Online gambling websites contend they are legal because they have gotten a license in one or more jurisdictions. The online casinos thus contend that they are legal gaming enterprises, not illegal gambling operations. Being licensed supposedly adds legitimacy and credibility to the business that has received a license. To my mind licensing should imply investigating and assuring the legitimacy of the licensed business and ongoing regulation of the licensee.
Is there substance to the licensing process in the jurisdictions that grant licenses to online casinos? What is the cost of the license? How much effort does it take to get a license? Are there any meaningful standards that have to be met to get a license? Is ample time provided to conduct a background check? Is the licensee required to prove its legitimacy? Is there any ongoing regulation and oversight by the licensing authority. Here is some background on the licensing process in Nevada and New Jersey, jurisdictions we know thoroughly investigate licensees. Information on the processes in the jurisdictions that license online casinos is not available, but some inkling of what it must comprise can be discerned from the costs involved in obtaining those licenses and the time it takes to get them.
In Nevada and New Jersey the applicant for an unrestricted gaming license can expect the process to take one to two years. The applicant has the burden of proving to the licensing authorities that it is legitimate and has the necessary skills available to operate a casino in compliance with the law. The applicant must pay the costs of the independent investigation undertaken to test the accuracy and complete truthfulness of its responses to the myriad questions answered in filling out the application. These costs routinely amount to between $500,000 and $1,000,000. There are public hearings to delve into personal and business transgressions admitted in the application or turned up in the investigation. These amounts do not take into consideration the legal fees that each applicant incurs in getting help and advice in connection with the process.
In Nevada the fees charged licensees are based on the number of slot machines and games that the licensee wants to operate. The annual fee is $250 per slot machine and between $200 and $1,000 for each table game. There are also quarterly fees paid on a per machine and per table basis. The annual total of these fees for a bricks and mortar casino with 2,000 slot machines and 200 table games would come to over $800,000. The licensee is also taxed on the gross revenue from the gaming operation, with the tax being 3.5% of the first $50,000 per month, 4.5% of the next $84,000 and 6.75% of the amount over $134,000. So, if gross revenues amount to $100 per day per slot machine and $500 per day per table, the annual gross revenue would come to about $100 million, with a resulting total annual state tax of about $6,700,000.
The following table is taken from information presented by Slogold (Last Visited 11-9-2003), a member of the Haglley Holding group, which assists in setting up offshore businesses and obtaining offshore casino licenses. The table shows the license fees, tax rates, estimated times for licensing and estimated legal fees that an applicant can expect in each of the offshore jurisdictions noted.
|Jurisdiction||License Fee||Tax Rate||Time||Legal Fees|
|Mohawk Territory (Canada) ||$10,000||0%||2-4 weeks||$15,000|
|Costa Rica||$100||0%||1 week||$5,000|
|Liberia||$10 to $20 thousand||0%||2 weeks||$8,000|
 A report in 2001 commissioned by the Canada West Foundation says: “Internet Gambling: Kahnawake Gaming Commission In June 1996, the Mohawk Council of Kahnawake established the Kahnawake Gaming Commission to approve Internet gambling activities. The Commission has been providing gaming licenses for firms to use their Internet servers to host online casinos. The Kahnawake First Nation claims that they are
offering their clients the legal protection of a sovereign nation. While the Kahnawake Nation are not themselves conducting gambling activities, under the Criminal Code they do not have the authority to license such activities without provincial approval.
The issue of Internet gambling and online betting is a controversial policy area. While in North America Internet gambling is prohibited, it is relatively hard to regulate. There is concern that even if Internet gambling continues to be prohibited in Canada, there is no realistic way to stop Canadians
from placing bets on offshore gambling sites. Some people, including Liberal MP Denis Mills, have lobbied for legalizing Internet gambling in order to stop revenues from being lost to Internet gambling sites located offshore.
The analyses, suggestions, guesses and conclusions in several articles are based on an intrepid fictional gambling website, Hypo Online Gaming.com.
- Hypo is a corporation formed under the laws of the Central American nation of Costa Rica.
- It offers real-money, casino-style gambling activities over the World Wide Web on the Internet. Its banked gambling games include slot machine simulations, 21, roulette, craps and the like. It also has a related online poker cardroom, which offers play-money and real-money forms of the most popular poker games, including Texas Hold’em, Omaha High-Lo and 7-Card Stud, as well as both high and low draw poker. In these poker games it collects a fee (capped at a stated dollar amount) that varies in each hand based on the amount in the pot that hand.
- It accepts deposits into player’s real-money accounts from various credit and debit card issuers, wire and money transfer services, and checks delivered to its offices in Costa Rica, all of which proceeds are deposited into its only bank account, which is in a bank chartered by and located in Antigua, an island nation in the Caribbean Sea.
- No player on the Hypo website who fills out the online form to open an account is rejected based on his or her stated residence address or on the location of the server of the Internet service provider through whom the player connects with the website. About 60% of the gambling activity on the website is from accounts with addresses in the United States, with many accounts having stated addresses in California, Oregon and Nevada.
- It sends emails to various lists of gamblers and to its customers advertising its activities and offering incentives to gamble on its website. The incentives take the form of periodically offering customers up to a 20% bonus on deposits the customer makes to his or her account and by adding money to the prize pools that can be won by players.
- Hypo is owned by two shareholders:
|Gambling Software , Inc.||A Delaware corporation whose offices are in Oregon, in which it qualified to do business as a “foreign” (i.e. Delaware) corporation. It wrote, owns, licenses and continues to periodically update the software that Hypo uses to run its website. It receives a royalty under that license of 60% of the gross income of Hypo. The shareholders of Gambling Software, Inc. are all U.S. citizens, resident in various states, including California, Nevada and Utah. Most of these shareholders are also employees of the company or, directly or indirectly, consultants or advisors to Hypo. Some of these shareholders purchased their shares in the company for cash, and some earned their shares for services such as helping to write the software and helping to promote the Hypo website.|
|Mr. Rock Founder||A U.S. citizen and a resident of Oregon, who is also a substantial shareholder of Gambling Software, Inc.|
- Hypo’s offices are located in an attractive high rise office building in Costa Rica where it has thirty employees, four of whom are U.S. citizens resident in Costa Rica and the rest of whom are Costa Rican citizens and residents.
- Hypo is a client of the Mohawks of Kahnawake band of Canadian Indians. It uses their computer servers, which are located near Montreal, Canada, to access the World Wide Web on the Internet.
- Hypo is also a licensee of the Kahnawake Gaming Commission, an agency of the Mohawks of Kahnawake band of Canadian Indians, which has issued about 75 licenses to date to online gambling websites, all of whom access the World Wide Web through the Band’s computer servers.
- Hypo recently began advertising. on a cable television network program that is available in about half the U.S. TV households, resulting in a tripling of its business. Its advertisements are starred in by a consultant to Hypo who is also a well-known poker player and an announcer for the program shown on the cable network in connection with which the advertisements are run.
- Hypo is a member of several private, unregulated, non-governmental organizations that issue certifications attesting to various aspects of the integrity of qualifying individual gambling websites that are subscribers to or members of the respective organizations.