Should U.S. Lotteries Be Regulating And Operating Online Casinos?

February 17, 2023
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As the U.S. industry continues to wring its hands about the lingering hiatus in internet gaming expansion, an influential regulator says state lotteries should not be regulating and operating de facto online casinos.

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As the U.S. industry continues to wring its hands about the lingering hiatus in internet gaming expansion, an influential regulator says state lotteries should not be regulating and operating de facto online casinos.

In 2022, zero states legalized online casino gaming, and on the surface, it would appear there are only seven states where interactive gaming is regulated.

“I would argue that there are probably more because the state lotteries are hiding behind the fact that they are engaged in online casino gambling, and they just want to not admit it to their population or public policy leadership,” said David Rebuck, director of the New Jersey Division of Gaming Enforcement.

For example, Rebuck said, state lotteries are using the term 'iLottery' to describe what are actually their online casino operations.

“My concern with the state running it (internet gambling) is they don’t have the skill set to run it,” Rebuck said during a webinar on Wednesday (February 15), sponsored by the International Association of Gaming Advisors (IAGA).

In this environment, Rebuck said, the much-anticipated rollout of internet gaming across the nation will continue to lag far behind sports betting, which already is available online in over two dozen states.

Robert Fontaine, deputy general counsel for gaming at the Virginia Lottery, said it is an open question whether lotteries should regulate gaming operations while also trying to produce revenue for education and other community programs.

The Virginia Lottery operates its own iLottery program, while also overseeing the development of commercial casinos and mobile sports betting run by licensed private companies.

A joint legislative committee in the Virginia General Assembly last year began exploring whether a private consultant or independent body should be contracted to oversee online gaming operations, according to Fontaine.

“I think it’s a question that’s very much in flux across the country,” he said.

Internet gambling is prohibited in Colorado and is unlikely to be legalized this year, according to Dan Hartman, the state’s outgoing Division of Gaming director.

But Hartman said his agency already can regulate internet gaming whenever Colorado lawmakers give their approval.

“You’re just adding another component, and we’ve already added the RG (responsible gaming) component and things that are necessary moving forward,” Hartman said, referring to existing rules in place for online sports betting.

Colorado also has increased funding for responsible gambling from $130,000 in 2022 to $2.5m in grants this year, and Hartman said he anticipates that total will rise to $3m in 2024.

Both Hartman and Rebuck said gambling companies must remain vigilant against cyber attacks.

“We had a spat of incidents – cybersecurity attacks – in November of 2022, and I think it reiterates to the operators the need to even go further with their cybersecurity protections,” Rebuck said.

The online gambling industry has been hesitant to upgrade the protection of data, Rebuck said, but he predicted every state eventually will require improvements.

Hartman said it is “not really if you’re going to get attacked or hacked but when, and as … an operator and a regulator we all [should] have a plan to minimize the effects and to learn from it.”

Fontaine and Rebuck agreed there is almost always a tsunami of gambling advertising in states immediately after the legalization of sports betting, but it subsides over time.

“There’s a profit motive on why it has to drop off because you can’t, as a business, continue to have these expenditures at this high level and expect to make a significant profit,” Rebuck said.

Cathy Judd-Stein, chair of the Massachusetts Gaming Commission, said her state will not tolerate any sports-betting advertising that targets underage consumers.

“Every operator will be held responsible for [advertising] content… You own it,” Judd-Stein said.

“If you’re going to use the word, ‘free,’ it should truly mean free.”

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