Online Gaming, iLottery On Different Legislative Track To U.S. Sports Betting

September 20, 2021
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As sports-betting bills continue to sail through state legislatures, legal experts and industry executives remain perplexed as to why measures legalizing online casino and internet lottery games face more skepticism from lawmakers despite the significant tax revenues on offer.

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As sports-betting bills continue to sail through state legislatures, legal experts and industry executives remain perplexed as to why measures legalizing online casino and internet lottery games face more skepticism from lawmakers despite the significant tax revenues on offer.

Indiana is a recent example of lawmakers’ reluctance to legalize online gaming after moving rapidly on mobile sports wagering.

Republican state Senator Jon Ford led an effort in Indianapolis this past legislative session to pass online casino gaming, but both Ford’s bill and an identical measure in the House failed to even receive a hearing, amid a lack of understanding on the issue among their colleagues and some concern from state officials of potential cannibalization of land-based casino tax revenues.

Ali Bartlett, a gaming attorney with Bose McKinney & Evans in Indianapolis, said she does expect the legislature to move forward with an internet gaming bill in January.

“The slowness of iGaming and iLottery in terms of sports betting when the reality was we could have done this all along, I don’t have a good answer,” Bartlett said last week while speaking to attendees of the International Masters of Gaming Law (IMGL) 2021 Autumn Conference in Boston.

After the U.S. Supreme Court in May 2018 overturned the Professional and Amateur Sports Protection Act (PASPA), Bartlett said there was an incredible amount of energy behind legalizing sports betting in Indiana.

“It was in the news … now states got the right to do that,” she said. “And coming from Indiana where we are all about states’ rights … it was almost like a rite of passage. We were going to do this, and we were going to do it big.”

Bartlett said now that the state has seen some success with mobile sports betting, both in terms of revenue and a lack of any major regulatory concerns, it has created a level of comfort for the industry to go back to the legislature and say the technology is there and the regulatory structure has been very successful.

“Now we just built up this comfort where we can move into discussions on iGaming,” she said.

Currently, New Jersey, Pennsylvania, West Virginia, Delaware and Michigan are the only states that have legalized online casino gaming.

Nine states and the District of Columbia allow different types of lottery games to be played online, with the largest so-called iLottery markets being Michigan, Pennsylvania and Virginia.

Connecticut will join both lists next month when online casino gaming and internet lottery ticket sales are expected to begin.

Bartlett was joined for the hour-long discussion on the potential expansion of iGaming and iLottery by Charles McIntyre, executive director of the New Hampshire Lottery, Robert Fontaine, deputy general counsel for gaming with the Virginia Lottery, and Scott Bowen, government affairs specialist with iLottery vendor NeoPollard Interactive.

Mark Hichar, a lottery law expert with Greenberg Traurig, moderated the panel discussion.

“I can’t explain it either,” Bowen said of the reluctance of states to legalize online gaming and iLottery.

Bowen was the commissioner of the Michigan State Lottery when it launched an iLottery program in 2014.

It was not until five years later that state lawmakers passed a comprehensive gaming reform package that authorized commercial and tribal casinos to offer internet casino games and poker, as well as online sports betting.

“All I can say is that the casino tax or sports-betting tax and that’s from 23 casinos plus three commercial casinos and 13 sports-betting operators … doesn’t add up to the $259m we take from iLottery,” Bowen said.

“It’s counterintuitive that lotteries are an $85bn industry and yet only 3 percent or 5 percent are digital earnings.”

Bowen said he still expected online lottery sales to grow, partly through the aggregation of lottery products on other platforms.

“We are not going away,” he added. “Lotteries are not going away; they are going to adopt a digital path. It is just a matter to time. I don’t know why it’s so slow.”

Hichar asked Fontaine if internet lottery had been a tough sell in Virginia.

“I have to say because I was in Maryland at the time these bills were evolving, as someone from Maryland, I was completely shocked that casinos even got started in Virginia,” said Fontaine, a former assistant attorney general and principal counsel for the Maryland Lottery & Gaming Control Agency.

“If you asked me three years ago if it was possible to pass the kind of legislation that was passed in 2020, I would have told you, you were crazy.”

Virginia Governor Ralph Northam signed a series of bills in early 2020 to repeal a statutory ban on selling lottery tickets online, as well as authorizing mobile sports betting and up to five land-based casino locations.

The historic changes to Virginia’s opposition to gambling, besides horseracing and traditional lottery games, began in 2018 when lawmakers voted to allow historical horseracing machines.

In terms of why sports betting has enjoyed a smoother ride before state legislatures than iGaming or iLottery, “it all comes down to natural enemies and allies of each piece of legislation,” according to McIntyre of the New Hampshire Lottery.

The natural enemies for sports betting had traditionally been the major North American professional sports leagues until they changed their minds after the Supreme Court ruling and have since grown comfortable with it, noted McIntyre, whose agency currently oversees sports betting under a 2019 state law after receiving legislative authority to offer internet-based lottery games in 2017.

When it comes to iGaming and iLottery, McIntyre said the natural enemies are everyone in the room who wants a piece of it.

“You have lotteries, casinos and racing commissions that all wanted to walk through the door and close it behind them,” McIntyre said.

“Whenever there is a new form of gaming everyone says, 'Mine' like an eight-year-old in the car … plus enemies of iLottery which are convenience stores, which shouldn’t be, but they are because they believe they are taking money from bricks-and-mortar and sending it to digital.”

McIntyre credited Connecticut with doing it properly by getting everyone in a room to negotiate a legislative package that has carved up mobile sports wagering, iGaming and iLottery between the state's two Indian gaming tribes and the Connecticut Lottery Corporation.

Those groups will compete in the sports-betting market, whereas the tribes have exclusivity over online casino games and the lottery can offer only online ticket sales and keno, and not interactive instant games.

“Everybody was like, 'I’m not thrilled but at least I get to be at the well',” McIntyre said. “I think that is the best way to do it.”

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