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Regulation Meets Innovation

Regulation Meets Innovation

When the Nevada Gaming Control Board determined in October 2015 that daily fantasy sports, or DFS, companies must be licensed to operate in the Silver State, many observers falsely presumed that the casino gaming industry was flexing its muscle to shut down an upstart competitor. In actuality, Nevada provided legal clarity and a roadmap for DFS’ continued success—exactly what our industry is seeking across the United States.

Our industry also is seeking a greater focus on the intersection of regulation and innovation, two critical components of gaming that are often at odds. Nevada Governor Brian Sandoval appreciates this challenge, and our industry applauds him for determining how Nevada can lead the way in regulating DFS and other important disruptors to the traditional gaming product.

DFS is a compelling upstart business caught in a legal gray area. With billions of dollars changing hands and thousands of participants, DFS also is an industry in need of consumer protections and other regulations that ensure the integrity of its product.

But DFS is not the only one caught in a legal gray area—so too are the casinos that might wish to do business with these new companies. Over the past year, gaming regulators have warned casinos to steer clear of DFS lest we risk our multibillion-dollar privileged licenses. Yet, how are gaming companies supposed to stay ahead of the curve of consumer demand—which DraftKings and FanDuel have clearly tapped into—by sitting on the sidelines?

 Even the majority of professional sports leagues, which have long opposed anything that toed the line of gambling, have not only embraced but also invested in DFS. In the NFL alone, 28 of 32 teams entered into business relationships with DFS companies.

 Removing DFS from the legal “gray zone” and establishing a regulatory structure is critical to the casino gaming industry’s business relationship with DFS companies.

 One of the challenges in regulating DFS is that they don’t fit into the traditional statutory and regulatory silos. They are not like slot machines, live poker or other standard casino games; instead, they are new platforms that

present unique sets of questions. The challenge for regulators, policymakers and the casino industry is to build an effective framework for bringing these new platforms into the fold without strangling the very qualities that make them innovative in the first place.

 Two guiding concepts could help with navigating this new terrain and maintaining Nevada’s historic role in setting the gold standard for gaming regulation.

 First is the need to enable innovation. Can revolutionary gaming innovations happen in a heavily regulated marketplace? Evidence suggests that the unregulated market—birthplace to disruptors like DFS—is a type of testing lab. As new platforms become established, regulations should aim to integrate them into our industry without pushing the customer down the path of least resistance to the unregulated, illegal market.

 Secondly, regulations should be flexible. In gaming’s early days, casinos competed against the new building across the street. Later, casinos fought for customers with casinos in a neighboring state. Now, as gaming operates in 80 percent of the United States, casinos are competing against every other entertainment option. Regulatory flexibility will allow operators and manufacturers to rapidly adapt to changing consumer trends and help to ensure a thriving gaming industry, which states count on for significant tax revenues.

And just like gaming operators and suppliers, regulators need to be nimble to keep pace with emerging technologies, shifting demographics and changing market demands. Otherwise, rules become obsolete before they are even implemented.

The Las Vegas of today hardly resembles the Las Vegas of 20 years ago, and Nevada can send a message that it will continue to be the gold standard in gaming innovation.

Follow Geoff Freeman on Twitter: @GeoffFreemanAGA.

By Geoff Freeman

Geoff Freeman is President & CEO of the American Gaming Association. Follow Geoff Freeman on Twitter: @GeoffFreemanAGA.

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