AUSTIN, Texas, Feb. 12, 2014 — In September 2011, the game – or games – changed for good. The U.S. Department of Justice set a new precedent for online gaming in a 13-page opinion that cleared the way for state-run lotteries to begin offering Internet-based products. While some lotteries were quick to set up systems that allowed the sale of Powerball and Mega Millions tickets through their websites, the first stand-alone Internet gaming platform only just opened its digital doors in Delaware in November 2013, the small state staking its claim once again as the “First State”.
Lotteries all across the country have been outpaced by the increasing ubiquity of technology, largely because statutory guidelines inhibit their ability to adapt quickly. As a result, the treasure chest at the bottom of a sea of lottery regulation is the product that will entice and engage young players – whose lives are intertwined with the digital tech in their pockets – with a little extra cash and a lot to gain.
Now, thanks to that 13-page document from the DOJ, a new imagination has taken hold of the lottery industry, and leading the charge into a new future is the Delaware Lottery, with Executive Director Vernon Kirk at the helm.
The Justice Department’s opinion responded to questions from New York and Illinois officials regarding the federal Wire Act, a 1961 law that prohibits the use of interstate communications technology for certain gambling activities.
In two ways, the opinion dispelled the belief that the Wire Act would affect the business of state-operated lotteries. First, it stated that as written, the Wire Act does not prohibit state-operated lotteries from selling lottery tickets online – the DOJ concluded that the Wire Act only prohibits bettors from gambling on “sporting events or [sports] contests,” using communications technology.
Second, the opinion held that the Unlawful Internet Gambling Enforcement Act, a 2006 law passed to outlaw the use of the Internet for unlawful gambling, did not apply to state-approved (thus legal) lotteries.
“Captain” Kirk at the Helm
No, that’s not what they call him in the hallways of the Delaware Lottery, but the metaphor serves given the milestones he’s passed in two short years.
When he assumed his position as the leader of the Delaware Lottery in 2012, Kirk was determined to make quick work of the Lottery’s expansion there. In a 2012 newsletter introducing Kirk to the Lottery’s network of retailers, he outlined major changes that he would oversee in his first year as Executive Director.
As a result of the Delaware Gaming Competitiveness Act of 2012, a piece of legislation Kirk helped develop, Sports Lottery and Keno licenses would become available to Lottery retailers for the first time. The Sports Lottery was very successfully implemented outside of the three racetrack casinos, and by 2013 the Lottery more than doubled the number of retailers licensed to accept sports wagers – up to almost 70 locations today.
The ever-popular Keno game was introduced to Delaware bettors in January 2013, and since its launch, more than 100 retail locations, bars and other “social gathering spots” have been licensed to offer Keno to guests.
Finally, the 2012 Gaming Competitiveness Act paved the way for iGaming and internet sales of Lottery tickets. Kirk said in his 2012 newsletter that he wanted Delaware to “be unique with its introduction of iGaming,” the first state-run online gambling venture in the nation. Just 16 months later, iGaming opened its digital doors.
All Under one Roof
“Unique” is an understatement, both as applied to the iGaming platform and to the Delaware Lottery as a whole. In fact, it is the unique character of the Delaware Lottery that enabled them to complete the incredible 16-month turnaround on their iGaming platform.
When I spoke with Kirk, just an hour before he’d field questions about iGaming at a 10 a.m. press conference, I had to step away from the idea of “the Lottery” as it is understood in nearly every other U.S. jurisdiction; the Delaware Lottery oversees a much wider array of gaming options than any other state Lottery in the country.
“There are only two forms of gambling allowed in the state of Delaware: horse racing and lottery,” Kirk told me. “Through legislation and the Delaware courts, it’s been determined that [table games, sports betting and now Internet gaming] are all lotteries.”
The state, both its administrators and the public, are uniquely comfortable and accepting of Delaware’s legal gaming. Where the moral and political debates over the lottery’s place in other states rages, the collective conscience in Delaware seems generally settled: the lottery will stay.
The most simple argument won that battle. “It seems that the administrations have always felt that once you’ve taken the first step, there’s no reason to slow down after that,” Kirk said, adding that the “administrations have always been very supportive of the gaming industry in Delaware.”
Revenue is revenue, and despite myriad ever-present criticisms, the lottery is a business; the public are its shareholders and benefactors. In Delaware, however, the Lottery has expanded from the scratch-off and draw games it began selling in 1975, and is now intertwined with a rich part of Delaware’s cultural heritage
Kirk explained that in 1994, the Horse Racing Redevelopment Act authorized the placement of video lottery terminals in the state’s three racetrack casinos, and gave the Delaware Lottery administrative and regulatory control.
“The idea was that some of the proceeds would go to the horsemen and the purses, and larger purses would attract better quality horses, which would attract more bettors. [We’ve been] tied to the [racetracks] from that point forward; all gaming other than horse-racing [falls] under the lottery,” Kirk said.
He told me that everything the Lottery does in Delaware is mindful of “the dignity of the state.” When I asked how the public felt about their Lottery, Kirk pointed to his organization’s high marks in surveys.
“The Lottery is a well-respected regulator and well-thought-of organization,” he said. “In surveys…everybody is comfortable and has confidence in the integrity of the organization, so with us overseeing… all these non-traditional gaming products, the general public has immediate confidence.”
I asked Kirk what that public confidence lent to the establishment of Delaware’s iGaming platform. Modestly, he said “I think that’s very helpful.”
Making it Work
While some states have begun selling tickets online, even offering subscriptions, Delaware’s system offers what the rest of the country would call traditional casino games, and plans to roll out the more recognizable lottery games “a few months down the road.”
Why? Because it’s what the players want. “We decided to start with casino style [games] as just a matter of priority. We thought that had a better chance for revenue early on.”
“When life returns to some type of semi-normalcy, which we haven’t seen in a little while around here,” he said with a laugh, “[then we’ll] move on to the iLottery, selling Powerball online, maybe electronic scratch-off tickets, that type of thing.”
Kirk’s modest humor cut through a lot of what he said as we spoke, and seemed indicative of the Lottery as a whole, riding the crest of a new wave of possibilities within the industry.
But, while Kirk and his colleagues have moved quickly to revolutionize gaming in the little state of Delaware, iGaming is a study of excitement balanced by caution.
The press conference he was headed to after our conversation was likely the last phase of iGaming’s “soft launch”. By the next day, bettors all over the state would begin to register for the revolutionary system, and a little less than a month after I spoke with Kirk, Internet games had brought in nearly $4 million in wagers.
That first month was the real test. When I spoke with Kirk, just before iGaming was announced officially, he said he expected difficulties to arise, though almost no problems had presented themselves through the soft launch.
“I’ve been in systems my entire career,” he said. “I know very well when you move from test to production, things happen, and we’re going to experience some things too. “
But, in the first month after iGaming’s official launch, nothing wholly unexpected arose.
A story written by Mark Eichmann from the tri-state area’s WHYY about a month into iGaming’s operation confirmed that yes, “things” had happened. However, these were the same difficulties the system encountered during its quieter, “soft” launch, mostly remnants of credit card companies’ internal practices put in place to avoid deposits to gambling businesses. Those systems were established to avoid running afoul of the 2006 Unlawful Internet Gambling Enforcement Act.
As iGaming is the first venture into legal gambling in the nation, there seems as much a learning curve for credit card companies as for lotteries.
Debit transactions, both when I spoke with Kirk and when WHYY investigated iGaming a month later, were being completed at 100 percent. Modest as ever, Kirk simply said “we’re very pleased,” after giving me that statistic – excitement balanced by caution.
The only other hiccup in iGaming’s rollout was in itself something of a mark of success. According to Eichmann’s report, Verizon customers in Delaware were blocked from iGaming because their connections were routed through the cable provider’s servers in Philadelphia, Pa.
Inconvenient, yes, but validation of Delaware’s “robust” (as Kirk described to me) geo-location systems, which ensure that only bettors who are physically in Delaware can deposit funds into or place bets on the iGaming platform.
Kirk told Eichmann in December that the Lottery “got together with our technology partners and Verizon and got that issue squared away.”
Set Up for Success
Now in a new year, iGaming’s early success could accelerate the “several more phases [of] this rollout” that Kirk hinted at during our conversation in November. Along with expanding the game content to include more non-traditional games as well as iLottery games, Kirk said the Lottery was already considering mobile gaming from cell-phones, a move that could put Delaware even further ahead of other states just bringing gaming systems online.
“The technology will keep developing. Mobile gaming is a little more challenging for geo-location, but there is technology there and it’s going to get better,” Kirk said.
“Nothing’s perfect of course, but we don’t plan to sit still, that’s for sure.”
So what’s next for the First State? Kirk said he thought social gaming was the next big opportunity for public gaming, and perhaps building the technology to support mobile gaming is the first step in that direction.
True to form though, Kirk balanced that exciting prospect with his signature modesty; excitement always balanced by caution.
“Online gaming is not going to be a silver bullet for Delaware, or for any state for that matter. The revenue will be what it will be. It could be great; it could be modest, but a year from now, three years, five years, ten – who knows?”
“I do know that by us putting in this infrastructure, Delaware should be well-placed to take advantage of what other opportunities may come along. If we don’t, then we’ll be playing catch-up whenever anything new comes up, and that’s never a good position to be in.”
For now, it looks like Kirk and the Delaware Lottery are decidedly ahead of the pack.