BOSTON – A panel of gambling regulators, Internet gambling operators and vendors testified about their experience running regulated online poker, casino and lottery games in an open meeting with the Massachusetts Gambling Commission at the Boston Convention Center on Tuesday.
Massachusetts just awarded its first brick-and-mortar gambling license to Penn National to operate a slot parlor in Plainville and plans to award up to three resort casino licenses later this year. The Commonwealth does not regulate Internet gambling, although there are currently two bills in the state senate that would create a regulatory scheme for the industry. The hearing was open to the public and was live-streamed on the Internet.
"This cannot be about the Gaming Commission protecting its turf," said Stephen Crosby, chair of the Massachusetts Gaming Commission, at the beginning of the nearly seven-hour hearing. "This can't be about the lottery protecting its turf. This can't be about the casino operators protecting (their) turf. This has to be a process where we . . . look at the broadest public interest."
Early problems with geolocation – the means by which operators ensure players are where they say they are – and payment processing were the main topics of conversation, while lower-than-expected revenue in states that are regulating online gaming was a topic that regulators from Nevada, Delaware and New Jersey tried to dance around.
In fact, the difficulty many sites had in affirmatively verifying player location led to many players who should have been allowed to play being blocked, while others who would have been able to fund accounts were blocked by payment processors that denied transactions, which likely played a part in lower-than-expected revenues.
New Jersey in particular faced difficulties verifying players' locations in its first few weeks of operation, as a large percentage of the population in the Garden State lives near the New York and Pennsylvania borders. According to Lindsay Kininmonth, operations manager for GeoComply USA, 15 percent of New Jersey's online casino and poker play takes place within one mile of the state's borders. Other complications compelled some players to go through long processes to verify their location, as regulations require players to be connected via WiFi (depending on the device being used to play) and players couldn't be using any number of programs that could be used to disguise their true location, such as GoToMyPC.
While most of those issues have been fixed through player education, 5 percent of attempted logins to New Jersey online casinos still fail.
"Some of them are from people outside the state, and some of them are from false negatives," said Eric Weiss, chief of technical services for the New Jersey Division of Gaming Enforcement. "For technological reasons, they can't be geolocated to the satisfaction of the state."
Crosby asked Kininmonth if she was aware of anyone from outside New Jersey slipping through the system.
"We're not aware of any specific players in New Jersey that are accessing websites there from out of state," said Kininmonth. "But we also understand that no system can be foolproof.
"You put a lot of roadblocks in front of players, and they really have to be an eager player to overcome those. . . . Minimizing that percentage of players with false negatives is a challenge that operators will have to deal with on a regular basis."
Another major roadblock for would-be online players face is depositing money into their accounts. In Delaware, which became the first state to regulate full-scale online casino gambling on Oct. 31, 2013, MasterCard is approving 70 percent of player deposits, while Visa is approving just 30 percent. New Jersey is seeing MasterCard deposits succeed 78 percent of the time, with the success rate for Visa deposits improving from a dismal 10 percent in the state's opening weeks in late 2013 to 44 percent currently.
"(There's a) longstanding belief from that 2006 Unlawful Internet Gambling Enforcement Act saying you will be sanctioned by the federal government if you transfer funds for these purposes," said Rebecca Goldsmith, deputy director of the Delaware Lottery. "We've tried to meet with the banks and educate them as to what is legal and what's not legal in our state."
One of the major concerns banks cite when it comes to credit card transactions with online gambling operators are chargebacks, where a player makes a deposit at an online gambling site, then claims that they didn't authorize the charge when they lose. It's a legitimate concern. There is a history of players using such tactics to defraud online casinos and credit card companies in the past. That hasn't borne itself out in New Jersey, however.
"We're running at about (0.2 percent)," said Weiss. "That's a very, very low level of financial risk, especially when you compare it to online retailers and people like that who are running at (0.5 percent)."
These obstacles, however, have resulted in lower than expected revenues for online casinos, and as a result, much smaller tax revenues for the states. In January, New Jersey collected $9.5 million in online gambling revenues from casinos. However, Governor Chris Christie had budgeted $1 billion in gambling revenues by the end of the fiscal year, which works out to more than $83 million a month. Delaware, with a population of just 900,000, made just $145,276 in online gambling revenue in January. Nevada has yet to release financial numbers for its three online poker rooms, though with a smaller population and only poker, the revenue totals likely are similar to Delaware's.
When asked about revenues, regulators from all three states were cagey about providing many details.
"(I'm) a little hesitant to relay that information in a public meeting," said Jim Barbee, chief of the technology division for the Nevada Gaming Control Board. "We may have projected slightly over what we're currently receiving. . . . I do know that the accounts-created information is consistent with what our projections were."
"I thought it was kind of interesting that people were not wanting to talk very much about revenue potential because the prognosticators have been out there for years talking about billions and billions of dollars you can make with online gaming on the Internet," said Kim Sinatra, senior vice president, general counsel and secretary of Wynn Resorts. "Well, the early returns have not been good."
Wynn Resorts has applied for a license to operate a brick-and-mortar casino just outside Boston in Everett. Steve Wynn, CEO of Wynn Resorts, has flip-flopped on his stance on online gambling several times, but he recently came out against it.
"The idea that there are truckloads of money that are going by that you might be missing is probably not accurate," added Sinatra.
Home-game hotshot Aaron Todd has covered the gambling industry since 2006. While he is happy to play Texas Hold'em, he'd rather mix it up and play Omaha Hi/Lo, Razz, Deuce-to-Seven Triple Draw, and Badugi. Follow him on Twitter @CasinoCity_AT.