AGA Appeal For Federal Help In Fighting Offshore Books Was Overdue

It was overdue.

On Wednesday, the American Gaming Association publicly pressed the U.S. Department of Justice to go after illegal gaming operators who are a financial thorn in the side of legal gambling businesses and also create jeopardy for an unwary or reckless public.

In a letter to U.S. Attorney General Merrick Garland, AGA CEO and president Bill Miller identified two specific types of illegal gambling enterprises – offshore internet operators who offer online sports wagering and casino games, and so-called “skill games”, which are gaming machines that resemble slots and are often found in bars, restaurants and social clubs.

For the fast-growing internet gambling industry in the United States, it is the offshores that pose a major competitive headache.

There’s no way to know exactly how much money is being bet with the offshores – companies such as Bovada, MyBookie and BetOnline, according to Miller – but anyone who understands the gaming industry knows that offshore wagering far exceeds the licensed and regulated variety. The AGA estimated the illegal market at one time exceeded $150 billion annually. That’s far more than double the legal sports gambling handle in America last year, which was about $58 billion even as 30-plus states have legal sports betting. Six of those states also offer real money online casinos.

Dealing with the offshores has flummoxed legal operators, as evidenced by the comments of none other than DraftKings CEO Jason Robins.

Last year during an investor presentation, Robins said, “We’ve seen a lot of data through the research that we’ve done that we actually haven’t converted a ton of people over from the illegal market yet, and those are arguably the most valuable players.”

As for why those customers haven’t moved, Robins suggested it’s as simple as the offshores being there first and customers getting comfortable.

”I think it’s just stickiness; this comes back to the point we made earlier that early-mover matters,” Robins said. “People get comfortable with a particular product, a brand, a (user interface) and they just don’t want to change.”

Well, there are other reasons, too. One is that the offshores can and often do offer better odds. The AGA’s Miller conceded as much in his letter to the DOJ, saying that because the offshores don’t have the expenses of regulation and they don’t pay taxes, they “offer better odds and promotions and ignore any commitment to responsible gaming.”

It is a good thing that the AGA stepped up on the issue. AGA officials were pressed on engaging the DOJ by Gambling.com Group at the industry-wide G2E conference in Las Vegas in October, and again during a virtual state-of-the-industry presentation in February.

It’s important to understand that the gaming industry is typically loath to have the federal government poke its nose into its business (after all, that’s what kept sports gambling illegal in most of America until 2018). But regarding the offshores, federal officials are the key because they have the muscle – that has been crystal clear from the first time the gaming industry complained about the illegal activity.

”We believe that at the end of the day there needs to be a coordinated effort among, mostly at the federal level, to ensure increased enforcement on these offshore operators,” Miller told GDC in February. “I think that starts with the Department of Justice and Treasury (Department) but also includes agencies like the Department of State that negotiates trade agreements and have trade agreements with countries, some of which harbor and really, quite frankly, encourage these illegal offshore websites that are able to advertise on social media platforms. And then the ability to and the need to restrict that type of advertising on these platforms that can be seen in legal (U.S.) jurisdictions.”

Until the AGA finally fired off its letter to the DOJ on April 13, it seemed like the gaming’s industry favored way to deal with the offshores was by dumping the issue into the laps of bettors. The message was that customers who gambled with the offshores were taking financial risks, that the bettors might be cheated, that their money might just disappear, that their personal data might be hacked.

Granted, all of that could happen. But saying that the public had to play sheriff regarding the offshores was just plain silly.

And the reality is that the offshores have built strong brands, and that’s usually based on good service.

In fact, in his letter to the DOJ, even the AGA president had to concede that average fans are actively seeking out the offshore operators while often unaware of the difference between legal operators and the not-so-legal.

Miller wrote: “Nationwide, internet searches for offshore sportsbook brands increased 38% last year, faster than the search growth for legal U.S. operators, and searches for offshore brands represented a majority of all sportsbook searches. Bovada alone accounts for 50% of all searches.”

In 2011, the Department of Justice dealt a death blow to online poker by seizing the internet domains of the most popular internet poker websites and confiscating, for a time, the funds those companies were holding for customers. Ultimately, many poker players recovered their money but the drama made a big impression on the public and online poker still struggles even though it can be made legal by individual states.

So far, though, no similar crushing move has been made against offshore sports betting and iGaming companies who have learned to operate deftly.

There is no easy answer to the problem of offshore operators, especially if it all falls on the gaming industry. To legalize online gambling, whether sports or casino play, state governments will always want their piece of the pie. Consider New York, with a 51% tax rate for online sports betting. High tax rates make it difficult for legal operators because that cost gets passed on to the customers, perhaps in the form of worse odds and lesser promotions than the offshores offer – all of which Miller mentioned.

The AGA has finally, in a forceful way, put the responsibility for protecting an emerging American sports betting industry, which contributes millions of tax dollars in various states, as well as the welfare of wagering consumers on federal law enforcement.

Again, it’s overdue.