As Asia considers expanding online gaming to bolster revenue battered by COVID-19, Europe and the US show how to do it responsibly with stringent compliance.
Amid the global coronavirus pandemic that has shuttered casinos and brought travel to a virtual standstill, one industry segment has shown massive growth: online gaming. With uncertain prospects for a return to business as usual without effective COVID-19 treatment or a vaccine, Asia’s simplest road to reviving gaming revenue and taxes and protecting industry jobs would be expanding online gaming. If Asian governments want to take that step, Europe and the US demonstrate that strictly regulated online gaming can thrive in domestic markets.
Across the world, online gaming revenue has soared as coronavirus spread (this coverage defines online gaming, or iGaming, as casino games including poker and other peer-to-peer play, but excluding sports wagering). From mid-March deep into May, with casinos closed nearly everywhere but Macau, travel restricted and major sports leagues shut down, online casino gaming has been virtually the only game in town. European iGaming action reportedly rose 20% this year from an estimated €7.9 billion (US$8.6 billion) in 2019. Online gaming revenue in the US state of New Jersey jumped 118% year-on-year to US$80 million in April and 124% in May to $86 million. In Pennsylvania, where iGaming launched in July 2019, May revenue of US$56 million more than doubled from US$26 million in March.
While online gaming rose, gaming overall fell. With casinos closed and sports wagering crimped, New Jersey’s total gaming revenue in May fell by 65% to US$96 million, down by US$181 million. Other jurisdictions report similar numbers.
The outlook for brick-and-mortar recovery remains cloudy. GGR in Macau fell 93% in May and 97% in June, as travel restrictions remained in place. Lifting restrictions won’t automatically mean people resume traveling, especially in public conveyances such as buses, trains and airplanes.
Safety and social distancing proposals, including plastic dividers around tables and between machines, hardly suggest rapid revenue recovery. “When you take the social nature out of a casino, you are taking away its soul,” Global Market Advisors Partner John English says.
Gaming tables are likely to be reduced to three or four seats with alternate gaming machines and terminals deactivated.
“They’re cutting operators’ GGR in half,” FootballBet.com President and CEO David Leppo says. “Until there’s a vaccine, if governments want to get back to pre-COVID-19 numbers, regulators are going to have to offer the customer online.”
Many businesses and regulators have viewed online options as “the wave of the future,” Leppo says. “Well, the future got plopped in our laps three months ago.”
Without online gaming, there’s no lifeline to support casino payrolls and no alternative revenue source for governments that are, in most cases, seeing expenditures soar while tax collections across the board plummet.
HIDE OR SEEK
Operators and officials may find online gaming a compelling option to counter the revenue drought, especially since it’s estimated Asian players annually lose some US$50 billion online, with the vast majority of play unregulated and untaxed by the countries whose citizens place the bets.
“In Asia, governments have to make a decision: do they want to regulate this thing?” London based Tottenham & Co Managing Director Andrew Tottenham says. “The government can say: My citizens are gambling. I can either ban it and work with banks to stop it, block IP addresses, block payments. Or we can regulate it and make sure it’s fair.”
So far, Asian authorities remain reluctant to embrace online gaming within their own borders, fearing potential oversight and problem gambling issues. Macau allows its residents (except civil servants and gaming employees) to gamble freely in casinos, wager on horse racing, bet sports online or by phone, but prohibits online gaming.
“The government would listen to any suggestions that would help the development of the industry,” Macau gaming regulator DICJ replied in writing to questions from Inside Asian Gaming. “However, due to the risks of gambling through the internet or telephone, the government must carefully study the judgment.”
“China opposed online betting in Cambodia, and it’s the cause of the tension between China and the Philippines,” 2NT8 Managing Director Alidad Tash, a longtime Macau casino executive, says. “So why would they allow it in Macau?”
THAT GOES DOUBLE
Macau’s leading casino operator doesn’t want it either. “The company is opposed to online gaming and has no plans to enter that business, regardless of city, country or continent,” Ron Reese, Senior Vice President of Global Communications and Corporate Affairs for Sands China parent company, Las Vegas Sands, tells IAG.
Singapore, which offers a similar range of gaming options as Macau, albeit with a SG$150 (US$105) casino entry fee for its residents, banned unauthorized online gaming through the Remote Gambling Act enacted in 2015. Its Casino Regulatory Authority reiterated the ban to IAG, adding that Singapore Pools, the sole authorized provider for sports and lottery betting, suspended remote services as part of the national COVID-19 “circuit breaker” closure of non-essential services from April 7. Online betting resumed June 15, though retail betting shops remained closed.
The Philippines embodies Asia’s prevailing attitude toward online gaming. Its citizens can gamble in casinos, play bingo and other games in betting shops and wager on sports in person, by phone and online. But online casino gaming is reserved for overseas players. Through licensed POGOs – Philippine Offshore Gaming Operators – regulator PAGCOR collected fees of Php6.4 billion (US$126 million) last year, suggesting gross gaming revenue in excess of US$5 billion, more than the US$4.3 billion GGR for Philippine brick-and-mortar casinos.
BEGGARS BAN, QUIT
Asia’s prevailing beggar-thy-neighbor iGaming has its limits. In Cambodia, Sihanoukville saw billions invested on the foundation of online gaming primarily targeting mainland China players, whose participation is illegal under Chinese law. When Beijing objected, Cambodia had no choice but to listen to its main economic benefactor and ban online gaming at the end of 2019, stopping the vast majority of those investments.
In the long run, it will take domestic play to make online gaming sustainable in Asia. If Asian governments decide to permit online gaming in their own markets, successful models abound.
“New Jersey since late 2013 has shown that online gaming can be effectively regulated by the state and responsibly offered by the operators,” Spectrum Gaming Group Managing Director Fred Gushin, a former New Jersey regulator, says. Pennsylvania and Delaware legalized online casino gaming more recently and other US states are considering it.
New Jersey levies online gaming tax of 15% plus an additional 2.5% investment alternative tax, compared with 8% and 1.25% for brick-and-mortar play. Online licensees must be affiliated with a physical casino, but a casino may have multiple online affiliates. Servers and other internet game equipment must also be located on casino premises.
Online operators in New Jersey must satisfy anti-money-laundering and know-your-customer requirements and monitor play.
“Before one wager is made, the casino knows who their online customers are, where they live, their credit history, and can then track every wager made,” Klebanow Consulting Principal Andrew Klebanow says.
“It’s a myth that just because you can see the person in a brick-and-mortar casino you can do better AML [anti-money-laundering],” Bird & Bird Partner Andy Danson, head of the law firm’s international gambling group, says. “It’s difficult to deceive proper [online] operators.”
Players can only wager while physically located within New Jersey. “Geofencing and geolocation tools or third-party companies provide accurate reporting to identify if the customer is in a location where betting is legal,” English, GMA’s Managing Director of Sports Betting and Technology and a pioneer of legal mobile sports betting in the US, says.
The European Union allows member states to set their own internet gaming rules, giving Asian jurisdictions a range of examples. Jurisdictions vary on whether servers and banking functions must be located in the licensing country or simply within the EU.
“For an operator, it’s a pain to have different servers and banking here and there,” Tottenham, who founded his firm in 1986, says. “But it gives peace of mind to the regulator.”
Some countries, such as Belgium, require online license linkage to physical casinos; the UK and others don’t.
“As a capitalist, I like the UK model,” London based Danson says. “But if you are trying to protect the brick-and-mortar industry, you’d use another model.”
Recently, there’s been greater emphasis on compliance and responsible gaming, especially in the UK, according to Danson, starting with collecting more detailed information at the time of registration.
“Regularly, operators will ask for a selfie plus a passport and use a credit checking agency for affordability checks. If people are spending a lot, it’s expected that operators get on the phone and check to see if they can afford it.”
Jurisdictions on both sides of the Atlantic mandate responsible gambling messages as part of the registration and play processes.
“The best sites will generally have multiple limit setting features – time and money; deposits and losses – a self-exclusion program, responsible gambling education content, and some sort of feedback tool that can give the player information based on a measured level of risk,” Washington State University responsible gaming expert Kahlil Philander says.
Online gaming growth has been accompanied by expansion of online gaming disorder support.
“Research supports the efficacy of online and telemedicine support and treatment,” Professor David Hodgins of University of Calgary’s Addictive Behaviors Lab says.
Macau proxy betting comeback in the cards?
Macau appears unlikely to embrace online casino gaming anytime soon. But with coronavirus likely to stifle travel even after restrictions ease, some observers suggest proxy betting could help reflate gaming revenue. Macau banned proxy betting – giving wagering instructions by phone to a person placing those bets in a casino VIP room – in 2016. Macau’s ban boosted proxy betting in other jurisdictions, especially the Philippines, often adding live streaming for off-site participants.
“Proxy betting is more acceptable, more palatable for the [Macau] government, as opposed to betting online,” 2NT8 Managing Director Alidad Tash says. “It’s turning the switch back on for something they’ve done before.”
Macau’s gaming regulator DICJ tells Inside Asian Gaming it “will listen to any suggestions” to aid the hard-hit local gaming industry, but “due to the risks of gambling through the internet or telephone” consideration proceeds with caution.
“Proxy betting was banned officially in 2016 and the main reason was due to the AML [anti-money laundering] concerns, in particular the identity of the gambler and their origin of funds,” MdME Lawyers Senior Associate Carlos Eduardo Coelho says. “I do not anticipate a comeback of proxy betting.”
Proxy betting supporters employ tortured logic to distinguish it from online gaming and to address compliance issues. They describe proxy bets as being placed legally in a casino, ignoring the actual customer off-premises to avoid acknowledging a remote gaming transaction. Supporters then contend the junket promoter’s relationship with the remote customer satisfies AML concerns, though the casino and regulator must deny there is a remote customer.
“Proxy betting in casinos is designed to have players unknown to the casino betting in the casino,” Spectrum Gaming Group Managing Director Fred Gushin says. The former New Jersey regulator dismisses arguments distinguishing proxy betting from online gaming as creating “a distinction without a difference.”
One substantive difference between proxy betting and online gaming is the target player.
“Junket customers have the wherewithal to participate in proxy gambling. They have large credit lines and have demonstrated their worth from past trips to VIP rooms,” Klebanow Consulting Principal Andrew Klebanow says. “Online gaming targets low-end, mass market players.”
Beyond proxy betting, Macau may have a tool to enhance gaming revenue while promoting social distancing. Technology can enable gaming away from tables and machines within the casino premises, using either a device issued by the casino or an app loaded onto a player’s device. With the app, dozens of players can use the same table without being crowded around it. Casinos could allow remote players to sit at empty tables, or as FootballBet.com’s David Leppo suggests, in lounges with F&B service.
Attorney Coelho cites Macau administrative regulations that allow mobile gaming with approved devices within casino premises and give the government wide latitude to designate what constitutes “casino premises.”
By imposing the same entry regulations as the casino floor, including no one under the age of 21, and other required controls, a restaurant or even a hotel wing could be designated as casino premises for mobile gaming.