Smart, Independent Regulation Key as States Explore Gaming

As legislative sessions get underway around the United States, it’s clear that sports betting is a top priority in dozens of states. States realize that they can achieve significant revenue potential and fight back against the offshore gambling websites that lure billions of dollars out of state economies every year.

But states must also seriously consider their approach to regulating new forms of gambling and ask themselves whether their current state agency infrastructure is up to the task of maximizing revenue and protecting citizens.

Rather than reinventing the wheel or saddling an inexperienced and overburdened state agency with the complex task of gambling regulation, state lawmakers should look at the success the United Kingdom has achieved through their Gambling Commission.

Current State of US Gaming Regulation

Today, gaming regulation in the United States is predominately a function of state governments. In most states, the first form of gambling to be permitted was the state lottery, and in order to administer these lotteries, states created lottery commissions responsible for the day-to-day operations and regulation of the lottery.

As more forms of gambling became permissible, often in piece-meal fashion over the years, states had to decide whether to create a new regulatory agency or entrust regulation to an existing agency. Over time, many state agencies have become bogged down with additional regulatory duties, in many cases further blurring the line between regulation and operation, and pushing agencies far beyond their capacity and expertise.

Sports betting very well could be the deciding issue. The opportunity to authorize and regulate sports betting should also be viewed as an opportunity to level set and ensure that all forms of gambling in a given state are, in fact, being appropriately regulated.

Take for example, the state of Virginia. In 2016, Virginia authorized fantasy sports and vested regulatory power in their Department of Agriculture and Consumer Services.

Now, as they consider sports betting, it is at a crossroads. Sports betting is hardly an agricultural matter, and the state lottery is not a suitable agency to regulate other forms of gambling. As the lines between sports betting and fantasy sports continue to blur, their current state regulatory structure could prove impractical and ineffective.

Why not, then, create a modern-day gambling regulation regime to handle all forms of gambling?

A Solution That Makes Sense

I would propose a common-sense solution – one that has proven highly successful in the United Kingdom since first implemented in 2005. The UK Gambling Commission is a quasi-governmental and wholly independent licensing and regulatory body that oversees all things related to commercial gambling in the UK. If it is related to gambling, it is within its purview.

Casino games, retail betting shops, online gambling, bingo, even the National Lottery, are licensed and regulated by the Gambling Commission with the three simple objectives: 1) preventing gambling from being a source of crime or disorder, being associated with crime or disorder, or being used to support crime; 2) ensuring that gambling is conducted in a fair and open way; and 3) protecting children and other vulnerable persons from being harmed or exploited by gambling.

The Gambling Commission even regulates the advertising of gambling products to ensure that the commission’s objectives are always first and foremost, without unduly burdening the growth of the gaming industry and National Lottery.

Simple. Easy. The expertise is all under one roof, allowing the commission to operate as a one-stop-shop for ensuring that gambling is well-regulated and serving the interests of public safety for the entire country and the more than 2,500 gaming operators who do business in the UK.

Compare this to the current convoluted state-by-state regulatory structure in the US, and the advantages of a self-contained Gambling Commission become abundantly clear.

The state of Hawaii, which currently is something of a blank slate when it comes to gaming issues, is considering legislation to create an independent commission in the mold of the UK model. Unburdened by previous bureaucracy, Hawaii could quickly create a conflict-free regulatory body capable of regulating sports betting, lottery and any other form of gaming that lawmakers may choose to add in the future.

State Lotteries Have a Conflict of Interest

The need for independent regulation of gambling becomes even sharper in states that are currently considering granting regulatory authority to a state lottery.

Not only do state lotteries lack the experience and expertise needed to regulate the complex operations of sportsbooks, it is entirely inappropriate to vest regulatory authority over a competing industry in a state lottery commission when such a clear conflict of interests exists.

The conflict is clear – the public only has so much expendable income for entertainment. It is the lottery’s job to ensure that, when given the choice between spending that money on a lottery product or a different gaming option, the public chooses to spend that money with the lottery.

How, then, can one argue that a state lottery commission can serve the best interests of the public and the gaming operators who must obtain licensure when the lottery commission’s first duty is to generating profits for the lottery?

Take, for example, the rollout of sports betting in West Virginia. Despite being among the first to authorize sports betting by law, the state has all but squandered its first-mover advantage and limped to meager revenue numbers that have not come close to promised projections.

The WV lottery, which already regulated most forms of gaming and operated the state lottery to boot, clearly buckled under the pressure to regulate sports betting. In the rush to be first to market, West Virginia clearly did not think through regulatory issues and instead provided a cautionary tale to other states in similar situations.

Independence Is Key

This is not a call for states to privatize their state lotteries – that was determined long ago. However, states that are considering the best way to regulate the new forms of gambling that are becoming available under state law should think twice about trying to shoehorn them into an existing regulatory structure where they plainly do not belong.

Gambling requires sensible and firm regulation, but regulatory bodies must be independent and solely focused on public safety and maximizing economic potential. A state lottery agency simply does not fit the bill.

States such as Virginia, Tennessee, North Carolina and even Hawaii have the opportunity to establish a new gold standard for gambling regulation in the United States. Regulation isn’t exciting, but it is necessary. Taking the steps to set up the right structure today will continue to pay dividends for states for decades to come.

Once a duplicative, new state agency is created, it becomes rather difficult to disband it, as its stakeholders will come to its defense. Better to get these things right from the start.