Gaming Regulation is Bedrock of Gaming’s Success

The U.S. gaming industry, in all its shapes and forms, has enjoyed meteoric growth in the last half-century. The essential key to much of that growth has been effective regulation—as we enter into an era with even bigger and faster growth, that mantra must remain steadfast, argues Spectrum Gaming Group’s President and CEO Fredric Gushin and Senior Policy Advisor Michael Pollock.

Gaming Regulation is Bedrock of Gaming’s Success

In his farewell address, Gen. Douglas MacArthur offered a quotation that will live through the ages: “Old soldiers never die. They just fade away.”

We offer a less memorable quotation that will live as long as it takes for you to read this entire column: “Old gaming regulators never die. Rather, they become consultants until their post-employment restrictions end.”

We are both former gaming regulators (Fredric at the New Jersey Division of Gaming Enforcement and Michael at the New Jersey Casino Control Commission), and while we have both outlasted our post-employment restrictions, we are keenly aware of certain facts regarding the regulation of this critical industry.

First, gaming regulators do die, and in the modern history of gaming regulation, which we date to the 1977 adoption of the New Jersey Casino Control Act, we have already lost so many dedicated regulators who adhered to the proven principle that effective regulation is a pillar that supports public trust in this industry.

While death (and taxes) are inevitable, a second finding is not inevitable, but should be rather concerning. As regulatory tenures end, and regulations necessarily evolve to suit changing times, that proven principle of the power of effective regulation is proving to be rather mortal. Effectively, our fear is that emerging generations of gaming regulators may not be fully aware of the central role that regulation has played in the growth of this industry.

The growth of legal casino gaming over the past half-century from its origins in one state to more than 40, with more than 1,000 casinos operating legally, was never preordained. Similarly, the ability of casino operators to secure funding from Wall Street—rather than the Teamsters Central States Pension Fund—was hardly inevitable.

Today’s regulation still involves the traditional areas that have always been part of the process, including suitability and licensing investigations, minimum internal control procedures, auditing and other areas of oversight. The original goals of keeping undesirables out of the ownership of licensed entities, keeping the games fair and collecting taxes remain as valid, standard regulatory functions.

Present-day regulators must also address a range of issues that were simply not on the regulatory radar in the earlier era. In 1985, casinos were classified as “financial institutions” under the Bank Secrecy Act, and the following year, money laundering was established as a federal crime.

That added to the regulatory burden, while further changes to gaming policy and a revolution in gaming technology put even more requirements on regulators, who must now monitor responsible-gaming practices and iGaming controls, while ensuring that their licensees do not participate directly or indirectly in gray-market gaming.

That widely used term refers to a practice in which companies licensed in Malta, Gibraltar, Curacao and the Philippines feel empowered to offer igaming in countries where it is either expressly illegal or is not specifically authorized by the host governments. About two-thirds of all digital gaming can be categorized as gray-market gaming.

The earliest generations of regulators (of which we are proud members) could not have anticipated nor could they have fully appreciated the burdens faced by their descendants. But that does not mean that those pioneers were totally oblivious to everything that the future would hold.

In 1980, a federal undercover operation known as Abscam ensnared a part-time member of the New Jersey Casino Control Commission, and resulted in a major overhaul of that agency. The initial structure was a full-time Chair and four part-time commissioners. Following Abscam, there were five commissioners, all full-time (now down to three).

One of the original full-time commissioners was the late Martin B. Danziger. Although he served in the 1980s, he was a prophet who foresaw 21st-century risks. Danziger told us (and anyone else who would listen) on multiple occasions that someday the regulators and the regulated would grow too close, and that regulators would assume that whatever was good for the regulated was good public policy.

Danziger knew something that should not be forgotten: Gaming depends on public trust, as well as confidence from investors, that it will always adhere to a requirement that a gaming license is a privilege granted only to individuals and organizations who affirmatively demonstrate their good character, honesty and integrity, and who maintain those standards for as long as they are associated with this industry.

The current crop of regulators faces a massive array of policy challenges that simply did not exist when this industry came of age a half-century ago. But if they fail to understand the principles that worked in that earlier, quaint era, they risk undermining the industry that they are endeavoring to support.

Former Nevada Gaming Control Board Chair Michael Rumbolz clearly shares this concern. In a well-researched 2023 white paper, Rumbolz wrote:

For the industry to continue its prosperity, we have to continue to prove that we effectively police ourselves, that we lessen any harmful effects from the games we operate and that we provide well run, safe recreational activities for adults. To help our industry continue to prosper, we need regulatory authorities to take fair but firm action when they are made aware of regulatory shortcomings, to investigate and rigorously seek prosecution of unlicensed and illegal gambling in their jurisdictions and to block the entry into our industry of those individuals and companies that don’t conduct themselves with the greatest degree of honesty and integrity. If we all work together to achieve these goals, I believe that we will not only continue to maintain a high degree of public trust, but that we will continue to thrive and be considered an example to new jurisdictions of the value that is created when a well-regulated gaming industry is established.

If you need proof that public trust in gaming is the not-so-secret ingredient to the industry’s success, look at the United States from 1931 to 1976, when only one state authorized casinos. Historians, including Rumbolz in his white paper, have quoted Mark Twain: “History doesn’t repeat itself, but it often rhymes.” As gaming continues to expand into new jurisdictions and new verticals, that is a parable worth remembering. Regulators may fade away, but a focus on integrity should be timeless.

Articles by Author: Fredric E. Gushin and Michael J. Pollock

Fredric E. Gushin, President and CEO, founded Spectrum Gaming Group in 1993 after working 13 years for the New Jersey Division of Gaming Enforcement (“DGE”), where he was promoted to Assistant Director and Assistant Attorney General.
Michael Pollock recently retired after more than two decades as Managing Director of Spectrum Gaming Group. He now holds the emeritus title of Senior Policy Advisor. He is a former gaming regulator, award-winning journalist and university professor.