulatory framework contains provisions dealing with these concerns, ultimately protecting the interests of players. Players are sophisticated enough to appreciate this protection, and will flock to regulated brands. Legitimate and regulated online gambling is therefore in high demand.

How do these trends translate into opportunities for Canadian investors? Certain areas of the online gambling industry, like online poker, are fairly saturated and highly competitive: online poker is currently dominated by a handful of major brands. It would therefore take a substantial amount of startup capital to create a brand that could compete effectively for market share. That being said, online poker continues to expand, and there always seems to be market share available for those with the necessary capital and an innovative approach.

Online Bingo, however, has all the potential for the kind of growth that online poker experienced, and hence, is much more open to new investment. Land-based bingo playing has always enjoyed widespread popularity: bingo is in fact more widely played on a world-scale basis than poker. As it worked with poker, the Internet provides a forum of exponentially larger scale than any private bingo hall or television network.

Similar opportunities exist in the realm of networking with other established brands. Networking essentially involves developing a personal branded skin which acts as a gateway for players to play on a larger network with players from other larger brands. These skins avoid costs associated with maintaining and developing a large network otherwise necessary for a larger online gambling brand. This allows you to focus simply on marketing your brand. Essentially, for the cost of a smaller brand, you can still get many of the advantages of a larger one.

Finally, in keeping with the growing demand and trend toward regulation and legitimization of the industry, technological advances that facilitate improved security are always sought after by the industry and its regulators.

In the final analysis, the move towards regulation has guaranteed the growth and longevity of the online gambling industry. While the regulatory framework can be difficult to navigate without experienced professional legal advice, opportunities persist for creative and innovative investors in jurisdictions where it is clearly legal.

By Cookie Lazarus and Brian Hall, gaming lawyers and members of the law firm of Lazarus Charbonneau located in Montreal, Quebec.