NATIONWIDE: An Introduction to Gaming & Licensing

Gaming Law: A Landscape of Rapid, Innovative Change and Opportunity

A Booming Market Despite the Pandemic 

To understand the speed and revolutionary nature of the changes in gaming law over the past few years, one need only look at the dramatic reversal by the National Football League (NFL), whose Commissioner stated unequivocally in 2017 that the League “strongly opposed sports gambling.” Four short years later, this same Commissioner has announced that the NFL was “actively seeking ways to engage more sports betting fans” – surely influenced by the billions of dollars in revenue currently generated through the League’s partnerships and sponsorships with gaming entities.

Online betting on sports and other forms of electronic games of chance has grown exponentially since 2018’s US Supreme Court decision in Murphy vs. National Collegiate Athletic Association (NCAA), which overturned the Professional and Amateur Sports Protection Act (PASPA) of 1992 that outlawed sports betting within a state’s borders. To date, now almost half of the states in the US have passed laws permitting sports betting, and half of those also allow online betting.

This surge in activity continues to increase – even in 2020, when other industries were hard hit by the pandemic and consequent economic crisis. Most casinos were forced to close, and yet the popularity of online gaming kept the gaming industry afloat. In October 2020, Americans spent an estimated $3 billion on legalized sports betting, and betting revenue was up by 53.5 percent, according to the American Gaming Association. In December 2020, New Jersey’s online gambling sites came just short of bringing in $100 million in a single month, providing much-needed tax revenue to the state’s struggling economy.

A Spreading Patchwork of Government Regulation, and a Growing Ecosystem of Industry

As other states witness the positive impact of sports betting on their tax coffers, more are likely to allow the online option, and move beyond just sports betting. There are countless other games of chance that can be enjoyed online; in fact, 50 percent of New Jersey’s revenue from legal betting comes from poker and casino games, not sports betting. Online games that do not depend upon brick and mortar establishments also broaden appeal to a wider audience and younger demographic, ensuring a customer base well into the future. State and local governments have a vested interest in developing and implementing rationally regulated systems of gaming that will protect consumers and open up fruitful revenue streams.

As states seek ways to supplement their budgetary shortfalls, a proliferation of opportunities in the gaming universe is creating a booming network of companies to support online betting. Beyond just casino operators and sports teams, a myriad of ancillary industries have emerged, from payment processors and data aggregators to geolocation providers, software developers and digital media. This ecosystem pays taxes, offers employment and will continue to influence the legislative and legal landscape as more companies navigate this new frontier.

The revenue sharing relationships and cross-marketing agreements that sports leagues, teams, athletes, arenas, entrepreneurs and brands are making with members of the online sports betting industry would have been unimaginable only a short time ago. But with these new relationships comes risk: the biggest problem we see is when investors, partners, or vendors are required to complete financial disclosure forms for state licensure; often operators have formed relationships without realizing their license and successful launch of services and revenues may be contingent on these outside parties also receiving one. It is always advisable for a company to get astute regulatory and compliance counsel before taking on financing and investors, or signing agreements with suppliers and vendors, so that they understand the possible pitfalls.

The rapid expansion of this industry and the high valuations at stake make it imperative that all potential and current participants understand the legal and social trends that impact the viability and sustainability of proposed operations. Attorneys with experience not only in gaming law, licensing and compliance, but also in M&A and financing, will be necessary to navigate this increasingly complex sector.

Rise of M&A Activity 

In the past 18 months, the online sports betting industry has spawned multiple public companies valued in the hundreds of billions of dollars. Although months of quarantine may have whetted the market’s appetite for gaming that can be enjoyed in the comfort of one’s own home instead of in a land-based casino, the truth is that customers were already consuming these products. The regulated gaming industry converted the former market for offshore, often illegal sports betting operations into paying customers. And that market is still growing.

The biggest expense for online gaming operators at this time is the cost of acquiring new prospects: DraftKings and other companies need huge databases of potential clientele to keep growing and maintaining profits. This opens the door for data sharing agreements and acquisitions of companies with similar audiences: from sports teams to owners of stadiums, to investing sites like Robinhood and manufacturers of products that appeal to this demographic. By buying companies with compatible audiences, gaming companies can acquire the valuable asset of data. M&A activity in this area is thus expected to flourish; as legalization spreads from state to state, smaller companies will become ripe for acquisition if they offer operators the ability to connect with more customers. 

Need for Experienced Counsel 

The services of experienced legal experts will continue to be crucial to companies operating in the gaming space, especially those offering services through primarily or exclusively electronic platforms. Failure to comply with gambling rules and regulations can have broad negative effects on a business and its owners. Disgruntled bettors can bring civil claims. Government regulators can challenge operations as violating gambling and/or licensing law. Legal counsel is necessary for online companies and affiliates to mitigate these risks and understand the regulatory requirements, including ongoing mandates such as ownership reporting, compliance disclosures, consumer protection standards; and other obligations, such as jurisdictional requirements. Experienced gaming attorneys can help to ensure not only compliance with current regulations, but also preparedness for shifts in government policy and public expectations.

Gaming and licensing attorneys also provide assistance with numerous other aspects of operating within this sector, including cryptocurrency, data privacy, and global trade implications and risks. Foreign laws, like the General Data Protection Regulation in the EU, and state laws like the California Consumer Privacy Act, impose significant requirements regarding the collection, use and storage of residents’ personal information. More legal challenges and complications may also develop as legislative bodies reinterpret outdated regulations and update them to match our new technological reality. Ensuring compliance and promoting success within this landscape will take concentrated, experienced and customized legal guidance and support, as well as engagement in the legislative and regulatory process to ensure new laws and regulations are fair to consumers and businesses.