U.S. Gaming Industry Threatened By Offshore Sites, Grey-Market Machines

October 12, 2022
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The U.S. gaming industry faces serious challenges from inflation, rising energy costs, higher interest rates and labor shortages but executives and lobbyists warn the biggest underlying threat to their businesses comes from illegal gambling.

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The U.S. gaming industry faces serious challenges from inflation, rising energy costs, higher interest rates and labor shortages but executives and lobbyists warn the biggest underlying threat to their businesses comes from illegal gambling.

“Our industry’s future depends on tackling our biggest threat; the illegal and unregulated market,” Bill Miller, president and CEO of the American Gaming Association (AGA), said Tuesday (October 11).

Speaking to attendees of the Global Gaming Expo (G2E) at The Venetian Expo in Las Vegas, Miller said illegal and unregulated websites and machines pose a direct threat to the industry’s hard-earned social acceptance and regulatory licenses to operate.

“They prey on customers, especially the vulnerable and the underage,” Miller said. “They don’t provide any consumers protections or invest a dime in responsible gaming. And they have an unfair advantage in the marketplace.

“They ignore the regulatory standards we work so hard to uphold,” he added.

He stressed that the AGA was taking on the illegal and unregulated market with “every weapon at our disposal,” from engaging the U.S. Department of Justice to Congress and governors to state legislatures.

Miller’s remarks at G2E were toned down from the unusually harsh rhetoric he used in a speech delivered last month to the East Coast Gaming Congress.

Miller took the opportunity on Tuesday to announce the AGA will release new research next month showing that Americans bet more than $300bn annually with illegal and unregulated websites and machines.

According to preliminary figures, the AGA estimates a loss of $15bn annually in gaming revenues, with illegal gambling costing an estimated $4bn in tax revenues annually.

“This is a catastrophe in the making and it’s an existential issue for the industry,” said Penn Entertainment CEO Jay Snowden during a G2E keynote panel moderated by Contessa Brewer of CNBC.

“We need to get on it and we have to help,” Snowden added. “We need help from our regulators and lawmakers. We need help putting them behind bars if that’s what it takes.”

Snowden, who grew up in Las Vegas with friends and a family member who developed a gambling problem, said once his company identifies a problem gambler and gets them evicted from their casino, their first step is a tavern or convenience store with an unregulated gaming device.

Soo Kim, chairman of Bally’s Corporation, expressed his support for legalizing and taxing convenience gaming devices.

“I believe all gaming should be brought to the surface,” said Kim, who appeared on the panel with Snowden.

“It should be regulated. It should be taxed,” Kim said. “A lot of these route operators are legal in one way or another. It’s just another channel for gaming. I think gaming is here to stay in all forms but obviously there is gaming happening in an unregulated form that should be brought under the umbrella [to be] regulated and taxed.”

The issue of grey-market slots and offshore sports-betting websites was one of the key themes of the annual conference on Tuesday.

“The scope and breadth of the problem is enormous,” Daron Dorsey, executive director of the Association of Gaming Equipment Manufacturers (AGEM), said during a panel discussion on cracking down on illegal markets.

Dorsey said as gaming has expanded in the United States over the last two decades from Nevada and New Jersey to every U.S. state in some form, the illegal market has grown with it.

“There is no one that benefits from the illegal unregulated market,” Dorsey said. “Gaming and machines in casinos are part of public policy, while the illegal and unregulated market gets a free pass and doesn’t contribute that in any shape or form.”

Katie Peters, senior vice president of public policy at FanDuel who participated in the discussion with Dorsey, said illegal gaming from offshore websites is an issue for the company from a pure business standpoint.

“The harm to us is secondary to that of governments,” Peters said. “The brand damage that comes when people aren’t in a legal space, if something goes wrong, we all get blamed.”

As some states struggle to deal with the issue of skill-based games, the Johnson Act of 1951, which was amended in 1962 with the Gambling Devices Act, is considered a viable enforcement tool to combat the growth of grey-market games.

“All licensed manufacturers, all licensed suppliers … know full well about the registration that they do with the [U.S.] Department of Justice when you ship your equipment across state lines,” he said.

Dorsey said his organization believes there is an enforcement mechanism within the Johnson Act that calls for maintaining a database every time a shipment is sent out.

He said providers of so-called skill games ship their machines across state lines, out of compliance with federal law.

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