In 1994, Microgaming became the first real-money online casino to open its virtual doors. The industry grew more rapidly than anyone could’ve ever predicted. In 1996, there were only 15 online gaming websites. Within a year, that figure increased to 200.
As the online gaming industry grew, many brick-and -mortar casinos became skittish about the competition. Online casinos could operate with a smaller infrastructure and offer their services more cost-effectively. They could also tap deeper player pools, which would allow them to offer larger payouts without facing the same liquidity risks.
Brick-and-Mortar Casinos Evolve on Attitudes Towards Online Gambling
Traditional brick-and-mortar casinos lobbied for the Unlawful Internet Gambling Enforcement Act of 2006. Gaming industry analyst Sebastian Sinclair said that many of the country’s brick-and-mortar casinos feared that prohibition was the only way to save themselves from obsolescence. They formed an unusual alliance with conservative activist groups that feared the social implications of online gambling.
“When any industry is confronted with something of this nature, a game changer that is a paradigm shift, the first reaction is to circle the wagons to protect your business,” Sinclair told the New York Times. “But then, that changes over time.”
The UIGEA partially shielded land-based casinos from competition with their online counterparts. On Black Friday, the Department of Justice demonstrated its commitment to the law by indicting the owners of Full Tilt poker, Absolute Poker and PokerStars, as well as a couple of banking executives in the United States. The Black Friday indictments spurred discussion over the need to legalize online gambling. Many brick-and-mortar casinos maintained their support for the UIGA, believing that they could maintain prohibition and keep their online competitors out of the market.
However, many Americans continued to play on black-market gaming sites overseas, which weakened arguments in favor of prohibition. Some casinos, such as Harrah’s began to support legalization, believing they could gain a share of the market.
The DOJ handed these casinos an unexpected setback the following year. DOJ officials revised their interpretation of the Wire Act. They argued that the law only prohibited sports betting. This left the legality of online gambling in limbo. While federal law no longer outright prohibited online gambling, federal regulators would need to draft new legislation to regulate it across state lines.
This opened the door for states to legalize online gambling within their own borders. Many brick-and-mortar casinos were forced to reassess their position on online gambling. The traditional casino industry was teetering on bankruptcy. Boardwalk casinos in Atlantic City, New Jersey had taken a substantial blow from the recession and the community’s faltering tourist industry.
Casino executives realized they could either continue to oppose online gambling or partner with leading online gaming providers. They lobbied for legislation that would require online gaming companies to partner with a brick-and-mortar casinos before they could receive a license from the state’s gaming regulators.
Within the year, Nevada, New Jersey and Delaware all passed legislation that legalized online gaming to some degree. Nevada was the first state to legalize any form of online gambling, but the legislation was limited to online poker sites like 888Poker.com. New Jersey was the first state to legalize both online poker and casino games. Delaware followed shortly thereafter. Four years later, Pennsylvania became the fourth state to legalize online gambling.
As legalization spread, attitudes of brick-and-mortar casino executives became more mixed. Several years earlier, their opposition to online gambling was near universal. As states began enacting laws to regulate the emerging industry, many began to see the industry as a salvation.
Support for online gambling wasn’t universal though. Billionaire casino tycoon Sheldon Adelson urged Congress to introduce a new bill that would ban online gambling. His bill was supported by Reps. Jason Chaffetz, a Republican lawmaker from Utah.
“That is so offensive and wrong,” Chaffetz said. “When you’re a seven year-old kid and there is no physical barrier, and all you need to do is get your iPhone, that becomes a whole new world… This is the Wild Wild West. There are no rules, no prohibitions, no structure, no oversight, nothing.”
Adelson’s bill has stalled and casinos have been more supportive of online gambling than ever. Recent figures have shown that online gambling has not cannibalized revenue from brick-and-mortar casinos. It has also added to the bottom line for both land based casinos and their online partners. According to recent figures, New Jersey casinos banked $245 million from online sources in 2017, a 25% increase from the prior year.
Casino executives are realizing that online gambling wasn’t the bane they initially expected. Nevertheless, Adelson maintains his opposition to the industry.
