Report on Internet Gaming and Sports Betting

Report on Internet Gaming and Sports Betting

Prepared for: The Mississippi Legislature, House Gaming Committee Prepared by: State Taskforce on Internet Gaming and Sports Betting

December, 2014

Taskforce Organization and Charge

The State Taskforce on Internet Gaming and Sports Betting was formed in March 2014, at the request of the Honorable Richard Bennett, Chairman of the House Gaming Committee. Due to the many complex issues surrounding Internet gaming and sports betting and the implementation of Internet gaming in other states, a fact finding study on the matter for Mississippi, a state with a robust gaming industry, is timely. In addition, the topic of sports betting is becoming increasingly prevalent in discussions involving new directions for the gaming industry. The taskforce was charged with researching and studying these issues and providing a report to the Chairman of the House Gaming Committee. The taskforce work is solely informative and advisory in nature and does not make any recommendations for legislation, regulation, or implementation of Internet gaming or sports betting in the state of Mississippi.

Members of the Internet Gaming Taskforce

Allen Godfrey, Chair Executive Director Mississippi Gaming Commission

Michael Bruffey Attorney MEB Professional and Legal Services

Jan Craig Associate Commissioner Mississippi Department of Revenue

Larry Gregory Executive Director Gaming and Hospitality Association

Dorothy Loggins Director of Self-Exclusion Program and Chair of Mississippi Council on Problem Gambling Mississippi Gaming Commission

Craig Orgeron, Ph.D. CPM Executive Director Mississippi Department of Information Technology Services

Catherine Price, Ph.D. Casino Hospitality & Tourism Management University of Southern Mississippi

Jason V. Pugh, Ph.D. Vice President, Instruction & Community Campus Mississippi Gulf Coast Community College

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Acknowledgments

The taskforce would like to thank the following organizations and individuals for their assistance. Mississippi Gulf Coast Community College Dr. Mary S. Graham, President Millie Hyatt, Grant Writer/Project Developer Ashleigh Simmons, Assistant to the Vice President, Instruction and Community Campus Mississippi Gaming Commission Jennifer Broadwater, Administrative Assistant to the Executive Director Mississippi Department of Information Technology Services Jay White, Director, Information Security Services Division In addition, the taskforce would like to thank the Honorable Richard Bennett, Mississippi House of Representatives, District 120 for his support and guidance on the project.

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Table of Contents

Taskforce Organization and Charge .................................................................................2 Acknowledgements ......................................................................................................3 Executive Summary .......................................................................................................5 Introduction ................................................................................................................7 Internet Gaming Overview ............................................................................................8 Sports Betting Overview ...............................................................................................8 Internet Gaming Revenue and Financial Considerations ....................................................9 Sports Betting Revenue and Financial Considerations .....................................................10 Internet Gaming Legal Issues .......................................................................................11 Sports Betting Legal Issues..........................................................................................13 Technical Considerations..............................................................................................20 Responsible Gaming....................................................................................................24 Conclusion.................................................................................................................27 References.................................................................................................................28

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Executive Summary

The Internet Gaming Task Force was created at the request of House Gaming Committee Chairman, Richard Bennett. Chairman Bennett directed the task force to gather all pertinent facts as they relate to Internet Gaming. Sports betting was later added to the charge of the task force. The task force brought together individuals with expertise in technology, research, responsible gaming, gaming law and taxation. The group explored the issues and made contact with the three states that have implemented some form of Internet gaming.

The task force considered four areas associated with the topics of Internet gaming and sports betting: 1) revenue and financial considerations, 2) legal issues, 3) technology considerations, and 4) responsible gaming. Revenue and financial considerations concerning internet gaming resulted in the task force gathering available information on revenue reported by the three states conducting Internet gaming. The task force found that the actual revenue numbers did not approach the originally projected numbers and it may take several years for the original projections to be achieved.

Under Mississippi law, Internet or online gaming is prohibited by the express language of Miss. Code Ann. ?75-76-33(3)(b). Sports betting is also prohibited under the Mississippi criminal code, Miss. Code Ann. ?97-33-1, as part of the general prohibition against wagering on the outcome of an event. Sports betting does not currently fall within any of the exceptions created by the legislature. See Miss. Code. Ann. ? 97-33-1(a)-(d). It is also illegal under Mississippi common law. The steps that would be necessary to legalize Internet gaming in Mississippi would involve amending the Mississippi Gaming Control Act, including, but not limited to Miss. Code Ann. ?75-76-33(3)(b). The steps to legalize sports betting are not fully known as of yet. Based on the 3rd Circuit's ruling in Nat'l Collegiate Athletic Ass'n v. Governor of New Jersey, 730 F.3d 208 (3d Cir. 2013), the State of New Jersey recently enacted legislation that "removes the prohibition" of sports betting at casinos and race tracks. The State of

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New Jersey believes this position is consistent with the 3rd Circuit's court ruling and is now poised to begin accepting sports betting at the state's operating casinos and racetracks.

Advances in technology continue to improve the Internet gaming experience while also giving a player the ability to play an online game from nearly any location on any computing device. Along with these benefits, come many technical challenges with the implementation of Internet gaming. In addition to the challenges of adhering to regulations, concerns around a player's privacy and security continue to be a priority in today's environment. Technological challenges with the implementation of Internet gaming include: age verification, geolocation and geofencing, data security and privacy, personalization and data mining and account funding.

Responsible gaming protocols and results in Mississippi appear to be robust and successful comparatively. When considering Internet gaming and sports betting, the state is encouraged by national organizations and responsible gaming leaders to consider expansion of responsible gaming protocols to include more treatment and more accessibility to treatment for individuals needing those services.

The following report is a culmination of the efforts of members of the task force and represents the facts as found following research and discussion with other states. The Task Force hopes that the report is valuable and informative to the Mississippi State Legislature as the Body undertakes discussion on the topics of Internet gaming and sports betting.

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Introduction

Mississippi legalized casino gaming in 1990 and the first casinos opened their doors in 19921. Since that time, tax revenue from the casinos has contributed $4.6 billion in gaming tax revenues in addition to other tax revenue, employee wages and benefits, and philanthropic contributions to the community2. This industry's success to date is in spite of natural disasters and other negative impacts to the industry such as the national recession of 2008. Currently, Mississippi is home to 28 state regulated gaming properties and the state is still considered a good gaming market.

As robust as Mississippi's gaming is, gaming competition is growing nationally as more and more states legalize gaming and globally both from property-based gaming and Internet gaming. Recently (2014), Mississippi has experienced the site closure of major gaming properties and new gaming development has slowed. In order to remain competitive in the gaming servicescape, Mississippi leaders must be continually informed of gaming industry trends so the best decisions for Mississippi are made. Thus, the creation of an Internet Gaming and Sports Betting Task Force to study trends in these areas is timely and relevant.

For the purpose of this report, online gaming is defined as: playing a game of chance on an electronic device that is connected remotely to a gaming system via a digital communication network. All events concerning player management, financial transactions and game management happen online without any physical interaction between the player and the operator. This report is designed according to the four areas which the task force chose to categorize its work: 1) revenue and financial considerations, 2) legal issues, 3) technology considerations and 4) responsible gaming. The terms Igaming, Internet gaming and online gaming are used synonymously in the report. It is the hope of the Task Force that the report begins to answer the questions that might arise regarding Internet gaming and sports betting. The report is intended to be viewed only as a fact-finding report and not to be a report that makes recommendations for or against Internet gaming or sports betting.

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Internet Gaming Overview

The first recorded online casino to accept a wager was based in Antigua and the wager occurred in January of 19963. Internationally, David Stewart of Ropes & Gray, LLP, reports that approximately 85 nations now have legalized Internet gaming and that in 2010, it was an approximately $30B industry with less than 15% of that revenue coming from the U.S.4 Generally, Stewart finds that countries legalize Internet gaming in an attempt to capture jobs and public revenues that it generates and attempt to regulate it closely in order to control any social risks.4 While the size of the entities vary and the level of regulation varies, it does appear that internationally, licensing is always required and that in the more developed countries where Internet gaming is legal, regulation is strong.

Legal Internet gaming has been limited in the United States with only three states currently having some form of Internet gaming, Nevada, Delaware and New Jersey. The activities in all three states have only begun to develop since early in 2013, thus providing limited data for analysis of the economic impact, either positive or negative.

Sports Betting Overview

Outside of the United States, sports betting is active and legal around the world. William Hill, the leading sports betting company in the world founded in 1934, reports operations in the United Kingdom, Gibraltar, Italy, Spain, Israel, Philippines, Bulgaria and the United States5. In the United States, sports betting is legal in Nevada and in a limited capacity in Delaware. Of relevance when exploring sports betting, is the potential profile of an individual engaging in sports betting. Information on such a profile is limited, however, based on the popularity of fantasy sports it might be assumed that the profile of the individual engaged in sports betting would be similar. According to

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