When, in the early 1990s internet gambling first started, it was the Wild West. Claims were made by optimistic, would-be online gaming entrepreneurs that the internet was outside the jurisdiction of any country and so anything was allowed. And to be fair gaming regulators had not even thought about what the internet would mean for the gambling sector and so companies began offering their services anywhere they were able to.
In 1995, I was lucky enough to be hired by one of the large US casino operators to tell them what the internet meant for their business, was it an opportunity or a threat?
They called me up and asked me what I knew about the internet. “Not much”, was my reply. “Great” was their response and I was then tasked with finding as much about the internet and what it could mean for a traditional bricks and mortar casino business.
I was paid to travel the world, meet technologists and financiers and ask about their thoughts on the future “information superhighway”.
One of my first points of call was British Telecom, who were conducting an experiment with a new technology, ADSL and MPEG compression for subscription Video on Demand (VoD). They laughed at the idea that the internet could become the “information superhighway” and described it as a “dirt track road” and that traffic would grind to a halt if anyone tried to attempt what BT was attempting in Colchester using the internet.
BT’s experiment was not developed further due to a lack of demand. They had built a “walled garden” and were offering a number of services to paying subscribers, including VoD, but what they hadn’t figured out was that people pay for content not just technology. Nobody wanted to pay for second rate movies and very clunky services.
It wasn’t until I got to Silicon Valley and saw the amount of money that was being invested in internet ready technology and infrastructure that I understood the internet was not going away any time soon. Sometime around this visit, Bill Gates made a speech stating that the future of Microsoft was the internet, which only went to confirm my view.
Based on my discussions on the West Coast, I came to realise that internet gambling would present many issues for regulators and so I thought I should put together a presentation to raise awareness of the issues.
The first part of the presentation was about how the internet worked and some of the technical issues that were presenting a challenge, bandwidth, file sizes, etc. and then the second part about the issues that online gambling would present to regulators
Having presented it at one of the gaming conferences, I was invited to give the presentation at the Gaming Regulators European Forum in Budapest. The presentation provoked a lively discussion amongst the regulators, some who immediately understood the implications and thought regulators had to cooperate and others who thought the solution was to ban online gambling. Clearly, the first part of the presentation on how the internet worked had fallen on some deaf ears.
Now, almost thirty years on regulators are still struggling with the same issues. Having introduced the concept of licensing operators and suppliers, how do you “ring fence” a country so that only those that are licensed to accept bets from the residents of that country do so?
Clearly, the “whack a mole” of IP blocking does not work, bans on advertising and other forms of marketing are only partially effective, and applying fines or taking court action (which is very expensive) against rogue operators only works if the operator believes that the outcomes of these actions can be enforced.
As we know, some jurisdictions take the view that operators can act with impunity from their territories and the results of successful overseas court actions can be happily ignored. The only pressures that remain to regulators are either political with overseas governments and on financial service companies to block payment transactions to offshore operators.
The financial payments ecosystem tries as best it can to stop these payments but there are plenty of intermediaries who are happy to cloak transactions and make them appear to be for another purpose. When one PSP loses the right to accept one of the credit card brands there will be plenty of others to take their place.
Payment Service Providers (PSP) retain a certain percentage of the volume of transactions processed for a number of days, weeks even. The amount retained from a single operator can become a considerable amount of money, sometimes in the millions of dollars. PSPs that are willing to accept “high risk” transactions are notoriously unreliable and can disappear without trace, along with the money being retained.
Acceptance of crypto currencies by operators is one method by which operators reduce their dependence on dubious PSPs, but there is still too much friction and bad press around using this method of payment for it to become a realistic replacement for more usual payment methods, (credit/debit cards, ewallets, etc.)
Political pressure can be successful. The Netherlands, since it has regulated online gambling and is now concerned about the size of the black market has been trying to persuade Curacao to reign in online operators and stop allowing them to target the Netherlands.
Curacao is an autonomous country within the Kingdom of the Netherlands, which means the government of Curacao is responsible for everything except defence and foreign policy. This gives the Netherlands some leverage over
Curacao has recently changed its regulatory regime so that each operator is licensed and has a direct relationship with the regulator rather than the regulator having a relationship with a master licence holder that then has relationships with several sub licence holders. Perhaps, it will not be long before an online gambling licence is revoked for not following the rules.
One thing that might prove effective against black/grey market operators would be if gaming regulators took a leaf out of Nevada’s book. The condition of retaining a Nevada licence is not only that you operate according to the laws and regulations of Nevada but also it controls how you do business and who you do business with wherever you operate.
If regulators got together and agreed that companies that provide essential technology or services to online gambling operators require a license and a condition of that license is that you only do business with companies that are not subject to, or likely to become subject to, sanctions from other gaming regulators, the pool of technology and services available to black market operators would fall dramatically.
The Gambling Commission of Great Britain (GCGB) has taken the first step, investigating Evolution to determine whether black market operators targeting the UK are doing so with Evolution’s technology and services. Evolutions share price fell almost 12% when it announced this move by GCGB.
Now imagine what might happen if regulators decided to investigate not only based on supplying unlicensed operators targeting their jurisdiction but supplying a company that targets any jurisdiction where online gambling was illegal or unregulated. But then, pigs might fly.
Antigua 1994
Curacao 1996
Isle of Man 2001
Nevada – who you do business with