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New Jersey Law Would Require All Online Gambling Software Providers to Have a Casino License

New Jersey Assemblyman and noted anti-online poker advocate Ralph R. Caputo is currently sponsoring a bill (Bill) that would make it illegal for any “Internet gaming affiliate” (Affiliate) to operate in the state without first obtaining a casino license.

It also stipulates that this licensing requirement could not be waved under any circumstances.

If passed, the Bill will remove the streamlined approach currently undertaken within the New Jersey Division of Gaming Enforcement (NJDGE) itself and instead subject Affiliates to the additional scrutiny of the NJ Casino Control Act (Act) and by extension the New Jersey Casino Control Commission (Commission).

The vote to pass the Bill out of the Tourism, Gaming and the Arts Committee was unanimous and it could now go to the full chamber for a vote.

Why Have One Sentence of Regulation When You Can Have Ten Pages Of It?

Currently, affiliates are required to obtain a “Casino Service Industry License” through the NJDGE. Affiliates seeking to partner with land-based casinos must meet the following NJDGE standard to be granted a license:

Personnel/qualifiers must demonstrate good character, honesty, and integrity as well as financial stability, integrity and responsibility. Qualifiers must not have engaged in any conduct that is prohibited by Section 86 of the Casino Control Act.”

This is a much less onerous burden of proof than the ten pages of regulations which the Commission has for granting a casino license – most of which merely serve as an outline/guide to the myriad of forms and declarations required of applicants.

Additionally, the Bill would add layers of regulatory oversight by keeping the NJDGE in its current role as an investigatory body for applications, while removing its ability to make a final decision on them by transferring that authority into the hands of the Commission itself.

Third Party Software Essential to the Industry

The potential for regulation to be ratcheted up is definitely a cause for concern amongst Affiliates. However, they are not the only ones who will be sweating the Bill as it moves through the legislative process.

Land-based casinos generally have zero background in running online gaming and therefore currently rely on partnerships with experienced Affiliates to successfully enter the market. This Bill threatens to severely complicate (if not entirely destroy) this model, raising the specter of a severing of the link between name-brand properties and Internet customers.

Given that revenues from online gaming have been far below projections, it is unlikely that a casino such as the Borgata will make the investment necessary to remain open if it can no longer easily partner with an experienced Affiliate such as PartyPoker. The much likelier scenario is that it will simply exit the market altogether, forgoing the revenue generated under the current system.

Therefore, the Bill could seriously undermine – if not destroy – the fledgling NJ online poker and gambling industry. That’s why serious opposition to it can be expected from land-based casino interests in the state.

In Case You Didn’t Know There Is This Company Called PokerStars

It seems as though no discussion about the regulation of online poker in the US is complete without at least a tangential reference to the possible return of PokerStars to the market.

Caputo is known to be anti-online gaming generally, but is especially vocal in his condemnation of PokerStars due to the indictments facing former owner Isai Scheinberg.

It is therefore likely that his sponsorship of this Bill is primarily aimed at ensuring PokerStars does not have a backdoor into the NJ market that would allow the company’s previous run-ins with the US Department of Justice (DOJ) to be downplayed or forgotten.

Interesting to note on this point is that by requiring Affiliates to apply for a casino license, the Bill would also subject them to a provision of the Act which says the Commission may consider “undue economic concentration in Atlantic City casino operations.”

Given the fact that four Atlantic City casinos have already shuttered their doors this year alone, this provision could theoretically be used as a “fail-safe” to ensure that even if PokerStars could successfully argue its sale purged the company of the taint of illegality, grounds for denying it a license without facing a serious court challenge would still exist.

Whether or not that is a deliberate calculation on Caputo’s part or just a coincidence remains to be seen.

The Waiting Game

The casino properties in the state have as much interest in running an online card room as 888 has in operating an Atlantic City casino. The relationship between land-based and online gaming providers is a mutually beneficial one that the industry will fight very hard to preserve.

While the Bill has only passed out of committee, it is still something that will be closely watched by the industry and the poker community.

 

 

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Bradley Chalupski

Bradley Chalupski made his first deposit onto an online poker site in 2009 and has been paying rake and following the poker scene ever since. He received his J.D. from the Seton Hall University School of Law in 2010.

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