Life was so simple for the commercial gaming industry back in the halcyon days of, say, 2023. Back in the day, the legal, licensed gaming industry could focus on combating the challenges presented by unregulated, so-called “skill” games being installed in bars, restaurants and convenience stores across multiple states.
Those days are gone. The threats posed to regulated gaming by unlicensed and untested slot machines have metastasized into new challenges, most notably in the form of “sweepstakes” gambling in which unscrupulous operators can provide gambling opportunities for consumers while avoiding all regulatory and licensing requirements.
The so-called “skill” slot machines are an unregulated form of brick-and-mortar casino gaming, while the “sweepstakes” challenge is in a digital form, yet both are lethal threats to the economic health of the regulated, licensed industry.
The American Gaming Association (AGA) recognizes that this one-two punch of unregulated gaming means that “consumers are being deprived of protections and states are forgoing significant tax and revenue opportunities as this gambling replaces that conducted through regulated channels.”
The AGA is correct in noting that unregulated gaming will cannibalize regulated gaming, and in doing so will cut tax revenues. From Puerto Rico to Pennsylvania and many other jurisdictions, the expansion of unregulated slot machines has clearly taken a bite out of gaming revenue and that, in turn, results in fewer jobs at casinos.
The indirect impacts – consider them to be the “bark” that presages that “bite” – are more numerous and far more costly.
Consider:
- Legal, regulated commercial and tribal gaming has expanded over the past 48 years from its origins in Nevada to more than 1,000 casinos from coast to coast based on the promise that all operators would be required to demonstrate – and maintain – their good character, honesty and integrity, thus ensuring public trust.
- Wall Street and the investment community gained trust as well, in large measure because the rules were clear and unyielding. Licenses would be limited either in number, location or both, and would be subject to various other requirements spelled out in advance, providing a level of certainty that make such investments more attractive.
- The power of that trust by both consumers and investors has advanced a variety of public policies, far beyond the revenues generated by taxes on gaming revenue. Those policies range from urban development (consider Atlantic City, Gary and Chester among the beneficiaries) to employment and to the promotion of tourism.
Undermining those long-term benefits will prove far more costly than the impacts of cannibalization and, over time, the loss of trust in gaming will further cut revenues, thus creating a downward spiral for the industry.
The debate, however, extends beyond regulation and economics, and has indeed proven to be political. The unregulated operators recognize this, which explains efforts to convince lawmakers to simply authorize, license and tax the unregulated offerings.
That is an answer, but is not the right answer. Licensing those who have defied the rules would:
- Undermine public trust that has been developed case by case and state by state for nearly a half-century.
- Send a message that the rules of gaming are no longer fixed, thus adding uncertainty to capital markets.
These indirect impacts will, in short order, cut gaming and non-gaming revenues at licensed establishments across the United States, and would in turn adversely undercut employment, tourism growth and urban renewal efforts. That would further cut fiscal benefits for states.
The better response would be to follow the lead of regulators like those in Michigan who have issued cease-and-desist orders to sweepstakes operators. Such entities have not earned the privilege of being licensed gaming operators, and licensure should indeed remain a privilege.
The most effective response that gaming operators, regulators and lawmakers could possibly muster will not eliminate illegal gambling. Unregulated operators will always seek openings, as the rewards are simply too tantalizing. The more realistic and achievable goal would be to maintain the standards of licensure that have worked so effectively for decades.
Issue cease-and-desist orders, and levy fines, but also make clear that the legal, regulated industry is the right choice for consumers and investors. The future of gaming – and the future of the communities it serves, and the families it supports – depends on adhering to that standard.
