As the Unlawful Internet Gambling Enforcement Act, or UIGEA, continues to lose its power to prevent the several states from legalizing and regulating online casinos, many states are looking to other countries for their experience in regulating online casinos. The purpose of legalizing online casinos is to tax winnings and profits and the states are very strapped for cash these days so any new source of tax revenue is quite welcome.
Taxes Begin with Bonuses
Casino bonuses are one of the ways that online casinos enhance players’ accounts and are also a better way for states to see profits and winnings for tax purposes. When players travel to land based casinos, they buy airline tickets or drive. Everything they do is already taxed and there is no real new source of revenue for the states. The money they spend traveling comes off their bankroll in the casino thus lowering the casino’s profits and the players’ ability to earn winnings.
Vastness of Cyberspace
States want to be able to legalize online gambling because cyberspace is functionally infinite. Gamers have many advantages when they gamble online such as the aforementioned bonuses, a vast offering of games, easy access to many online casinos without the need to step outside, and never any waiting for a seat or a game. Finally, the newest generations of smartphones and tablets have such clear and sharp graphics that mobile gaming has overtaken desktop0 gaming
This is not to say that land based casinos are doomed. In fact, land based casinos are experiencing a boom of their own. However, the big tax dollars will come from online gambling in all its forms.
Looking to the United Kingdom
The United Kingdom Gambling Commission was established in 2005 when the government saw that it was falling behind innovations in online technology. The first major government official to see that the country needed to regulate online gaming better was the Culture Secretary, Tessa Jowell. As culture secretary, she had her finger on the pulse of all aspects of British culture and saw that all things online were not only new and exciting as a trend but were the future of many aspects of culture including gambling.
United Kingdom Gambling Act
This law both established the UK Gambling Commission and set forth three main objectives of the regulation of online gaming and gambling.
Protecting People at Risk
Regulation needed to be strong to protect the underage population and the population susceptible to problem gambling from becoming ensnared by the easy accessibility of online gambling. Some felt that the government could simply ban online gambling altogether but this approach was rejected both because those not at risk deserved the access that online gaming offered and also because online gaming was the biggest new source of tax revenue.
Given that the regulation of online gambling was soon to be a fait accompli the government sought ways to make it safe for everyone.
The primary way the British government protects the at-risk population is by limiting advertising. Any advertising that might entice an underage person or a problem gambler is strictly forbidden. The risk that an online casino runs by flouting the advertising regulations is the loss of their online gambling license.
The UK Gambling Commission established three types of licenses that together form a kind of firewall against bad online gambling practices. A license to run an online gambling operation in Greta Britain is not a one size fits all matter and one license does not last forever. So, online casinos are very self-conscious with regard to the two main at-risk populations.
When online casinos first began operations they were regulated by small jurisdictions like Malta and the Isle of Man. The British government decided to take over the regulation in order to be more sure that every licensed online casino was running a fair and aboveboard operation.
Fairness begins with protecting gamblers’ financial assets and personal information. To prevent hacking, casinos employ the best encryption software available to any online concern. When people purchase items online and send money either via their credit card or any of the dozens of other ways money can be transferred online, their money is protected by the same encryption software as that used by online casinos. Furthermore, online casinos pledge to protect gamers’ personal information.
Fairness also applies to the games themselves. The Random Number Generator (RNG) determines every outcome of every game so no one can say that a game was rigged. Since the RNG is the sole arbiter of game results, there has always been the possibility that an online casino could be hit by two large jackpot winners in a very short time. The UK Gambling Commission oversees verification of all online casinos’ financial stability so that only an online casino that is fully monetized can get a license.
The experience of Las Vegas where organized crime interests ran many land based casinos for generations was primary on the minds of British policy makers when they began creating regulations for online casinos. The desire is that there be absolutely zero link between crime syndicates and online gambling. This is especially important in the United States where illegal sports gambling has been a multi-billion dollar enterprise for decades and the UIGEA made online money transfers to casinos illegal yet many casinos and gamers found ways to work around the ban.
There is a theory in tax policy that says that if taxes are too high a government can actually derive more tax revenue by lowering the tax rate. This idea was first proposed by Arthur Laffer and is expressed graphically in what has become known as the Laffer Curve.
States want to maximize tax revenues from online gambling but are at risk themselves of setting the rate too high and actually sending gamblers back to the illegal gambling markets.
In Great Britain, the tax rate on casino profits is only 15% which is far less than the rate on personal income. In the United States, some jurisdictions have flirted with a much higher tax rate of 30% or more and have met with great opposition to such high rates. So, if the states seek to follow the British example, they will keep the tax rate for casino profits to 15% or less.