Jamar Johnson

Part A. Assessment

In your essay you will need to explain why, despite being home to some of the world’s most

famous land-based gambling locations such as Las Vegas and Atlantic City, the U.S. has

prohibited online gambling. You will need to identify and explain the factors in the market and

nonmarket environments (for land-based and online gambling) that explain the different policies

in the U.S. surrounding the legalization of online and land-based gambling?

The U.S. has prohibited online gambling within its borders stemming from both market

and non-market factors. To begin, it is important to outline the non-market environment which

significantly shaped the market environment for gambling in the United States. Concerning

online gambling, The U.S. Department of Justice ruled that the 1961 Wire Federal Act applies to

online gambling thereby prohibiting the supply and consumption of gambling conducted on the

internet. The U.S. Government through the Department of Justice, ruled against the adoption of

online gambling citing increased incidences of fraud, money laundering, abuse of minors, and a

weak legal environment to convict those found in breach of law. While Antigua attempted to cite

the adoption gambling for U.S. horseracing market in support of their position, the U.S. countered

by stating that, “its ban on online gambling was a legitimate measure to uphold moral values. (pg.

7).”

Online gambling faces additional challenges from the American Gambling Association,

an influential lobbyist group utilized by the major-to-small scale casino operators working to

influence legislation in its collective favor. Naturally, any opposition or threats (i.e., online

gambling) to its market position would encounter formidable challenges to gain legitimacy in the

U.S. On the opposite end of the spectrum, online gambling would be opposed by the National

Commission Against Legalized Gambling (NCALG) supported by American conservatives and

anti-gambling supporters, are worked to curtail the growth of gambling within the United States

citing repeated incidences of gambling addition, job loss, bankruptcy, increased crime activity,

unemployment, and divorce stemming from the complications of financial stress to the institution

of marriage (pg. 3 of the Case).

Aside from non-market elements, the traditional casino industry had a vested interest in

protecting its sustainability and held significant influence on within its local communities. The

casino industry maintained a reputation for embedding itself into the community fabric (pg. 3),

thereby making it nearly impossible for them to be extracted from the community. Casinos

provided direct and indirect employment opportunities to local residents (estimated at 700,000,

pg. 3), tax revenue to many U.S. state governments (to an average of 18.2% of all revenue

generated where states allowed casinos to legally operate, Exhibit 10) along with producing

operational revenue due to its physical assets ($80 per slot machine) to local regulatory

commissions. It worth noting that by 2003, the casino industry in the United States generated

revenue of $73 Billion dollars (Exhibit 5 of the case).

The reputation of online gambling was also mired in a number of difficulties which

damaged its perception and ultimately its potential adoption. Most notably, online gambling sites

contacted customers through the use of spam and other unwanted communication methods. While

industry leaders in the online gambling industry worked to broaden its reach and credibility to

those skeptical of its safety, there was legitimate concern that some existing online gambling

companies are used for fraudulent and otherwise illegal activities. Additionally, scrutiny had been

placed on the regulatory commissions created by online gambling leaders. However, the online

gambling community failed to deliver on its aim of impartiality as created regulatory

commissions were financed by the companies they were expected to regulate, undoubtedly

fostering an inherent conflict of interest.

Part B. Recommendation

In your essay, you need to make a recommendation to Rita regarding what she should

advise Miracle to do. Specifically, should Rita advise Miracle to: a) continue with its current

position of opposition to online gambling; b) switch sides and start pushing for legalization of

online gambling in the U.S.; c) something else? You should clearly and persuasively explain the

reasons behind your recommendation. In doing so, you should address both relevant market and

nonmarket factors and identify and respond to key arguments that go against your

recommendation.

There are a number of regulatory and market challenges one must seriously consider

when evaluating Miracle Casino degree of involvement related to online gambling. While

increased saturation of physically-based casinos threaten growth (Exhibit 5) and could spell anti-

trust pressure (pg. 8), the current socio-political environment within the U.S. concerning online

gambling suggests great difficulty in generating the required support in influencing policy-

makers, regulatory bodies in committing to repeal the existing interpretation of Wire Federal Act,

along with countering the reach and influence of lobbying groups such as the American Gambling

Association and National Commission Against Legalized Gambling (NCALG). There is a strong

precedence against online gambling adoption, with regulatory pressure applied to businesses

(e.g., payment processors from U.S. Government enforcement agencies) acting sluggishly in

adhering to the rulings or serving as a participant in circumventing American law. Taking on the

unpopular position of lobbying for the legalization of online gambling could damage the brand

equity of Miracle Casino and its market leadership position within the industry.

On the other hand, should Miracle Casino ignore the forthcoming decision from the

World Trade Organization and its expected favorable ruling to Antigua, Miracle will be left in a

precarious state by not capitalizing on a new avenue for corporate growth. Substantial demand

exists for online casino gambling. Within a ten year span, the industry has grown from a baseline

of 0 and surged to $10-12 billion industry (pg.4). More impressively, Party Gaming PLC

underwent momentous growth between the years of 2002-4 to experience a 50-fold expansion in

its revenue generating capabilities (pg. 4). Critically, the online gambling industry, remains

plagued by with negative perceptions, extreme stock price volatility, and failed compliance and

enforcement capabilities. Taking on a first-mover advantage point, Miracle stands to leverage its

respected and established brand, resources, and influence to provide the online gambling industry

the credibility it needs to develop further traction. Not to mention, the scale and return on

investment in a less than a year in some cases, as a result of distinct technological advantages,

serve as compelling points to take the leap financially.

All this considered, Miracle stands to lose more should it open the debate in support of

online gambling. While the financial promises of online gambling are nearly impossible to

ignore, re-framing the perception of online gambling and packaging it as a safe alternative to on-

site gambling lacks the necessary evidence it needs to be supported by influential actors in the

non-market environment. Similarly, within the market environment, Miracle will subjugate itself

to intense price competition initiated by on-site casino companies working to weaken the

company position of Miracle. The vulnerabilities of Miracle Casino during this time will be great.

Not only must you work to compellingly argue your case for legalized online gambling to

enforcement authorities, we will be required to engender support from the public, as we will be

alienated from former influential policy-makers who will stand with the American Gambling

Association.

Lastly, the support of the World Trade Organization in favor of Antigua and its

international allies assumes that the United States will abide by its decision. For all intents and

purposes, the U.S. Government could provide nominal concessions in light of the WTO ruling yet

give little of substance in the implementation of regulations designed to provide a foundation for

legalized online gambling. Although the chances are remote, U.S. Government could essentially

ignore the ruling of WTO. Such an action would serve as a direct blockade. In conclusion, I

recommend that our best course of action regarding the matter is to remain in opposition of online

legalized gambling. For opening the debate and/or lobbying in support of legalized online

gambling will generate market and non-market consequences which we are not equipped to

handle and manage.