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Legal Online Gambling?

There have been key developments in legal online gambling industry stemming from two diametrically opposed regulatory perspectives on how best to deal with the industry and social concerns that accompany it. One perspective favours regulation rather than outright ban of online gambling. The United Kingdom has fully embraced the perspective. The UK’s Department of Culture, Media and Sport confirmed that Antigua and Barbuda will be added to its Whitelist. The fact that a jurisdiction is whitelisted indicates that its regulatory measures have been evaluated and approved by the UK government. There are now four jurisdictions whitelisted by the UK government: the Isle of Man, the Island of Alderney, Tasmania, and the jurisdiction of Antigua or Barbuda. In addition, any licensee of a European Economic Area (EEA) jurisdiction which regulates online gambling can lawfully market in the UK; the most notable EEA jurisdictions being Gibraltar and Malta.

While the UK continues to open its doors to legitimate and regulated remote online gambling operators around the world, the former Bush administration recently completed a “Midnight Rule Making Session” which had the effect of finalizing the regulations that accompany the UIGEA (Unlawful Internet Gambling Enforcement Act). The regulations took effect the day before President Obama took office. The Poker Players Alliance condemned this action characterizing it as a finalization of a bad and unworkable public policy and continues to lobby for a reversal.

Without addressing the politics and motivation behind these regulatory perspectives and speculating on future developments, observations about some of the possible practical effects of the current regulatory frameworks and howthey can translate into opportunities for investors may be useful.

The reality of the Online Gambling industry is that it is here to stay. In spite of US efforts to restrict it, permissive regulatory frameworks in the UK and the EEA have fostered the industry and it continues to grow. A competitive online gambling brand wants to inspire player confidence and the best way to do this is run its business in a legitimate and transparent manner. Players want to be certain that their funds are secure and that they face no systematic unfairness while participating. The existing regulatory frameworks contains provisions dealing with these concerns and player protection. Players are sophisticated enough to appreciate this protection and will flock to regulated brands, creating high demand for regulated online gambling.

How do these trends translate into opportunities for Canadian investors? Certain games, like online poker, are fairly saturated and highly competitive; online poker is currently dominated by a handful of major brands. It would take a substantial amount of startup capital to create a brand that could compete for market share. That being said, online poker continues to expand and there always seems to be market share available for those with the necessary capital and an innovative approach.

Online bingo, however, has the potential for the kind of growth that online poker has experienced, and hence, is much more open to new investments. Land-based bingo has always enjoyed widespread popularity and is more widely played on a world-scale basis than poker. The internet provides a larger scale forum than any private bingo hall or television network.

Similar opportunities exist in the realm of networking with other established brands. Networking essentially involves developing a personal branded skin that acts as a gateway play on a larger network with players from other larger brands.These skins avoid costs associated with maintaining and developing a large network otherwise necessary for a larger online gambling brand, allowing a business to focus simply on marketing the brand. Businesses can get many of the advantages of larger brands with less capital.

In keeping with the growing demand and trend toward regulation and legitimization of the industry, technological advances that facilitate improved security are sought after by the industry and its regulators.

In final analysis, the move towards regulation has guaranteed the growth and longevity of the Online Gambling industry. While the regulatory framework can be difficult to navigate without experienced professional legal advice, opportunities persist for creative and innovative investors in jurisdictions where it is clearly legal.

Authored by Brian Thomas Hall and Cookie Lazarus.

Brian Thomas Hall is an Associate Partner at Lazarus Charbonneau.