Beginning a new feature series for SBC, Brand Ambassador Ilya Machavariani Senior Partner and CEO at 4H Agency examines the technical challenges and conflicts that operators face in 2022 and beyond.
Feature-1 sees Machavariani interview US markets compliance expert, Frank, the CEO of Odds on Compliance and former VP of Legal Affairs for The Stars Group. Providing his firsthand knowledge and experience, Frank details how foreign incumbents should approach and navigate US markets fragmented state-by-state compliance landscape.
Ilya Machavariani: Let’s start off with a basic question that would allow us to set the stage for this discussion: what would be the most important thing that the industry should know about US gaming right now?
Eric Frank: The U.S. gaming industry is continuing to experience significant growth in the iGaming and sports betting verticals. More and more states are approving legislation to allow sports betting, and we expect iGaming to follow. Mobile and online sports betting is now legal and available in 28 states with two additional states, already live but with limited offerings.
From the regulatory perspective, which is our specialty at Odds On, the challenge for any operator at launch is navigating the patchwork of laws state-by-state. There’s myriad of regulations in each state with operators often looking for guidance not only at launch, but also as they are up and running, ensuring they remain compliant with tax, audit, and license renewal requirements.
IM: Can you talk about the evolution of the sports betting laws since the Federal Repeal of PASPA in 2018… How can State and Federal regulations coexist?
EF: This is a fascinating question, one best answered by looking back at some of the historical moments of sports betting in America.
In 1919, the ‘Black Sox scandal’ saw eight members of the heavily favoured Chicago White Sox accused of intentionally throwing the World Series against the Cincinnati Reds in exchange for a bribe of roughly $10,000 apiece. As a result, states began banning various forms of gambling by targeting gaming operators and bookies.
In 1961, the federal government further prohibited sports wagering, passing the Federal Wire Act, an act targeted at reducing one of the major factors of organized crime.
Many laws were passed to curtail illegal betting, and through the 1980’s the sports betting laws on the books remained and gained momentum because of a few incidents, most notably, Pete Rose’s 1989 ban from Major League Baseball (MLB) for betting on those games.
Finally, in 1992 Congress passed the Professional and Amateur Sports Protection Act (PASPA) which effectively banned states or governmental entities from legalizing sports wagering because it prohibited states from regulating or taxing sports betting. PASPA did not outlaw sports betting as it was already illegal – PASPA was focused on regulations and taxes.
Then, in 2018, the U.S. Supreme Court repealed PASPA when New Jersey challenged the law. As a result, states can now regulate sports betting and we’ve seen the explosion of regulation sweep across the U.S.How can state and federal laws coexist? I think you’re seeing precisely how in the current growth of legalized states. Working at state level means local needs and demands are met, and state laws develop to work alongside federal laws. It’s working successfully across the country because smart people are putting in regulations and compliance mechanisms that are ensuring consumers can place wagers in well-managed, secure environments.
IM: What is the current state of the US market in terms of different states opening up and wagering products and services being regulated?
EF: The U.S. market is experiencing a surge. Ohio just passed its sports betting legislation last year which means over a quarter of all live or regulated sports betting states would have passed their sports betting bills in the year 2021 alone (9 out of 31). Louisiana was another big state to pass and launch sports wagering in 2021. Other states like New York already had legal retail sports betting and also passed legislation for mobile betting which just went live in early 2022. However, online casino (iGaming) is lagging behind sports betting, with only a handful of states, but both Michigan and Connecticut launched iGaming in 2021, and given the revenue and tax benefits from iGaming I expect an increase in iGaming states in the coming years.
IM: From your perspective how competitive can the US market get, and how open will it be to foreign companies seeking to enter?
EF: The U.S. market is highly competitive. There are a few large players that have gotten a jump on the online sports betting market with 75% of the 2021 third quarter online market shares split amongst the top three, but we are seeing new products and innovation daily.
I think initially, non-U.S. companies came in and tried to apply strategies that work in Europe, Asia, and Australia to the U.S. then found that the American market has its own characteristics. Ultimately, I believe innovation will win the day and whoever can deliver the best products and continue to innovate will be successful in the market.
IM: How does US licensing work in general? What is the difference compared to European frameworks?
EF: The U.S. licensing process is multi-step and complex. Getting a license in the U.S. involves so much more than simply filling out a gaming application. There are legal requirements, strategic decisions, and tax consequences beyond the simple application that need to be addressed. Additionally, the licensing process in the U.S. tends to be far more intrusive than the standard corporate gaming application process in Europe.
In addition to filling out the gaming license requirements, there are foreign qualifications, registered agent, and tax obligations to be mindful of. What this means is that local knowledge is key. Experience in the U.S. market is critical to understanding and mastering the complexities of the ever-evolving landscape here. For example, the U.S. issued over $710 million in anti-money laundering fines in 2021—illustrating the need for strategic guidance and expertise.
IM: What is the situation with offshore gambling in the US? How is the US tackling this widespread issue?
EF: There is still offshore illegal gambling that is taking place, but it is getting harder and harder for those books to operate. It is becoming increasingly more difficult for consumers to make deposits, get cashouts, and access the sites in general. One of the best ways to combat illegal gambling is for more states to open regulations on sportsbooks and iGaming.
IM: What are the main challenges preventing the non-US operator from entering the US market?
EF: As with any market, understanding your customer is critically important. Understanding how and why Americans bet is crucial to a successful business in the U.S. That’s the number one challenge, but additionally, the regulatory barriers to entry – new licensing processes and regulatory environments – as well as infrastructure requirements needed to operate legally, also add to the challenges. It’s a complex market, but one that can be navigated with the right guidance.
IM: What would be your advice to someone who is considering entering the US betting market? What would be the appropriate strategy for market entry?
EF: Familiarize yourself with all aspects of the regulations of the state(s) in which your organization plans on entering. Many issues, such as internal audit requirements, go ignored and cause headaches for companies down the road, including ultimately leading to very costly fines for non-compliance. It is helpful to have a partner who is familiar with all of the gaming regulations and has the appropriate network to guide the organization through the entire licensing and launch process, along with providing the required audits to ensure successful long-term operations.