Florida: A Case Study In How Regulatory Half-Measures Create Chaos

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Florida Politics reported this week that a gaming lobbyist for the Seminole Tribe is pressuring the newly-formed Florida Gaming Control Commission (GCC) to intervene on the subject of so-called gray machines.

The GCC had its first full, five-member meeting on Wednesday. Florida Politics quoted Marc Dunbar as having urged the commission to “communicate its existence” to local officials and law enforcement in Jacksonville, as that city considers a permissive approach to the machines.

The devices in question exist in many states and bear a visual resemblance to video slot machines. What makes them “gray” is that they include features that, according to their manufacturers, situate them outside the legal definition of gambling.

The exact nature of those features varies. However, it often involves mechanics designed to have the machines classified as games of skill, rather than chance. The schemes in Florida seem more complex, in some cases separating the gameplay from the payouts. News4Jax describes ATM-like devices that dispense cash prizes when players win a game they’ve downloaded onto their own smartphones.

The GCC Barely Exists, As Yet

Dunbar’s request sounds a bit odd. You probably wouldn’t hear other state regulators, like the Michigan Gaming Control Board or New Jersey Division of Gaming Enforcement being asked to “communicate their existence” to other officials in the state.

However, it’s still extremely early days for the GCC. It has only just finished assembling its five-member panel and is looking to hire support staff and find a permanent place of business.

The gray machines aren’t the only or even the most important gambling-related dilemma Florida faces. The status of sports betting in the state is also up in the air.

Last year, state lawmakers thought they’d found a way to allow online sports betting in the state. However, it only lasted about a month, from November to December 2021, before a federal court deemed the state’s approach to be illegal. That case is now in appeals.

Ironically, the GCC only came about because of that effort. Its primary purpose was to oversee the new gambling vertical, which no longer exists. Addressing gray market gambling may in fact be a worthy use of its time while the state tries to get sports betting up and running again.

Gray Markets And Loophole Strategies Are A Symptom Of Bad Policy

The appearance of gray markets tends to be a signal that the relevant laws are out of date. Once present, they create a dilemma. In Pennsylvania, for instance, there are political factions looking to regulate and tax the machines, and others looking to ban them. A similar game of tug-of-war is playing out in Virginia.

In many countries, including Canada, online gambling takes place as a gray-market activity. That’s because their gambling laws predate the internet, and failed to anticipate the possibility of such a thing.

The US acted to shut down gray market online gambling in 2006, with the Unlawful Internet Gaming Enforcement Act. However, the country’s prohibitionist past has made gambling expansion more challenging than it needs to be. That has led to the proliferation of legal workarounds for both retail and online gambling.

Many of these actually happen with the blessing of the relevant authorities or gain that acceptance later. In the absence of strong political leadership, it can be easier to allow the exploitation of loopholes than it is to change the rules.

Examples include:

  • Lottery couriers, like Jackpocket, which take lottery orders over the internet and buy the tickets on players’ behalf in states that lack an actual online lottery.
  • Sweepstakes casinos, which allow players to win cash prizes using federal sweepstakes law rather than state-level gambling laws.
  • Riverboat casinos in certain states, where casino buildings must be placed in a moat to be legal for historical reasons.
  • Historical horse racing machines, which count as parimutuel wagering because their payouts are determined by a database of old horse racing results.
  • Daily fantasy sports, which began as an unintended exploit of a carveout for season-long fantasy sports in the now-repealed Professional and Amateur Sports Protection Act.

Florida Sports Betting Was Itself A Legal Workaround

One problem facing many states is the existence of constitutional prohibitions against gambling. Not content just to ban gambling in their own time, prohibitionist groups of the 19th and 20th centuries aimed to prevent it from ever becoming legal.

Florida falls into this category, but even some more liberal states like California suffer from the same problem. Gambling expansion is still possible in these states, through constitutional amendments. However, it requires a referendum each time.

That additional complexity, controversy and expense often dissuade lawmakers from attempting it. When a ballot question does appear, you also tend to get astroturfed opposition popping up. Nonprofits ostensibly concerned about the harms of gambling – but actually backed by business interests that feel online gambling doesn’t work in their favor – will run ads attempting to persuade voters to reject the new laws.

Florida officials attempted to get around these problems by circumventing the need for new legislation. They simply amended the state’s gaming compacts with the Seminole tribe. That would have been fine for sports betting at the tribe’s retail properties, but allowing statewide mobile betting required some creativity.

The state argued that it considers a bet to take place wherever the servers receiving the bet are. That is, it doesn’t matter where the bettor is in the state, as long as the computers they’re connecting to are at a Seminole casino.

To make a long story short, the United States District Court for the District of Columbia rejected that logic in West Flagler Associates et al v. Deb Haaland. Florida sports betting ceased as soon as it began, putting the state back at square one.

Prohibition Produces Chaos

In the US, the word “Prohibition” is often capitalized and associated with the alcohol ban from 1920 to 1933. And yet, we don’t call that period “the Responsible ’20s,” do we? They were the Roaring ’20s largely because that policy backfired so spectacularly on both a social and legal level.

In the end, that ban lasted only 13 years. However, the boom in organized crime it fueled has had repercussions still being felt today.

Demand for things, especially “vices” like sex, drugs and gambling, can be likened to a river. Regulations represent attempts to control the flow in various ways.

Building a dam might temporarily appear to stop the flow. However, the water isn’t going anywhere, but rather building up. Sooner or later, it will find a way around, over or through the barricade. Depending on where it ends up, the consequences might be worse than just letting things run their course.

That’s not an argument for a laissez-faire approach either. Good regulations don’t obstruct the flow, they direct it. They recognize that demand can’t be eliminated. Instead, they seek to find the least harmful path toward filling that demand.

At the moment, Florida’s worst enemy in the fight to control gambling is its own constitutional prohibition against it. The chaos it’s facing today is a direct consequence of those earlier attempts at prohibition.

One can only hope that lawmakers in all 50 states will take note of that lesson as they mull the question of how to deal with the rising demand for online gambling today.

About the Author

Alex Weldon

Alex Weldon is the Casino News Managing Editor for Bonus. He’s a former semiprofessional poker player and has been writing about online gambling professionally since 2014. Prior to his current position, he was Managing Editor at Online Poker Report and, before that, the GameIntel Poker Update, a subscription newsletter for industry executives. Alex provides insightful content on the regulated online casino and poker industries, with an emphasis on legislation, regulation, responsible gambling and business strategy. His writing about poker has earned him multiple nominations for the American Poker Awards over the years.

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