Federal legislation is a myth

I'm a simple person. While I believe in the need for change, I recognise that, particularly when it concerns governments, it occurs within certain boundaries and at a certain pace. Putting all of the egaming industry's eggs in the federal legislation basket has not produced any results as yet in the US.

It is not from a lack of effort or money invested, or from the stature of the advocates in the DC lobby. It hasn't moved for two simple reasons: the numbers aren't there, and the federal government does not regulate gambling. First, the numbers. Advocates for an immediate federal solution tout studies estimating plus-or-minus $2 billion in annual tax revenue for a nationally-regulated internet poker system.

But look deeper into the tax revenue projections and you'll find that the majority of the revenue comes in the form of increased personal income taxes, which is a complete non-starter in Congress. Also, in the US $2 billion is not a big enough figure to get a member of Congress who is a no vote to hold their nose and vote yes. The number of jobs that can be created by a federally regulated system are not significant, and proponents seem intent on guaranteeing that Nevada gets most, if not all, of them.

As such, what is the incentive for a Congressman from Iowa, New Jersey, Pennsylvania and other gaming states to vote for a federal system that might challenge their own state's operators, with no offset in jobs? Sure, there is a scheme baked into the bills to return tax revenue to the states, but states know too well how hard it is to get their money back from the federal government. THE

NAYS HAVE IT

Here's a final numbers consideration: while most of Congress could be described as ambivalent towards internet gambling, the fervent opponents outrank the fervent supporters in both number and leadership positions. As such, Congress is likely to continue to be a choke point that will be exploited by opponents for the foreseeable future.

However, none of this should be shocking, as the federal government doesn’t regulate gambling. That has long been the business of the states. In fact, when the federal government considered levying a tax on casino revenues, the American Gaming Association (AGA) was founded to be the industry's voice in Washington. Since then the AGA has been highly successful in keeping the federal tax collectors away from their brick-and-mortar revenues.

It's ironic that the AGA has now become a full-throated advocate of federal gaming regulation and taxation. It is reasonable to suggest that once the federal government gets a taste of tax revenue from online gaming, a relatively small industry, they may set their sights on the bigger land-based casino money pot in Nevada and elsewhere. Perhaps the inertia of federal legislation is a blessing in disguise for the US casinos.

REAL ACTION

Out in the states, however, there has been significant movement on the issue. New Jersey, California, Iowa and a number of other states have made meaningful strides regarding regulation of online gambling. That's to be expected, because those states rely heavily on their gaming industries to provide tax revenue. The reason gambling is not a federal matter is that, believe it or not, there are still differences of opinion between states.

In New Jersey, for example, recent polling has shown clear majority support for both internet gambling and sports betting. However, travel to other states, like Texas, Alabama and Utah, and you can't even drum up support for casino gambling, let alone online gambling. It is most likely that online gambling will proceed as both lotteries and casino gambling did before it. A handful of states will initially legalise and regulate it. If it is successful, both in raising revenue and operating within regulatory requirements, it will gain interest in other states.

Once it reaches a certain level, states will bond together in a kind of 'soft federalisation', inking interstate compacts to share liquidity, as with some of the US lotteries. Perhaps at some point, due to the rolling growth of the activity, the federal government could create support for a nationally regulated regime, but that’s not likely. It's more likely that it will maintain the role the UIGEA granted it five years ago: as a watchdog of the financial system, ensuring state regulations are met. By historical precedent, it seems inevitable. Clearly, legislation is not moving at the pace of the age. But change will come. Bet on it.