The Challenges of Regulated Online Gambling

The internet, by its nature presents some unique challenges to regulating it, particularly since it is not confined to a geographical location and therefore cannot be managed the way that normal business activities can.

With physical businesses, they are either regulated or they operate underground, off the grid, and being off the grid this does impose some real restrictions on their promotion. Since they are subject to the laws of the jurisdiction they are in, and since the jurisdiction has an interest in maintaining their regulatory power, they will generally seek to shut them down if they don’t comply with licensing requirements, so these enterprises do tend to be rather clandestine, and this limits their scope.

In areas where a certain business is permitted, that one must have a license for, unlicensed and therefore underground establishments have to both compete with licensed ones and steer clear of the authorities.

So for instance we wouldn’t likely see a successful unlicensed casino in Las Vegas because if they got known enough to do well, the authorities would know about it too and just shut it down.

The internet though really doesn’t have much in the way of barriers to regulated and unregulated operations competing side by side, mostly because cyberspace is wide open and we can access websites from one country as easily as from another, and physical location of businesses has been rendered meaningless.

So without having the supply under one’s jurisdiction, it’s much more challenging to regulate and control the market, and the most that you can hope for here is to regulate part of it, and put together a framework that a good percentage of the market will participate in.

So we could call this semi-regulation of a market, where the regulated sector of it is given some real perks, such as the ability to advertise locally, within the state or region or country, as well as create a sense of comfort among the participants, where it is clearly legal for them to participate in the regulated market, as opposed to at least some doubt about the unregulated market.

Semi Regulation In Practice

For example, in the French regulated online poker market, this has served to expand the reach of online poker in France, bringing more players on board, although a lot of experienced players have chosen to play at sites outside France, for various reasons, but the French government did manage to regulate about half the market and also take in a lot of tax revenue, which is essentially the main purpose of all of this, as the other issues aren’t really issues worth bothering about much.

Of course there are rules that must be abided by here in order to receive and retain online gaming licenses, but unlike licensing land based gambling operations, which may be of varying qualities and may even look to cheat people, the transparent nature of the internet allows the online gambling industry to regulate itself very effectively anyway.

So for instance if an online gambling site is of poor quality, and there have been plenty of those, then people get wind of this and the word gets out, so this serves to not only keep operators in line but to punish those out of line.

The use of the term unregulated when it comes to online gambling sites is actually a relative one, for instance an American may speak of offshore gambling sites as being unregulated, but what is meant is that the U.S. does not regulate them, not that they aren’t regulated.

In fact, pretty much all online gambling sites are regulated, they just are regulated elsewhere, by a number of regulatory bodies in various locations around the world, many of whom are held in fairly high regard. It’s a separate matter to regulate sites and regulate the market, and it’s the regulation of markets that people most often speak of here, looking to get people from a jurisdiction to play at sites the jurisdiction approves of and licenses, and taxes as well, and this is where the biggest challenge lies.

Internal Regulation Is For The Most Part Voluntary

Going back to the French model, players choose from either sites that are licensed in France or sites that are essentially licensed in other countries. French authorities of course do their best to convince their people to play at their approved sites, but players have not found workarounds to be all that difficult, and there’s not much they can do as far as stopping the more savvy players from playing wherever they want.

So given the higher level of competition from sites outside the framework, much more care must be taken to ensure that the regulated sites are competitive enough, and some jurisdictions have made the mistake of not taking this into account enough, and seeing them capture far less of the market than originally anticipated.

This was the case early on in state sponsored online gaming regulation, although this is a much bigger issue with regulated online poker than other forms of gambling, as quality matters much more with poker, and traffic levels in particular. Those not familiar enough with the industry tend to grossly underestimate the importance of this and end up being surprised when players don’t choose smaller sites over larger ones.

Many countries seek to not have their people play anywhere, and as is the case with wanting to direct them towards certain sites over others, the potential for success is limited, and if someone wants to play at a certain site there’s really no effective way to stop them really, provided that the sites are willing to accept them.

So regulatory bodies have turned to looking to influence the operators themselves, to get some bigger ones on board, like PokerStars for instance. If PokerStars action is regulated, even though the site they set up may be exclusive to your country, part of the agreement will include domestic players not being allowed to play at the main site, so you can keep them away that way.

The U.K. has gone even further and if you want to get a license there, you can’t be getting too much of your overall business from so called grey markets, so this has resulted in several operators no longer taking play from certain countries in exchange for being able to tap into the lucrative U.K. market.

In the United States, the market here is very fragmented, with each state a market in itself, with a real divergence of attitudes towards online gambling, but in the few instances where online gambling regulation has been tried, this has been quite successful in capturing the online markets and keeping out unregulated sites, as most have stood down and no longer take players from these states.

Elsewhere though in the country, the so called unregulated sites are the only game in town, and in spite of efforts toward prohibition, this just isn’t going to work in the online world, and you either regulate it or let the offshore sites run the show. This is a truth that many states would be well served to understand more, so that they can at least capture a good share of the revenue and exercise at least some control over all this, rather than the none that they have at present.