New Jersey to igaming marketers: "Go forth and sin no more"

New Jersey to igaming marketers: "Go forth and sin no more"

New Jersey’s Division of Gaming Enforcement recently sent cease and desist letters to several affiliates. Leading US iGaming lawyer David Gzesh analyses their action in the context of licensed operators’ struggles to establish their products among the entertainment options available.

Published 7th July 2014

Without much fanfare, New Jersey’s Division of Gaming Enforcement (NJDGE) in April continued its efforts to establish its State as a coherently regulated online gaming jurisdiction.

On April 17, 2014, the NJDGE, the gaming law enforcement agency within the New Jersey Office of the Attorney General, sent a warning shot letter to 5 (or 6) online marketing websites, as “an official notice that your website, by offering links to sites which may be offering unauthorized online gaming, may be promoting activity that is contrary to New Jersey and federal law”.

The NJDGE action came to light during public remarks by David Rebuck, NJDGE Director, on May 19, 2014, and sample copies of the referenced letters were provided by the NJDGE upon request later that day to online media and the author.

By April, media reporting on the state of regulated online gaming in the US had been echoing a consistent theme for the past several months prior to April. In response to less-than-projected revenues and acceptance by the target markets in the three States which license and offer online gaming on an intrastate basis, disappointed operators had taken to blaming about accessibility of unlicensed gaming competition within their State markets.

While some operators, notably Ultimate Gaming, also have frankly and honestly described how regulatory-induced “friction” hurts customer acquisition, experience and expectations, other operators seemingly avoid learning many of the lessons of a mature non-US industry and look offshore simply for a reason why their intrastate offerings have not gained projected market share or gross revenues.

Given this drumbeat, by early May, several offshore poker operators had already begun pulling out of US regulated State markets, with three of the four cited poker operators gone by the time of the NJDGE announcement of its cease and desist action.1 It remains to be seen whether such operator departures from the markets will satisfy the NJDGE’s mission in regulating online gaming within New Jersey.

The NJDGE’s cease and desist warning should be viewed in its regulatory context
You may recall, in November, 2013, New Jersey authorised the start-up of online gaming for persons physically present in the State.

In December, 2013, the NJDGE made clear that operators who had been “bad actors” in other States would have to wait for a chance in New Jersey, despite having settle claims elsewhere, telling PokerStars it would hold off a determination for two years on its licensing to supply the NJ-based online industry.

It seems likely that the NJDGE in 2014 now has done what it could within its mission: it essentially forced online marketers to stop selling the competition.

In response to some questions posed by iGB Affiliate, Kerry Langan, spokesperson for the NJDGE, graciously explained that education, rather than punishment, was the goal, and that continued contribution by capable online marketers would be welcome:

iGB Question 1: Is the DGE satisfied with the response so far to its Cease and Desist letters by contacted online marketing operators ? Has the DGE received any response by licensed operators or their marketing partners?
Kerry Langan: “The Division is thus far satisfied with the response from the affiliates. Most have been receptive to the Division’s concerns and have stopped promoting the illegal websites to New Jersey residents.”

iGB Question 2: Can a vendor who received and complied with a Cease and Desist Letter still apply for authorisation to act as an affiliate in New Jersey or would their past practice amount to a disqualification from consideration?
Kerry Langan: “The Division is working with the affiliates promoting the illegal websites to educate them that if they want to do business with New Jersey’s legal websites, they cannot promote unregulated, illegal Internet gaming sites to New Jersey citizens. As long as an affiliate complies with the Division’s policy, there is no reason they could not be an authorized vendor to promote New Jersey’s legalized
websites.

Several of the sites that received letters are already on our Active Vendors List which can be found here http://www.nj.gov/oag/ge/active_vendor.html. As long as they cooperate with the Division they remain authorized vendors.”

iGB Question 3: Has DGE planned a similar set of Cease and Desist Letters in the works for additional online marketers who are not registered as vendors with New Jersey?
Kerry Langan: “We have a comprehensive strategy which we are pursuing. The DGE is looking for full compliance with laws forbidding the promotion of illegal and unauthorized online gaming, and we have numerous strategies as part of a comprehensive approach to ensure that compliance.”

However, it seems highly doubtful to some industry observers that “illegal” competition accounts for the less-than projected performance of the US regulated markets. Reaction provided for this article by one industry observer, Chris Grove, bluntly assessed that New Jersey’s product and service offerings fail to meet customer expectations:

“While the letter had the direct impact the DGE sought - the affiliates targeted largely removed the ads for unregulated sites - it’s unlikely the crackdown will have any material impact on the market. The theory that unregulated poker sites are the primary force dampening demand for regulated sites in New Jersey simply isn’t borne out by the facts. Inferior software, payment processing and myriad other issues are all well ahead of unregulated sites in the line of plausible explanations for New Jersey’s online poker performance to date.”

So, what’s next for online marketing and New Jersey?
It is clear that the NJDGE is pragmatic about the benefits of effective online marketing for its licensed gaming operators. There are approved online gaming affiliate marketers in the State of New Jersey, who can offer traditional incentives to attract players to licensed operators.2 The State has no apparent desire to punish even the five or six websites that received cease and desist notices and subsequently ceased and desisted. The message has been clearly heard.

However, can even the most experienced capable online marketing site effectively promote the legal gambling as currently offered by New Jersey operators, in light of the myriad of other choices available online to entertainment consumers? “If people don’t want to come out to the ballpark, there is nothing you can do to stop them”

Whether or not marketers can sell the “New Jersey Poker Experience” ultimately may depend upon how well the New Jersey industry steps up the quality of the online gaming entertainment it offers, against a world full of other online entertainment options, including social gaming and more general online social interactive experiences. It may also turn on whether New Jersey allows an experienced capable operator like PokerStars to step out of the two-year penalty box.

Many years ago, I heard Jan Jones [of Caesars] warn the brick-and-mortar gaming industry at some conference or another that it had no choice but to get an online business model to retain any hope of retaining and replacing its aging demographic. It is no secret that the greatest success online for traditional gambling providers such as Caesars Entertainment has been in the largely unregulated social gaming sphere, not in its regulated online gambling.

Playtika and similar offerings brought in much more revenue than all the Caesars online gambling offerings combined. Similarly, MGM, aware of its aging customer base, has focused more efforts on its largely unregulated myVegas social gaming offering, designed to reward free play with comps redeemable at its gambling properties.

Time will determine whether or not the NJDGE cease and desist action will give the so-far underperforming New Jersey (and Nevada and Delaware) real money gambling industry a level playing field on which it can compete online against non-gambling online social and other entertainment offerings.

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