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States Regulating Online Gambling and Shutting Out Foreign Operators?

October 28, 2009 (CAP Newswire) — Since it seems that the UIGEA is here to stay, at least for the short term, some states have begun plans for legalizing and regulating online gaming within their own borders, ignoring the larger national market.

One of the more confusing (and poorly understood) aspects of the UIGEA is that it doesn’t necessarily outlaw online gambling; it prevents inter-state online gambling. States are still theoretically free to set up their own online gaming networks within their own borders (with a certain amount of restrictions). California gave it a halting start last year and plans to try again in 2010. Florida is also considering doing so. And Illinois has just legalized online horse race betting. (Although some feel that UIGEA regulators may come down on that in the near future.)

There are many far-reaching results that would come from a trend of states legalizing online gaming within their own borders, adhering to the UIGEA framework. For starters, it would likely prevent a nationwide online gambling law, hampering the efforts of Barney Frank and other legislators targeting the UIGEA.

Perhaps more significantly for the online gaming industry, though, it would exclude foreign operators from doing business in the U.S.

That means that big brands like Full Tilt Poker and bwin would be legally locked out of one of the largest and most lucrative Internet gambling markets in the world. And the results from that would be the rise of other, smaller online gambling companies — possibly just a single operator per state, or maybe even a state-run agency.

Then again, those brands are extremely popular, and Internet ooker players in the U.S. who have found ways to continue playing on them — and there are many; 1.5 million in California alone, according to most estimates — would probably prefer to continue doing so, basically shutting off the new sites. And that could lead to bigger problems, and possibly more messy legal fights in the U.S. — the last thing the online casino industry needs.

And if new companies did appear in each state, to what extent would these new companies offer affiliate marketing programs? And how reliable and/or profitable would they be for affiliates? Would it even work to offer an affiliate program that's only valid for one specific state? At this point, all this is anyone’s guess.

EGR Magazine has another take on the subject. Check it out here.