Lessons learned from Michigan’s launch

Almost a year before our internet gaming laws passed, we began studying how other states approached igaming. We assembled a team to review the igaming statutes and regulations of New Jersey, Pennsylvania, Indiana, and Nevada in order for us to learn how these jurisdictions addressed issues such as player accounts, licensing requirements, and remote gaming systems.

We assigned each team member a topic area and required written analysis of the other jurisdictions and recommendations for Michigan. This exercise was very difficult, time-consuming, as well as frustrating. However, when the igaming laws passed, we were familiar with the igaming best practices of other jurisdictions.

To the extent possible, you must engage during the legislative process. Politics being what it is, states may not want gaming regulators involved in negotiations over substantive provisions of the bills, such as tax rates, promotional deductions, etc. That said, it is important you get the regulatory tools you need to regulate igaming — maybe it’s absolute confidentiality of all materials submitted in a license application, the ability to issue substantial fines, funding for your agency, or other matters. You will be the ones that regulate this, and if you don’t have the tools you need, maintaining the integrity of gaming will be impossible.

After the law passes

Now the pressure is on! Stakeholders, legislators, and the media will be calling to ask when you will be launching igaming. Hopefully you already have a head start, as this will be a very intense and stressful period. Regulations, licensing, technical standards, and other difficult tasks are all on the horizon.

The leader of the gaming commission needs to address the agency with the clear and unequivocal message that igaming is not retail gaming. Sure, there are similarities — odds, RNGs, payouts — but the risks are much different. Internet gaming cannot be regulated the same way as retail gaming. You want the agency to try and think critically and take a risk-based approach to things, instead of applying a retail casino regulatory model to an entirely different industry, where some requirements might not fit the same way. It is very important that this message be sent from the top.

In preparing to launch igaming, involve employees from across your agency. Online gaming will impact all of your major functions and organizational units — licensing, lab/technology (platform and game approvals), responsible gaming, audit, internal controls, etc. Leverage your employees’ diverse knowledge and experiences and let them help craft any rules and policies they will be responsible for enforcing. The more experience and familiarity they have, the better they’ll be at understanding, communicating, and administering your regulations.

Develop licensing and regulatory processes as soon as possible. Hire and/or allocate staff and establish roles and responsibilities, expectations, reporting structure, etc. Determine priorities specific to online gaming and throughout the agency. What agency activities will have to be paused or reduced to spend time on igaming? Can people work overtime? As launch approaches, the fires will start and escalate quickly. If you aren’t prepared, you will spend all your time putting out fires.

Develop a timeline and share it

Create and share a timeline to keep your agency on track and manage the expectations of everyone else. You may even want to create three timelines: Fast, slow, and medium. Put them on your website and share them with stakeholders. Make them credible, but factor in some flexibility to account for the unknowns.

Balance is necessary when establishing a timeline. For some operators, legislators, government officials, and future customers, the launch can’t come soon enough. Availability of legal online gaming and the tax money it will generate are their top priorities. But, some operators will need more time to prepare and won’t want others to gain a first-to-market advantage. And regulators and other interest groups (e.g. responsible gaming advocacy groups) may prefer a more slow and measured approach, with a focus on crafting the best possible rules and making the proper licensing and regulatory decisions.

Your timeline could include due dates for comments about regulations, for when licensing applications are due, when internal controls must be submitted, when platforms and games must be submitted, etc. A few months into our process, when we had an idea about what our rules would say, we sent licensing applications to operators and explained all of the information they would need to provide to get a license and all other required approvals.

In addition, we told them they were responsible for ensuring that any platform providers and gaming suppliers they wished to use also received a license. We set deadlines, but with a carrot — if the required documentation was turned in by a certain date, the operator would be more likely to be in the first wave of launches.

Not your typical licensees

Commissions used to regulating commercial casinos will be surprised. Management at commercial casinos and their licensed suppliers are often very familiar with your state laws and regulations, have worked on internal controls over a period of years, and often have a close working relationship with regulators.  These commercial casino management teams are usually a highly experienced group that knows what their regulator expects.

Our initial experience with internet gaming has been somewhat different. Many of the platform providers we worked with were still assembling their igaming teams and were dividing their attention among multiple jurisdictions that were launching at nearly the same time. Some necessary skills, such as drafting internal controls, were in great demand but relatively low supply. People at these companies did the best they could and sometimes had to learn on the fly.

Further, these companies are working on a national (if not international) basis. Don’t be surprised if many are unfamiliar with your state’s standards and expect to apply their national business model in your state.

It may take some time, negotiation, and creativity for licensees to grasp the nuances of your state’s requirements and mold their business models accordingly. What’s more, both you and your licensees may need to realize that some compliance essentials, such as internal controls, will have to develop and improve over time.

Final advice

Here are some final pieces of advice for you to consider. Firstly, involve stakeholders when writing rules and establishing regulatory processes. They have knowledge and experience, and their feedback is invaluable. At the same time, remember that these are your decisions to make based on your statutory requirements, public policies, regulatory objectives, etc.

Second, have a coordinated launch that includes as many operators as possible. Try to avoid a first-to-launch advantage. The immediate success of the Michigan market shows the value. Things move faster in the online environment. Operators view everything as urgent and will want immediate responses and action. Set early expectations regarding turnaround time and responsiveness.

Third, online gaming advertising is sure to be a source of controversy in your jurisdiction. The massive amount of advertising will have the general public hoping for the return of election commercials. Consider the extent to which you want to regulate advertising, whether you can limit or restrict it, and whether you want to tie it to responsible gaming requirements.

Lastly, when writing rules and establishing processes, do be aware of your limited resources and take a risk-based approach. You can’t regulate everything, nor should you. Take an active role in monitoring the highest risk activities, and delegate most others to the operators, independent test labs, independent auditors, etc. Put the responsibility on them and make them report to you.

David Murley is the deputy director for online gaming and legal affairs for the Michigan Gaming Control Board.  In his role, he has assisted with the passage and implementation of internet casino gaming, internet sports betting, fantasy sports, and advance deposit wagering. Previously, he worked as deputy legal counsel for former Governor Rick Snyder, led the state’s compact negotiation efforts, and helped launch ilottery.  He also served as general counsel to the Michigan House of Representatives and as an attorney with the Michigan Office of Regulatory Reform.