Top-10 observations from the iGaming North America Conference

9 May 2011

Last week, land-based and online gaming executives gathered together at the iGaming North America Conference in Las Vegas to discuss the state of the online gaming industry in the United States, when Americans could expect regulated online gaming and in what form that online gambling would take place.

As the two days of discussions proceeded, a series of ideas and perceptions were made of how the online gaming industry would evolve in the U.S. Some of observations were reflected the consensus of the group, while many more were quite controvertible. Here's a look at the big concepts floating around the conference.

10. Don't reinvent the wheel
The one incontrovertible concept that emerged from the conference is European countries like the U.K., Italy, Isle of Man and Alderney had successfully regulated online gaming and it didn't make sense for U.S. jurisdictions to write regulations from scratch. American regulators were urged to follow the lead of the Nevada Gaming Control Board, which reached a cooperation agreement with the Alderney Gambling Control Commission. They also urged regulators to adopt a common set of standards to reduce the compliance costs for operators.

9. The cannibalization myth has been busted
The argument land-based casinos advanced against online gambling for years was Internet gaming would stop gamblers from visiting casinos, and therefore should not be allowed. Last week's conference illustrated just how much that tune has changed.

"Internet poker taught a lot of people to be more comfortable to walk into a brick and mortar room (poker room) and ask the right questions so they didn't feel stupid," said Doug Dalton, director of Bellagio poker operations. "Internet sites were also very helpful in providing poker shows, and the poker shows were the big bases for why there was a surge in poker, (especially) the WSOP and WPT."

"The future of the American gaming industry is intrinsically tied to the Internet," added Jan Jones, Caesars' senior vice president for communications and government relations. "Ten years ago, we were all taking the poker rooms out of our casinos (because they were losing money)."

"The upcoming generation makes all of their decisions on the Internet," Jones added. "If we don't have a significant presence, they will make other entertainment choices."

"Newspapers are gone. Record stores are gone. Book stores are gone," Jones said. "But retailers with multiple lines have four times the sales than those that have just one."

Art Manteris, vice president of race and sportsbook operations for Station Casinos, approached the cannibalization argument from a different angle.

"Internet sports betting has had no impact on (sports betting) handle," Manteris said.

"All threats (online gaming, expansion of gambling beyond Las Vegas) we faced earlier in reality created growth in the gaming industry," Manteris added. "It was only the economic changes and (resulting) consumer attitudes over the past few years that have affected growth."

8. But some key Native American tribes are skeptics
The only people who were not convinced that online gambling was good for land-based gambling were some representatives of the Native American gaming industry. Leslie Lhose, vice chairwoman of the California Tribal Business Alliance, sounded this cautious note.

"Do we really know if someone who can play a slot machine in their pajamas will actually come to a casino?" Lhose asked. "We need to think about this."

Lhose also pointed out the gaming industry is critical to supporting the lives of Native Americans, and changing anything about the industry had to be done with caution.

7. Liquidity is still a major question mark
Online poker only works if you have enough players willing to play. The more players you have on a site at one time, the more likely those players are to find a game that suits them. And in order to attract a large pool of players, online poker rooms need to operate in places that have large populations. That's why PokerStars and Full Tilt Poker were dominating the market when they still operated in the United States. They had access to a pool of players that the rest of the world didn't. So how many people do you need access to in order to run a successful online poker site? That depended on who you asked at this conference. Most of the online poker operators thought California and Florida were the only two states that could operate independently away from a national system. California has a population of 36,961,664 while Florida has a population of 18,537,969 according to 2009 estimates by the U.S. Census. But Steve Rittvo, chairman of the Innovation Group, thought a state the size of Minnesota, which has a population of 5,266,214 according to a 2009 U.S. Census estimate, would be large enough to sustain its own online poker network.

6. If offshore companies want in, they need to buy a stake now
When either the states or the federal government decide to license and regulate online gambling, it is expected that only existing land-based gaming licensees will be able to offer their games online. So if you're an offshore operator, follow the advice of Betfair's Laurie Itkin and buy a seat at the table.

"Foreign companies can't contribute to political action committees," noted the North America vice president of government and public affairs for Betfair.

Itkin went on to explain if you buy a U.S. company, like Betfair did with TVG, you get a license holder and the ability to influence legislation.

British gambling firm William Hill might have been thinking along those lines when it acquired the parent company of Leroy's Sportsbooks as well as Brandywine Bookmaking, which operates 16 Lucky's Sportsbooks in Nevada. In addition to operating sportsbooks, William Hill also operates an online casino as well as an online poker room.

5. Don't count out New Jersey
Gov. Chris Christie may have vetoed legislation that would have made New Jersey to the first American state to regulate online gaming, but that doesn't mean the future of online gaming in the Garden State is dead. It's expected that legislation to initiate a referendum on online gaming will be introduced shortly. If the legislation is passed before a June deadline, the voters of New Jersey will be given the opportunity to approve or reject the licensing of online gaming for its state.

4. It's this fall or bust for federal regulations
The general consensus among conference panelists was that if Congress did not pass legislation regulating online gaming this year, then the industry would have to wait until 2013 for a federal legislation because there is no way Congress would take up the issue during the 2012 elections.

3. Online poker indictments have strengthened opposition
The indictments of PokerStars and Full Tilt have given opponents of online gaming "something to hang their hat on," said Paul Mathews, an interactive business consultant. As a result, it is much harder to convince them that the UIGEA doesn't work and there's a need to regulate the industry.

2. Las Vegas wins big under federal regulations
Rittvo advanced this argument, and it was echoed by others in the conference.

"If it's interstate (federal regulations), the big boys win," Rittvo said. "They will have a national presence with heft and weight. Local casinos will get lost in the chaff."

Caesars' Jones disagreed with the premise -- but was in the minority. Jones maintained that the nature of the Internet would allow anyone -- big or small -- to compete successfully.

1. Local casinos win big under state regulations
Local casinos understand how to get their customers to gamble with them. They're really good at it. And if they don't have to compete with the big national brands, they can carve out a solid place in the marketplace. They can offer perks that are easily redeemable (as opposed to having to travel to Las Vegas or Atlantic City for them) with a brand customers are familiar with. The place where it's tough for them to compete is in poker, where the number of players online at the same time really matters. If the regulations are done at a state level, local casinos can band together to create liquidity. If it's done at a federal level, then the big Vegas casinos have the advantage.

Related Links
iGaming North America 2011 Spring Conference
Nevada Online Gambling
PokerStars Europe Site Details
Bellagio Details