The Online Gambling Bad Actor Debate

John Mehaffey August 16, 2013 1468 Reads

Several states have proposed eliminating “bad actors” from their online gambling industry.  This has been a controversial issue.  Some experts have questioned the legality of a blanket bad actor clause.  Players have voiced displeasure about the possibility of PokerStars being excluded from their market.  It has caused a debate among all involved in the industry.

What is a Bad Actor?

As it pertains to online gambling legislation in America, a bad actor is a person or company that has a past that may be undesirable to legislators due to its participation in the U.S. online gambling market.  A company that accepted U.S. players after December 31, 2006 is often considered a bad actor in online gambling bills.  That date is important for two reasons.  The Unlawful Internet Gambling Enforcement Act (UIGEA) was signed into law on October 13, 2006.  Some experts have proclaimed that the UIGEA did not make anything new illegal so it should not be considered when legislating interactive gaming.  Another reason this date may be used is that it gives a large window for companies that may have operated in a gray area to leave the market.

This cutoff date of December 31, 2006 is used in Nevada interactive regulations and in a number of bills introduced in California.  New Jersey’s gaming law did not include any bad actor clause. 

Bad Actor Clause Exclusion Does Not Grant Immunity

A bad actor clause only instructs state gaming regulators a former U.S. facing online gambling company that was operating in the U.S. without an appropriate license after a certain date must be automatically excluded.  The decision to approve a gaming company is left up to regulators after a detailed background check and investigation of all key employees if no bad actor clause exists.

Officials and companies that have past legal troubles typically find themselves automatically excluded.  For example, individuals with recent gambling related convictions would not be considered for an interactive gaming license in the United States.  It does not take a conviction to be rejected for a gaming license though.

One example of a gaming board’s decision to challenge licensing involves MGM Resorts, known at the time as MGM Mirage.  The DGE was concerned about business dealings the company had in Macau.  MGM Mirage was never charged with a crime, much less convicted.  MGM Mirage chose to sell its 50% stake in Borgata instead of severing ties with its Macau partner, which the DGE suggested.  Its stake was placed into a trust where it remains today.

This shows that it does not take a bad actor clause or a conviction to run into licensing issues.  A gaming jurisdiction is well within its rights to exclude a person or company based on how the company’s reputation is perceived by regulators. 

Possible Anticompetitive Abuse of Bad Actor Clauses

It has been alleged that American brick and mortar companies have lobbied for bad actor clauses in an attempt to prevent overseas competitors from entering the market.  The American Gaming Association made its feelings about PokerStars entering the New Jersey market known.  Rational Group, parent company of PokerStars, responded with their own accusations about the AGA’s motives.   

Does a Bad Actor Clause Serve a Legitimate Purpose?

Calvinayre.com offered a poll asking its readers to fill in the blank for the statement:

The Bad Actor Clause is….

Only 22.5% of the respondents replied that it is to protect players.  The remaining choices were “protectionist politics” and “to keep the good operators out”. 

While the poll is hardly scientific, the readers of an online gaming centric blog are more likely to be familiar about online gambling bad actor clauses than visitors to a mainstream news website.  It seems unlikely that there were too many votes from the antis, especially since there was not an appropriate choice for those outright opposed to online gambling.

PokerStars is the only company that accepted Americans after the UIGEA that has also attempted to enter a regulated U.S. market.  It is important to note that the agreement between the parent company of PokerStars and the U.S. Department of Justice was a civil settlement.  The Rational Group did not admit any wrongdoing and it was not convicted of any crime.  This left the door open for the company to apply for proper licensing in regulated U.S. markets. 

New Jersey may hold the key to the company’s future in the United States.  If PokerStars is approved to operate in New Jersey it will be a major player.  If New Jersey gaming regulators reject PokerStars, then it may set a precedent that renders bad actor clauses irrelevant.