Online gambling would benefit from better regulation, study suggests

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Mark Johnson, a Michigan State University finance professor, led a study suggesting that better government regulation would benefit the massive online gambling industry.
Mark Johnson, a Michigan State University finance professor, led a study suggesting that better government regulation would benefit the massive online gambling industry.

The online gambling industry is at the point where it wants controlled regulation, an expert says.

Michigan State University finance professor Mark Johnson, co-author of the first study to estimate the costs and benefits of the Unfair Internet Gambling Enforcement Act of 2006, said: “We conclude that both the industry and individuals – including underage and problem gamblers – would be better off if regulation exists.”

Unregulated online gambling has long been seen as a threat to the horse racing industry.

Johnson and his colleagues suggested that more controlled and defined regulation would likely benefit the $US41 billion industry and protect consumers alike, Johnson and his Michigan State University business scholars concluded.

They said that, despite ongoing uncertainty and confusion stemming from the law, the industry had reacted positively, with the value of publicly traded online gambling firms increasing nearly 3 percent.

The law essentially made online gambling such as virtual poker and blackjack illegal except for “fantasy” sports, online lotteries and horse racing.

Although the law was passed in 2006, governing rules weren’t issued for two more years. In addition, the Department of Justice seemed unsure of its own enforcement strategy until 2010.

Then, in 2011, the Justice Department appeared to flip-flop positions by signaling that online gambling was legal if allowed by state law.

While uncertainty remained – the department’s ambiguous ruling didn’t exactly open the floodgates to internet gambling, the study says, but it did open the possibility that future rulings might further clarify the law.

Johnson and his fellow researchers studied the public value of online gaming firms in the years following passage of the 2006 law, and found that values increased when such positive signals were given.

The Justice Department’s 2011 ruling, for example, was associated with a 3.5 percent boost in firm values.

Worldwide, the online gambling market has nearly tripled in the past decade, from $US14 billion in 2005 to $US41 billion in 2015, according to industry estimates.

“Internet gambling is expected to continue to grow,” Johnson said. “And while it’s unclear which types of online gambling will be and won’t be legal in the future, if the US government more clearly defines ‘legal gaming’, the benefits and risks associated with investment in all areas of the industry will be altered.”

Johnson co-authored the study with A.J. Singh, professor of hospitality business, and Yifan Zhou, a former finance student.

The paper appears in the Journal of Hospitality Financial Management.

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