Interview with Professor I. Nelson Rose

INFINITY GAMING MAGAZINE/ The iGaming Post spoke to the prestigious Professor I. Nelson Rose about how he predicted the Third Wave of Legal Gambling and his insight into 2012’s online obstacles. He also tells us about why he thinks “landbased operators are paying top dollar to buy Internet gaming expertise.” The future? Professor I. Nelson Rose concludes: “There are going to be a lot of consolidations and partnerships, and new players entering the field.  But there also will be regional differences.”

Q: Thank you Professor I. Nelson Rose for your time today it is truly appreciated, firstly everyone knows that you are the respected world’s leading expert on legal gambling, can you firstly tell us what areas of gambling are you most involved in and also is your expertise related to the USA or Globally?

A:  Thank you for inviting me.  I started seriously looking at gaming law as a student at Harvard Law School.  This was in 1979.  At the time, only Nevada and New Jersey had legal casinos in the U.S.  But by looking at the dates of prior periods of legalization and prohibition, I realized that we were entering what I called the Third Wave of Legal Gambling.  I predicted that gaming would spread across the nation, starting with state lotteries, and then expanding to all other forms, including casinos.  Since then, I have tried to keep on top of developments, and look at areas where I expect there to be major growth.  So, in the 1980s I got involved with Indian gaming, in the 1990s the Internet, and right after the Millennium, Asia and other international jurisdictions.  Right now most of my work is with Internet and other remote wagering, cross-border issues involving countries in Europe and the proliferation of casinos in Asia.

 

Q: Who have your clients included in the past and how have you helped them? (If you cannot name them individually, can you highlight if they are land based or online)

A:  I often act as a consultant for governments and industry.  My clients include the founders of the largest Internet gambling sites; international corporations; major investors; players; entrepreneurs; Indian tribes; the federal governments of the U.S., Canada and Mexico; and many other nations, states and provinces.

 

Q: Do you think the USA will clear the way for online gambling soon and in your opinion will it be State or Federal?

A:  It has already happened, and it will be state by state.  In December 2000 Congress amended the Interstate Horseracing Act to expressly allow states to decide for themselves if they wanted to allow residents to bet by phone and computer.  More than half the states have opted in.  At least six states are selling state lottery tickets online.  Nevada has legalized Internet poker, and I expect at least three more states will follow this year.  There is no chance for a federal law; since the Republicans took over the House of Representatives in January 2011 there has not been a single new substantive law passed by Congress.

 

Q: If state by state at first, is that a better scenario for the gambling industry?

A:  It is good news for local operators, but not for large casino or Internet operators.  There is now so much legal gambling in the U.S. that legalizing one more form, say Internet poker, is no big deal politically.  But there is so much legal gambling that everywhere there are powerful local operators, who will insist on getting some or all of the licenses.  This means that a Caesars Entertainment or Bwin/Party Gaming has to compete in potentially more than 50 states, including the District of Columbia, against more than 50 politically connected insiders for a limited number of licenses.  I don’t think the lack of uniformity is important.  After all, today every state makes its own rules, and the gaming industry has done fine without a uniform federal law.

 

Q: Should online gambling go to states first, how can it ever then go federal, without a legal maze of each states legislation being in the way?

A:  It is not just legal gambling that has always been decided at the state level.  When Prohibition was repealed, the U.S. Constitution was amended to expressly give sole power over alcoholic beverages to the states.  Even tribes have to ask states for liquor licenses.  Yet, like gaming, the liquor industry has thrived with 50 different sets of laws.  It will be more and more difficult for Congress to try and impose a uniform system, once states start legalizing Internet poker, lotteries and casinos.  But, Congress never was going to impose the same public policies on all states.  There has to be the right to opt in or opt out; Congress cannot tell Utah and Nevada that they have to have the same gambling laws.

 

Q: Is the statement of states desperate for tax revenues a good argument for legalizing online gambling and in your opinion what kind of revenues could a state expect realistically from Taxing online gambling?

A:  Gambling is seen as a painless tax and always expands during times of economic downturn.  There are only a handful of states that don’t need more revenue to balance their budgets, and they cannot raise taxes or cut services any more than they have already done.  Taxing online gambling will not solve the problem by any means.  California, for example, will raise about $250 million from legalizing online poker.  But it needs more than $10 billion a year.  Still, that is $250 million that it does not now have.  On the federal level the amounts that can be raised are so small relative to the deficit that the argument carries no weight.

 

Q: Can you elaborate on the paper you presented in January to the National Council of Legislators from Gaming States? What did you want to get across and highlight?

A:  There have been some major recent developments.  Black Friday shows that the Department of Justice is still waging a war of intimidation against Internet gambling.  But in December it announced that it was giving up its major weapon, the federal Wire Act, which will now be used only against illegal sports betting.  The announcement also has the effect of allowing states to legalize every form of Internet gambling, except sports betting.  And every state is looking at expanding legal gaming online, while nothing can get through both houses of Congress.  In 1962 there were no legal state lotteries in the U.S.  It took 50 years, but now all but a half-dozen states have state lotteries.  Technological and social change today are much faster.  The Internet is like “dog years.”  It will not take a half century before Internet poker and casinos are almost everywhere.

 

Q:  If states were to pass online poker, what would the process entail in running the operation? Would there be any stark challenges?

A:  The states are legalizing solely to raise money, not to protect local operators.  But local operators have the political power to demand some or all of the licenses.  So, state lotteries will probably not be operating online poker, even though the state might make more money that way.  States will probably try to sell a limited number of licenses and charge large fees and high percentage taxes to online operators.  There will always be a tremendous bias in favour of local operators.  But there will be room for outside operators, who have enough money, to either directly bid for a license or partner with a local casino, racetrack or cardclub.  The major obstacles to legalization are political, deciding who will get the licenses.  There are also going to be problems with licensing and taxation once state-licensed online gaming begins crossing state lines.

 

Q: It’s been revealed that the DOJ has cleared online betting according to each individual state, however, betting across states is illegal. What are your views on this, could this hinder the industry?

A:  There are only three sets of federal laws that can apply to gambling that is legal under state law:  The Professional and Amateur Sports Protection Act prevents a state from legalizing sports betting (although that is being challenged in court by New Jersey); the Wire Act, which is limited to sports betting; and federal anti-lottery laws, which have an express exemption for state lotteries.  There is a little-known provision of the U.S. Constitution that prevents states from making compacts or agreements with other states and nations.  But the spread of multi-state lotteries shows that law is easy to get around.  So, except for sports betting, there is little to stop states from legalizing Internet poker and other games on an intra-state basis, and then expanding to take bets from other states and nations.

 

Q: Do you think the landbased and online gaming industries combined can become a bigger and better entity in 2012?

A:  It has already started.  Landbased operators are paying top dollar to buy Internet gaming expertise.  And they are forming joint ventures with experienced online operators.  The next stage will be more consolidation like this, plus the entry of large, new players, like Zynga and Google, into the Internet gambling field.

Q: How would you say you have helped negative perception issues within the gaming industry during 2006?

A:  2006?  I try to be as objective and accurate as possible in my writing, and also explain complicated legal issues in a way that everyone can understand.  Our perceptions are often formed from mass media and history.  So, simply by describing what is going on now with licensed legitimate operators helps defeat deeply buried impressions that all gambling is run by the mob.

 

Q: Why does the US Government believe prohibition works as it clearly never has in any other time?

A:  Actually, the federal Department of Justice is running a pretty effective war of intimidation against Internet gambling.  They have succeeded in scaring players, operators and payment processors out of the U.S. market.  They have been forced to do this, because they are usually missing the two essentials for any criminal prosecution:  a statute making the activity illegal and a defendant found in the U.S.  But, they are forgetting the other major problem with prohibition:  not only is prohibition not regulation, but it only drives legitimate suppliers away, leaving less desirable characters to meet the public’s demand for the now forbidden item.

 

Q: What would it mean to the online gambling industry, if a Republican President won the elections later this year?

A:  It would probably be a short-term disaster.  A Republican President would mean a Republican Congress.  Many fiscal conservatives are in favour of legal gambling, because they see it as a way for government to raise revenue without raising taxes.  But social conservatives believe in big government getting involved in all parts of people’s lives.  The Tea Party wants government in the wedding chapel, bedroom and doctor’s office, particularly if you are a woman.  They certainly do not want to allow gambling to enter the home through the Internet.

 

Q: Finally Professor, how do you see the online and land based gaming landscape developing not just in 2012, but over the next 4 years? What is in store for the gambling industry and who will be the winners and losers?

A:  There are going to be a lot of consolidations and partnerships, and new players entering the field.  But there also will be regional differences.  I don’t see how Atlantic City can ever completely recover, now that it is almost completely surrounded by casino states, with more on the way.  But tribal casinos in Oklahoma are doing great, and will continue to do so, as long as the economy there and in Texas continues to recover.  Internet gambling will bring some changes.  Indian tribes with small casinos far from population centres may suffer.  Big operators like Caesars will be able to grow and use the Internet and landbased casinos to create synergy.  Almost all forms of gambling, except horsetracks, will continue to proliferate.  Japan is now the only major industrialized nation without casinos.  I don’t think we will see any more multi-billion-dollar integrated resorts in America, but we will in places like Japan, Korea and Spain, and probably Miami.  The great unknown is technology.  Video poker is the most popular form of gaming device.  But could anyone predict that people would want to play video poker before it was invented?