Strict Massachusetts Licensing Could Exclude Nearly All iGaming Companies

October 29, 2013
Strict Massachusetts Licensing Could Exclude Nearly All iGaming Companies

Massachusetts showed its strict standards for online gaming when its gaming investigators recommended the state reject Caesars Entertainment’s licensing application.  Caesars Entertainment had partnered with Suffolk Downs.  This partnership was dissolved due to findings by regulators during investigations related to the company’s license application.

There were numerous issues mentioned.  It is unknown what the most serious were or if all had equal weight in the decision.

The issue most covered by the press was an alleged organized crime connection related to Gansevoort, a now former Caesars Entertainment partner in a Las Vegas Strip project.  This was described in 21 pages of the Massachusetts Gaming Commission report.  There were other issues.  One covers Caesars Acquisition CEO Mitch Garber, while another involved a dispute between a high roller and Caesars Entertainment over unpaid markers and accusations made by the gambler.  The company’s debt load was also a factor.

The issue involving Mitch Garber could be the most important issue facing the online gaming industry as it expands.  Since it was included in the Caesars Entertainment findings, it should be considered by all online gaming companies, regardless of its weight.

Six pages of the report cover Garber’s role at Party Gaming and Firepay.  Both companies left the US market when the UIGEA was enacted in 2006.  Both eventually reached settlements with the US Department of Justice.

These companies both reached settlements with the DOJ that protected the companies from any future criminal action.  Some of the press releases imply a level of guilt.

According to the FBI, PartyGaming:

[H]as now acknowledged that this conduct did in fact violate certain U.S. criminal laws

In a separate settlement, the FBI states:

As acknowledged by Optimal, these Internet gambling merchants violated federal criminal law by offering gambling in the United States

PartyGaming, now known as, released its own statement on the settlement.  One section reads:

Prior to 13 October 2006, certain of the US customer transactions intended for PartyGaming that were processed by third parties, and other gaming and payment-related activity, were contrary to certain US laws.

Any company that operated under a similar business plan could run into problems in Massachusetts.  This potentially includes individuals and software that was once offered to US players, even if it was before the UIGEA went into effect.

Are These Settlements Relevant? 

That is the big question.  Massachusetts regulators may have considered the fact that these settlements imply more than just a civil settlement, especially when language like “contrary to certain US laws” is used.  It could be that these settlements could have actually backfired.  The gaming industry may not know what would be considered until several other companies or individuals have gone through the licensing process in Massachusetts with a similar past.

If the Massachusetts Gaming Commission is going to take pre-UIGEA ties to offshore gaming into account when issuing licenses then there will be some major issues with bringing any company, individual or software into the Massachusetts market.

Potential Massachusetts Online Gaming

Massachusetts has shown interest in entering the online gaming business.  There was language attached to a budget bill earlier this year that would have regulated the industry and it is on the minds of the state’s gaming regulators.

What Software Companies Could Qualify if Pre-UIGEA Activity is Considered?

An Illinois bill proposed a 10 year “bad actor” clause and a potential lifetime ban on all software that was used in violation of federal law. Pokerfuse reported on what companies might qualify.  Their answer was Barriere Digital.  The US rights to that software are owned by Caesars Entertainment, a company that withdrew from licensing consideration in Massachusetts.  The Illinois bill was later amended and failed to pass.

The list of companies that have applied for a license in New Jersey contain some of the biggest iGaming names in the world.  To the best of my knowledge, I can only find one service provider that would qualify in Massachusetts if a company cannot get licensed due to offering services in the state, even before the UIGEA went into effect.

Both online poker platforms that are currently live in Nevada have ties to pre-UIGEA sites that operated in the US.  In addition, Party Poker, Ongame, iPoker, Cryptologic, Boss Media, Entraction and many other smaller and defunct online poker rooms left the US market when the UIGEA became law. This would also exclude companies that operated in the US after the UIGEA, including PokerStars, Full Tilt Poker and Microgaming.

Betfair as a company would qualify since it never accepted US bets, but it is partnering with Amaya Gaming to provide software for Trump Plaza.  That platform is Ongame.  Betfair owns a poker platform that it acquired from Betting Champs, which accepted US players before the UIGEA went into effect.

Which Poker Platforms Would that Leave?

All of the largest online poker networks once accepted US players either as a company or through a licensee.  The solution in a state like Massachusetts, assuming the strict procedure stays in place, would be US companies looking overseas at smaller networks in regulated markets and trying to acquire those companies or receive a license to use the software.  There are several online poker platforms under development at this time that would also qualify, assuming they met the standards required by the licensing process.

Brick and Mortar Gaming Faces Same Issues

Steve Wynn and MGM Resorts were questioned by the Massachusetts Gaming Commission about Macau operations.  Wynn was adamant that his company’s Macau operations are clean.  According to a report by MassLive, he said:

If we are in compliance (in Macau), are we subject to being disciplined or having our license revoked after we invest over $1 billion in Boston, in Massachusetts? If so, no sane person would ever risk such an exposure.

During an earnings call, Wynn stated:

We are dealing with a freshman regulatory agency … their preoccupation is that a gangster might get in.

The licensing process is expensive for any gaming company.  The legal fees and costs of the investigations required are substantial.  No company would want to go through that expense, only to be found unsuitable for issues that no other jurisdiction considers to be relevant.

The rejection of a gaming license can haunt a company for years as disclosing this information is often required on other gaming applications and by current licensing agreements.  Even a withdrawal from the process can be an embarrassing situation.  This could become a major issue attracting experienced operators to Massachusetts.


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