GPWA Times Magazine - Issue 13 - June 2010

ability, redundancy—arewell-positioned tobecomemarket leaders. Shiftingpoliticaland legal positions There isnodoubt that,with theexception of Australia — some states of which enacted enabling legislation in the late 1990s and were then quickly throttled back by their federal government — the early years of Internet gaming belonged to the smaller jurisdictions: Antigua, Kahnawakeand, later, IsleofMan,Malta, AlderneyandGibraltar. In 2005, the United King- dom enacted an extensive- ly revised Gambling Act, which included provisions for the licensingandregula- tion of “remote gambling.” TheU.K.GamblingActpro- vided that operators that were licensed in other EEA countries – or licensed in other “white-listed” juris- dictions – could advertise their services in the U.K. Although many operators were keen to tap into the U.K. market, few were en- thusiastic about the pros- pectofpayingU.K. taxeson theirgamingrevenues. Asaresult,manyoperators chosetolocateinwhite-list- ed jurisdictionsthatoffered thebestofbothworlds: the ability to advertise in the U.K., combined with the more favorable tax rates of offshore jurisdictions. This situation isunlikely tocontinue indefinite- ly as theU.K. is actively exploringways to restrict the taxation advantages of being licensed inawhite-listed jurisdiction. In the event the U.K. implements steps to limit the current desirability of being licensed in a white-listed jurisdiction, it will create an imperative for affected jurisdictions to offer other competitive advantages or face a decline in their market share. European markets have also been, and will continue tobe, affectedby important decisionsof theEuropeanCourtofJustice in cases such as Gambelli and Placanica. Commentators have predicted that the European online gambling market will expand as recent rulings that gamblers are entitled to the same guarantees of choice and value begin to sink in within EUmember countries: “Change is in the Cards.” If there was ever any doubt that a single legislative act could impact the Internet gamingworld, thatdoubtwasremovedon October 13, 2006,when theUnitedStates formally enacted its Unlawful Internet Gambling Enforcement Act (UIGEA). Literallyovernight, severalmajor gaming companies shed billions of dollars of stock value and took steps tobeat ahasty retreat from the U.S. market. European andAsianmarkets suddenly had awhole new appeal as the industry scrambled to align their business andmarketingplans, corporate structures and, of course, payment processingarrangements, to the newpost-UIGEA realities. Among the many ironies that resulted from the enactment of UIGEA was that it was most effective in dissuading only the largest and most reputable gaming operators from taking U.S. players. UIGEA did little or nothing to reduce the number of players in the U.S. — the same market potential in the U.S. exists in the post-UIGEA world as it did prior to the law’s passage. All the UIGEA accomplishedwas to forceU.S. players to use the servicesof smaller—and in some cases unregulated and less reputable — onlinegaming sites. AsaresultofrecentexpansionofEurope- anandAsianmarkets,most reports indi- cate that theU.S. no longerhas the lion’s share of global online gaming players, though it continues to offer a large and demographically desir- able player base. Accord- ingly, the efforts of some U.S. legislators like Rep. Barney Frank (D-Mass.) to enact laws that would regulate, rather than pro- hibit, online gaming — if successful—wouldclearly have a significant impact on the industry. In Canada, although the federal government has kept its head planted firmly in the sand, several provinces have indicated that theyaremovingahead with plans to take gaming operations — particularly poker—online.Ratherthan issuing licenses to third- party operators, the plan calls forexistingprovincial gaming corporations to maintain their monopoly overgaming— in thiscase, onlinegaming. Given that Canadian provinces are constitutionally restrained from accepting players from outside their geographic boundaries, and given their relatively modest population bases, British Columbia, Quebec and the Atlantic provinces have indicated they will “partner” to create a viable pool of online poker players.Whether or not the plan is financially viable, it is at least a clear indication that Canada ismoving in thedirectionof theirU.K. cousins, rather than theirU.S. neighbors– i.e., choosing to regulate, rather thanprohibit, Internet gaming. “Theeffortsof some U.S. legislators . . . toenact laws that would regulate, rather thanprohibit, online gaming—if successful— would clearlyhavea significant impact on the industry.” 34 Glazing into the Crystal Ball