Online Gaming: Time to Give it its Due!

Posted by: on Oct 9, 2012 | One Comment

In the first part of this article, which you can read here, we discussed the hurdles that online gaming and its legal status have witnessed worldwide. While the size of the widely popular gambling form is difficult to measure, there are a few ways in which the necessary change can be brought about. In this section, we will talk about those factors that can usher in some positive developments in this regard.

Against the backdrop of the irregularities in governing the vast online gaming market, there are a few steps that have become the need of the hour to salvage this omnipresent phenomenon.

Controlling Cross-Border Liquidity

The current trends related to the regulation of online gambling in the US as well as the EMEA (Europe, Middle East and Africa) region are concerning. The scenario is likely to evolve and improve in the coming years. In the United States, the efforts of the government to set up interstate regulations have already caused tension and strain owing to the inherent autonomous nature of the Internet. In Europe, services like online poker are restricted and this is something that may come under scrutiny. As the smaller countries begin to license and legalize online gaming, the demand for liquidity to be shared is surely going to rise. Moreover, the current legal binding by the European Commission that permits citizens to engage in cross-border services from anywhere in the European Union will result in the pressure intensifying.

Emerging Change Drivers

Let’s take the example of poker. One cannot play this game with having someone to play against. Now, this may not be possible all the time. Especially in the smaller territories, there are unlikely to be many players within the local area. Owing to this, it is difficult for these services to grow. What is required is to permit cross-border gaming, along with liquidity flows between territories, which can boost revenues as well as tax receipts.

Such a step has already been taken. The ‘EuroMillions’ lottery that has presence in 11 countries of the continent and the ‘Powerball’ lottery that can be played in all the states of the US, are prime examples. While such steps to concretize state-level online gaming regulations are a rarity today, cross border revenues, profits and liquidity flows may craft operational, taxation and financial challenges for governments and operators.

Pragmatic Taxation Levels

When it comes to tax generation, governments always feel weak in the knees. And this is where online gaming works. It provides opportunities for governments to generate tax revenues by legalizing and licensing its services.

However, what can pose a problem here are the taxation levels. When deciding the taxation levels of both customers and operators, governments need to be aware of how to balance market growth and tax receipts.

In France, where online poker is a legalized entity and boasts of a large number of established operators, the high tax rates set by the government have led to disappointing profitability levels. And the same can happen in Germany, where the current proposals threaten to change the taxation scenario.

Many believe that governments use high taxation as a tool to make the sector appear unattractive as is done in the case of nicotine and tobacco. Whatever the reason, the truth is that a heavily taxed online gaming market restricts growth and tax receipts. The need, therefore, is to set practical and encouraging tax rates.

Diverse Approaches for Different Disciplines

As online gaming boasts of an array of disciplines, there are cases where different forms of gaming may be subjected to different ways of being regulated. For instance, poker in the US is considered as a game that is skill-based and finds an important place in American history and culture. It is, in fact, one of the most acceptable forms of online gaming.

Since poker has been quite popular in the nation, online poker service providers are likely to be permitted consented to function on an interstate format in the US in a few years. This change can prove to be a turning point for legalized online gaming and can usher in a change in the global sector.

Online betting on sports like horse racing is already flourishing in the US and will only grow in the coming years. Even online lottery finds various takers in the country and is expected to soon cross state borders. On the other hand, table games remain an illegal form of online gaming in the US and are unlikely to witness a change anytime soon.

One particular segment in which diverse regions are likely to act separately is sports betting. In important European markets, such as the United Kingdom, the online market for betting on sports like cricket and soccer is already a jaunty one. In the US, though, sports bodies like the NFL do not regard betting on the result of various sporting activities as a healthy practice and this form of gambling is unlikely to become legal in the country.

Online Gaming + Social Networking = A Deadly Combination!

People spent one in every five minutes of being online on social networking sites, according to a comScore report published in December 2011 (the report was called It’s a Social World: Top 10 Need-to-Knows About Social Networking and Where It’s Headed). “The emergence and widespread global adoption of social networks has vastly influenced human interaction on an individual, community and larger societal level, and underscores the convergence of the online and offline worlds,” stated comScore CMO Linda Boland Abraham. The rising popularity of social networking can prove to be a significant growth driver of online gaming. A positive sign in this regard was seen with the social networking site SecondLife, which enables users to create a virtual world. The site was host to a number of virtual casinos and lottery games and garnered a terrific response from online users.

Although the site had to ban virtual gaming in order to stay away from any regulatory action, it had proved that the combination of social networking and online gaming can proffer positive results and give the sector a new dimension.

What makes social networking a viable option is its current popularity and its usage by people of all age groups. In addition, mobile devises are fueling the usage of social networking sites. According to the comScore report, two in every five smartphone users connect to social networking sites almost every day. This boosts the benefits that such sites can offer. Games like ‘fantasy sports leagues’, where users can form a team of their favorite players from various teams, have already garnered an enthusiastic response on these sites. A recent development in this regard was the launch of Chiliconnect, a social networking interface by Chilipoker in 2011. Chiliconnect allowed players to share their online poker game results on social networks.

If these factors are applied with aplomb, the structure of the global online gaming can attain a more definite shape. Through the two articles, we have elaborated on the various regulatory challenges being faced by the online gaming industry and the steps that can be taken to address them. However, all this can be done only if the legal bodies of the world willingly take these steps, which will protect users and generate income for the government in the form of tax.


1 Comment

  1. Online Gaming: The Omnipresent Phenomenon
    October 9, 2012

    […] Don’t miss the next article on Online Gaming. […]


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