Online Gaming Jurisdictions

Once a player understands that it is not possible to place bets with U.S.-based online gaming establishments, at least not for the present, a natural question arises: "Where should I go?" Each one of the thousands of sites "out there" on the Internet have to be based somewhere else, so what is the story about that and which places are in some sense "better" than other places? Is a license necessary?

For starters, it is not legally or technically necessary to be a licensed Internet gaming site. In theory, one could go to some remote place with a telecommunications connection and set up a server. The reason for licensing is that it gives a measure of confidence to the online player that the web site in question is legal and upstanding. Some smaller countries have made a business out of licensing online gaming. In addition, at least two Native American nations have started to license online gaming from their territories inside of Canada. More and more one sees countries in the developed world (other than the United States) entering the business of licensing and regulating online gaming. Today, over 70 jurisdictions will issue an online gaming license to someone seeking to set up a gambling website.

How many licensing jurisdictions are there?

It depends a lot on how "jurisdiction" is defined. In the United States, there are almost 60 jurisdictions if you count the states, the District of Columbia and the territories, like Puerto Rico and the U.S. Virgin Islands. Australia, too, is a federal system, with multiple territorial jurisdictions. For purposes of this treatment, a country is considered just one jurisdiction. At times it might be necessary to split hairs, as in the case of Hong Kong and Macau, where Hong Kong does not permit online gaming at all, and Macau does. So the number "70" is inherently approximate. It is fair to ask why someone would be interested in the exact number of jurisdictions. In reality, many jurisdictions do not license general gaming sites or have only one or two English language customers. They are just not commercially relevant. A prudent gamer in the United States is best counseled to restrict his or her play to sites from jurisdictions at the top of the list, and those are few in number.

What makes a good gaming jurisdiction?

From the player's perspective, the two most important characteristics are strictness of regulation and breadth of authorization. The first, strictness, creates a constant tension between the public and the licensees. Some countries are so eager for licensing fees and taxes that they will basically license anyone. However, if the public finds out about this laxness, the license will not longer have any value, and casinos lose customers. Eventually the country will lose the licensee. So in order not to kill the goose that is laying golden eggs, many jurisdictions have tightened up their licensing requirements and have increased their supervision. Some jurisdictions, like the United Kingdom, do not depend on license fees and taxes to sustain its revenues, and feel perfectly free to place the bar reasonably high in terms of licensing requirements and oversight. Countries like Costa Rica and Antigua, which were in the vanguard of licensing online gambling companies, still claim a large share of the world's registered gaming sites, and the public somehow continues to believe that the licenses are of some importance, even though regulation is minimal by standards in the United States. As the gaming public becomes more sophisticated, these jurisdictions will fade from importance unless they, too, become more demanding in their standards of conduct and financial practices.

From the gaming company's perspective, a good jurisdiction is one that charges low fees, low taxes, and stays out of the way of the operator - characteristics that do not create much protection for the public. Some favored jurisdictions, like the Isle of Man, are also tax havens, meaning that some or all of the revenues generated by online gaming are essentially tax free.

In terms of the breadth of authorization, most of the 70 or more available jurisdictions limit their licenses to some, but not all of the possibilities. The limited license jurisdictions also tend to be the ones with very few licensed sites. The jurisdictions with the most licensees typically will license all forms of Internet gaming, including bingo, keno, lotteries, casino table games, poker, and sports (and race) betting.

One consideration not often mentioned is the experience factor. Because Internet gambling is such a new phenomenon, most jurisdictions have no more experience at regulating online gaming sites than the public has in playing them. Costa Rica has the jump on all of its colleagues, as it was there at the very beginning, with telephone-based sports books in the 1980's. Antigua followed suit in the early 1990's. Most countries did not commence online gaming regulation until well into the 21st century. For some of them, like the United Kingdom, for example, the learning curve should be easy to climb, given the breadth of the regulatory tradition into which Internet gambling has been placed. For others that do not have the culture or infrastructure of technocracy, the path will undoubtedly have obstacles.

Two other characteristics of a licensing jurisdiction should be of importance to the online gaming enthusiast. Obviously, the technology needs to be in place to handle traffic over the servers (if located in those jurisdictions). Not every place has infrastructure capable of meeting the challenge of very large volumes of traffic over high-speed connections. Usually this problem can be quickly resolved. Vanuatu, which by logic should be slow and remote because it is a small piece of real estate in the middle of the Pacific Ocean between Australia and Hawaii, actually has a modern and robust telecommunications structure. Latvia, on the other hand, has lagged behind the times, even though it is surrounded by neighbors with the latest technology.

The other characteristic to look for is the overall stability of the jurisdiction on the question of online gaming itself. For example, the United States has been considering different forms of legislation on this subject in every session of every Congress for well over a decade. It would be an "unstable" jurisdiction from a policy perspective, even though some online gaming may be allowed. Australia, too, has gone through several policy changes on the subject. Meanwhile, some of the smaller jurisdictions, notably Costa Rica and Antigua, have always had a well-defined policy framework and have maintained a commitment to providing a tranquil home for online gaming companies. Jurisdictions like Cyprus, Gibraltar and the Isle of Man also stand out. As countries that comprise the European Union develop consensus approaches to regulation, they, too will join the ranks of the "policy-stable" jurisdictions.

How Much does a License Cost?

The costs vary widely from jurisdiction to jurisdiction. Their value, of course, is in providing confidence to potential customers that the web site will not be dishonest or incompetent. For this reason, many of the prominent online gaming sites have sought to be licensed in more than one jurisdiction. The cost structure consists of fees paid, taxes assessed, and additional costs that may be imposed (like legal fees and periodic auditing). By comparison to the process for brick and mortar licensing in a state like Nevada, the online procedure is fast and cheap. It might take a couple of years and $1 million to obtain a gaming license from the Nevada Gaming Commission. Estimates made in 2003 indicate that Antigua charges $75,000 (plus legal fees of $10,000). The procedure takes less than 6 weeks. Costa Rica charges $100 (plus about $5,000 in legal fees), and the license is yours in less than a week. Revenues are subject to a 3% tax in Antigua. They are tax-free in Costa Rica.

The Mohawk Territory of Kahnawake will issue a license in less than a month, and the fees are $10,000 plus other payments of $15,000. Revenues are untaxed. It should be mentioned that there is no requirement to operate the gaming business physically within the confines of the Kahnawake Territory. The Province of Quebec has taken the position that the Kahnawake Mohawks do not have the authority to issue such licenses without provincial approval. This has not become a matter of loud debate, however, as the world is aware that such "licenses" are little more than paid endorsements by this branch of the Mohawk nation in the shadow of Montreal. The Grand River Mohawks also have issued a limited number of licenses. These estimates of licensing costs are from 2003 numbers.

Other questions about licensure

Many online gamblers may have concerns about Internet establishments, based on their understanding of how gaming commissions oversee brick and mortar gambling operations. Do the jurisdictions enforce standards of experience and financial strength before issueing a license? Are background checks made of the individuals involved with the licensee? Are employees checked and licensed? Are there audits of procedures and finances? Are evaluations made of the accuracy and honesty of the software? The presumptive answer to all these questions is "No," with the proviso that the trend at least is towards raising and enforcing standards. The entrance of the United Kingdom into licensing has created the impression that more governments will require background checks, disclosures and audits as conditions for licensure. One healthy development in recent years is the trend towards listing the shares of the more prominent companies on securities exchanges, mainly in London and Europe. These companies are indeed subject to standards and disclosures by the respective exchanges, and this supplements the regulation that might be expected out of the licensing jurisdictions.

Gaming Jurisdictions of the World

The list below provides an appraisal of most of the world's gaming jurisdictions according to five factors discussed above. As the world is in constant change, the reader is cautioned that this table may not be completely current with respect to any given line or column. The best recourse in a case of doubt is, of course, to research thoroughly the specific online gaming establishment in question, restricting attention to those with the longest histories, the largest public, and the best reputation. They will all, almost certainly, be licensed in well-known jurisdictions.

United States

Maybe one day U.S. legislatures will stop being minders of everyone's business and allow the U.S. to get into the game.