Richard Bronson Talks about the DoJ Ruling

Recently Richard Bronson, Chairman of U.S. Digital Gaming, a company that offers end user solutions to start up gaming companies, was featured on CNBC News and ABC Nightly News to discuss the DoJ's comments that the wire act only applies to sports betting. Not as enthusiastic about the announcement I decided to discuss the issue with Mr. Bronson to find out more about his views.

The first question I asked was whether he truly believed the US Department of Justice intended to imply that the Wire Act did not apply to poker or casino games. After all under the Republican administration, the DoJ was clear that they believed all betting on the internet was illegal under the wire act.

If the Department of Justice felt it was a misrepresentation, Bronson answered, then they would have refuted it right away; but they have said nothing.

Of course Bronson is correct. Government officials vent everything through public relations and legal staff before releasing anything to make sure there can be no dispute of the comments. I'm reminded when Canada announced they weren't going to support the U.S. war in Iraq after 9-11 because they wanted proof that Iraq had weapons of mass destruction. George W. Bush was furious with Canada's betrayal and in a televised speech Bush listed countries that were friends with the U.S. and which the U.S. could rely on in time of need. Canada was left off the list. Bush suggested later that Canada was like a little brother and didn't need to be named, but insiders admitted that the speech was looked over with a fine tooth comb and Canada's omission was indeed intended to be a warning to the Canadian government to step in line or be ostracized. So what was stated by the DoJ earlier this week about the wire act only applying to sports is exactly what the DoJ meant to say.

I also asked Bronson, why he believed this was such a significant announcement and he replied it would be a domino effect.
 
No doubt Nevada will be first to offer online poker and then state after state will start offering online gambling.

Bronson pointed to the lottery which didn’t exist in the United States until 1964 but once New Hampshire offered it, most others followed suit and today 43 of the 50 states have a lottery. Moreover states realize that gambling is the easiest way to generate revenue without raising taxes and they were just waiting for some other state to take the first step. No state wanted to challenge the federal government but the DoJ announcement has effectively given the states the green light to offer any form of gambling except sports without fear of repercussion by the feds.

“We always said regulated online gambling in the U.S. would be a state issue, Bronson said, and really it is a 10th amendment states rights issue anyway. Gambling has always been something that belonged to the states.

As most know, Caesars has opposed all state bills and has put all their efforts into creating a federal bill. I asked Bronson if he was concerned that Caesars would somehow put the brakes on the plans by states to offer online gambling.

There will never be a federal bill, Bronson said, and I believe Caesars will support state run online gaming because it benefits them too.

Bronson noted that Caesars has put in a license request for online gambling in Nevada. Bronson admitted that Caesars would prefer a federal bill because they want to effectively control online gambling in the country but he also said it won't happen.

Caesars can make all the demands they want but in the end the states will do what is best for their main interests. The main stakeholders will be the first to get licenses, Bronson said.

As an example, the 2nd largest political contributors in California are the various native tribes and Bronson is sure that the majority of licenses in California will go to the various tribes. If Caesars wants an early foot in the door in California they may have to set up a partnership with one of those tribes. In Connecticut the licenses will likely go to Mohegan Sun and Foxwoods. In New York the licenses will almost certainly go to the New York lottery corporation and in New Jersey the licenses will go to the Atlantic City casinos including Caesars. Bronson is confident that the states already know which companies will win the first bids.

Asked whether offshore or foreign sites would ever get licenses, Bronson said it was highly doubtful.

Getting approved for a license is one of the most heinous tests you've ever seen,Bronson said. Governments put all kinds of requirements in place and they're difficult to meet.

Bronson noted that even when companies meet the requirements often governments will find a reason to give the contract to someone else if they better represent their interests. Bronson also doesn't feel that the WTO agreement which requires the U.S. to provide equal access to remote gaming services is relevant because the country doesn't believe the WTO made the right ruling in the case. He did admit that it's possible a company like Betfair, who bought out TVG or 888 Gaming who has partnered with Caesars in Nevada to offer poker could get a license but he believes the requirement will be that the operations must set up shop in a state and hire local people.

One argument Bronson doesn't buy is that there isn't enough liquidity in most states to successfully offer online gambling.

31 states have enough of a population base to generate the magic number of 74,000 players to generate liquidity, Bronson said and for California and New York because of the population base they could be looking at about $1 billion per year in revenue.

Bronson believes 2012 will be the year online gambling in the U.S. is born. And he believes that in the future the issue will be looked back on the same way as what happened with Napster. As many will recall Americans were illegally downloading music and video files on Napster until the country successfully slowed it. However, the government also realized they couldn't stop it completely so they decided the best option was to work with the recording artists to legalize and regulate it. Consequently Napster was the precursor to ITunes and similar sites where files are still downloaded but are done so legally in a regulated environment and artists and governments all get a cut of the downloading fees.

As for when the first state will take the plunge, Bronson said that is to be determined, although he is confident it will be in 2012. He also doesn't believe the next election will change anything.

This is a bipartisan issue, Bronson said.

If all goes according to Hoyle, look for some state to offer online poker in the next 6 months. My money is on Nevada or California.

Contact Hartley via email at Hartley[at]osga[dot]com.

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