NEW JERSEY
New Jersey to trial the real
potential of social games
New Jersey has recently expanded
the options available to operators
with internet gaming platforms in
the state, firstly by inviting the
industry to trial social games in New
Jersey to find out if they can be
converted into real money games,
and secondly by updating its
regulations across a number of
areas. These latter regulatory
amendments include measures
around for example the use of
internet gaming accounts to fund
social gaming as well as rules
around celebrity players and their
employment by online operators.
Christopher L. Soriano, Special
Counsel at Duane Morris LLP
discusses New Jersey’s latest
attempts to grow with the rapidly
developing online gaming industry.
There is little doubt that social
games are not only extremely
popular, but also sources of
revenue for the producers of those
games. Candy Crush Saga, for
instance, has millions of users on
Facebook. Some estimates have put
US social gaming revenue for 2014
in the neighbourhood of $2.5
billion. Needless to say, customers
who are willing to pay to play these
social games may well be the kind
of customer who is willing to
engage in internet gaming.
Logically, if a customer is willing to
pay to play a social game online,
wouldn’t that customer be willing
to pay to play a game where there
is the opportunity to win real
money?
New Jersey’s Division of Gaming
Enforcement (the ‘Division’)
recently put word out to the
industry that New Jersey is willing
to be the testing ground to see if
these social games can be
World Online Gambling Law Report - December 2014
converted into casino games - both
in brick and mortar casinos and on
the internet. On 14 October 2014,
Director David Rebuck issued a
press release declaring that New
Jersey’s gaming industry is open
for business in terms of offering
real money versions of social
games.
Both in the brick and mortar and
internet context, New Jersey’s
casinos are only allowed to offer
games if they are considered
‘authorised games’ under the
Casino Control Act. However, the
Casino Control Act gives the
Division wide latitude in
determining what games it may
authorise. After describing
traditional casino games and
variations of those games, the
Casino Control Act gives the
Division the authority to approve
‘any other game which is
determined by the division to be
compatible with the public interest
and to be suitable for casino use
after such appropriate test or
experimental period as the division
may deem appropriate.’ New
Jersey’s landmark internet gaming
legislation gives the Division this
same authority with respect to
internet gaming. The Division has
the authority to determine that any
game suitable for internet wagering
may be offered as part of an
internet gaming platform.
With that clear statutory
authority in place, and with the
obvious success of social gaming,
the Division has invited casinos,
internet gaming affiliates, and
social gaming providers to bring
their games to New Jersey for play
in casinos, through internet
gaming, or both. Of course, the
practical problem immediately
arises as to the amount of vetting
and review that would be required
of these games, which have not
traditionally been offered in the
real money casino context.
Ordinarily, new games -
particularly new game styles cannot be used in a casino absent
thorough testing and vetting.
The Division has a Technical
Services Bureau that is responsible
for reviewing and approving all
new games and technologies. In
another innovation in New Jersey’s
gaming industry, in 2011 the
Legislature required the Division to
establish a ‘New Jersey First’
program. The Legislature required
that the Division implement a
system whereby any new gaming
equipment submitted to New
Jersey for approval either before it
is submitted to any other
jurisdiction for approval or at the
same time it is submitted for
approval to other jurisdictions may
be deployed 14 days after it is
submitted to the Technical Services
Bureau. If the Technical Services
Bureau is unable to approve the
equipment within 14 days, it
nevertheless may be deployed as a
field test. Through regulation, the
Division has established exactly
what is required to take advantage
of New Jersey First. The
manufacturer must clearly notify
the Division that it seeks treatment
under New Jersey First. The
manufacturer must submit a fully
operational product, full
instructions, and a list of
functionalities for which approval
is sought. The Technical Service
Bureau gives priority treatment to
all New Jersey First submissions,
and, consistent with the legislative
mandate, if it cannot approve the
game within 14 days but does not
identify any issue that may affect
the overall integrity of the game,
the game is approved for a field
trial.
The New Jersey First program has
resulted in new technology being
deployed in New Jersey’s casinos
with a minimum of delay in the
approval process. It has also been a
benefit to New Jersey’s gaming
patrons because they have been
05
NEW JERSEY
able to access the newest
technology quickly. Thus, New
Jersey’s flexible ability to approve
social games, coupled with the
ability and willingness of the
Division to get these new games
either on casino floors or on
internet gaming platforms
promptly, makes New Jersey a very
fertile ground for social gaming
companies who want to expose
their product to customers who
want to play their games for
monetary prizes. There is little
doubt, also, that implementing
these social games in New Jersey’s
casinos and internet gaming
platforms may well result in
reaching a new customer and,
therefore, a new revenue source.
The one other regulatory hurdle
for companies seeking to enter this
space in New Jersey will be
licensing. With some exceptions,
companies that provide gaming
equipment in New Jersey are
required to hold a casino service
industry enterprise licence, which,
depending on an organisation’s
corporate structure, does require
some effort on the part of the
applicant. However, the Division
allows entities that have filed
completed applications and
reached agreements with casino
licensees to obtain transactional
waivers - essentially temporary
approvals while the Division
conducts its investigation. The
transactional waiver process is
another factor for companies
considering taking advantage of
the huge opportunities that social
gaming in New Jersey offers. With
attention to detail and cooperation
with the Division, companies
seeking to enter this market can do
so quickly and efficiently.
Other regulatory
enhancements
With a year of live internet gaming
experience in the books, New
Jersey has been modifying its
06
There is little
doubt that
implementing
these social
games in
New Jersey’s
casinos and
internet
gaming
platforms
may well
result in
reaching a
new
customer
and,
therefore, a
new revenue
source
regulations based on that
experience. One recent
modification involves the use of
internet gaming accounts to fund
social gaming (in which cash prizes
are not available). Previously, if an
internet gaming site offered both
real money gaming and social
gaming, and a customer wanted to
take advantage of features available
for purchase in the social game, the
customer could not use their
internet gaming account in the
social game. Now, however, players
are able to do so, as long as the
internet gaming provider gives the
patron a disclaimer that the social
game is not regulated by the
Division. This flexibility may lead
to more cross-marketing between
real money internet games and
social games.
The Division has also authorised
flexibility in terms of the location
of servers used in internet gaming.
Under a recent regulatory revision,
both the primary and backup
equipment used by a casino in its
internet gaming platform does not
need to be located in a secure area
within the casino hotel any longer.
Instead, the equipment must be
located in a secured facility
anywhere within the city of
Atlantic City, provided that the
space is under the casino’s control.
This may result in greater flexibility
for casinos and internet gaming
providers and may lead to some
opportunity for the sharing of
services such as security, in order
to bring down the overall cost of
operations.
Finally, the Division has adopted
a regulation relating to celebrity
players. An internet gaming
operator may employ celebrities to
participate in online poker games
for advertising or publicity
purposes. The internet gaming
operator may fund the celebrity’s
gaming account and may pay a fee
to the celebrity player. If the
celebrity is not permitted to retain
winnings, then those winnings are
to be counted, for tax purposes, in
the internet gaming operator’s
gross gaming revenue. This clarity
about a casino’s ability to fund a
celebrity’s poker account could
lead to more online celebrity poker
games - which could result in more
customers.
Overall, New Jersey has indicated
flexibility and a desire to grow with
the industry, both in terms of its
openness to social games and with
various modifications to its
regulations on an ongoing basis.
All of these occurrences should
keep New Jersey at the forefront of
the US online gaming industry and
make it a model for other states
that are contemplating online
gaming.
Christopher L. Soriano Special
Counsel
Duane Morris LLP, New Jersey
[email protected]
World Online Gambling Law Report - December 2014