Grand Theft Auto is Entering the Gambling Game

It is no secret; the cat is out of the bag. Online casino gaming has officially arrived.  New Jersey’s entry into online gaming kicked off a new era for the gaming industry.  Granted, Nevada and Delaware both began online gaming before New Jersey, but neither have enough people or a wide enough range of betting options to really test the new frontier.  New Jersey is better suited for that task.  It has nearly ten million people and its online casinos are offering all of the same games that they have in their bricks and mortar casinos.

Gambling analysts say it is the most significant development since casinos opened in Atlantic City over three decades ago, ultimately setting off what became a furious competition among states for a share of the take. Eight other states have legislation pending that would allow Internet gambling. Delaware and Nevada began offering some online gambling this year. But New Jersey is considered the first true test case because it allows a full range of casino games — not just poker — and its much larger population offers the scale to see whether online gambling can meet the bold predictions for revenue and tap into a younger, more web-dependent demographic without stealing customers from struggling casinos…H2 Gambling Capital estimated that the market in the United States could be worth about $9 billion in the next five years, particularly if large states such as California that are now considering online gambling begin to allow it.  Kate Zernike, New York Times, 11-27-13

It is much too soon to predict what online gaming will mean to the Atlantic City casinos or to New Jersey.  There have been dozens of forecasts since New Jersey first started to discuss the issue.  Those forecasts varied from a few million dollars to a few billion dollars; the estimates often failed to distinguish between gross wagers (handle) and gross revenues (win) and that confuses things.  The tax predictions also varied and depended on which of those revenue estimates a person chose to use.  The day after New Jersey went live with online gaming the Philadelphia Inquirer quoted a Moody’s bond analyst estimating as much as $100 million in total operating profit for the first seven casinos offering online gaming.

A Moody’s bond analyst estimated this week that New Jersey gamblers’ online losses could result in as much as $100 million in total operating profit for the seven Atlantic City casinos that have Internet gaming permits…Fitch Ratings, another credit-rating agency, pointed to a potential downside of Internet gaming for Atlantic City. “In some ways, it will be detrimental because it has kept brick and mortar supply in the market when the level of demand dictates that some supply should be removed,” Fitch said. Harold Brubaker, Philadelphia Inquirer, 11-28-13

A Fitch analyst thinks that in the long-term that might not be a good thing. Fitch argues that there is too much capacity in Atlantic City and that anything that prolongs the life of the weaker properties is detrimental to the overall market’s long-term health and viability. The Fitch analyst may be right, but going backwards is not possible.  It is no longer possible to put this cat back in the bag.  Online gaming is here.  Three states have legalized it, seven more are debating the issue, four state lotteries have begun in one way or another to put their lottery online and other states are considering it.  The results in New Jersey over the next few months are certain to spur the debate even more.

There may also be some discussion on the negative impacts of legalizing online gaming. We might have gotten a glimpse of a problem in the first enthusiastic reports from New Jersey.  The Associated Press interviewed Jon Hernandez; in the interview Jon describes his experiences.  He gushes over just how easy it is to get up in the morning and head straight to an online casino to gamble.  Moreover, it is just as easy to walk away, get some breakfast, go for a walk, read the mail and then go back to the casino for another exciting session.

Jon Hernandez was up bright and early Tuesday morning. He downed a bottle of iced tea, showered and dressed, took out the trash and settled in at his laptop for some online poker.  The deliveryman who’s studying to be a paramedic was among the first New Jerseyans to begin gambling online Tuesday morning, the first full day that unlimited Internet betting was available throughout the state.  “It’s just the best thing ever,” he said. “It’s such a hassle to go to the casino. You have to ride the bus for four hours, and once you get there, you have to wait for a table. Now, I wake up, play for an hour, log off, then play some more. Wayne Parry, Associated Press, 11-27-13

It is really, really easy – so much so that I can imagine a whole group of people who find it so simple that they spent all of their waking hours online; their lives will become completely tangled in all of those exciting games Atlantic City casinos offer.  That is until the money runs out and the jobs and spouses are gone and then nothing will be simple or easy for them.  Up to this point, addictive gamblers had to get up, leave the house and drive or fly to a casino; they could spend lots of time in the casino, but it took effort. Going to a casino takes much more effort and time than sitting down at a computer in your house, favorite coffee shop or while visiting your in-laws for Thanksgiving dinner.   I suspect we are about to learn just how addictive gambling can become when it is everywhere all of the time.

Jon is likely a bellwether of things to come, but there are yet bigger things coming.  I think the potentially biggest change in online gambling is not coming from state legislatures, lotteries or casino companies.  It is coming from video games.  Grand Theft Auto has let slip its intention to add two features to upcoming games; it is adding a casino and it is adding a wagering option between players; Grand Theft Auto players will be able to bet against each other in street racing.  The potential is huge.  I believe in time all video games will have options for players to bet against each other in games of skill – race car driving, fighting or problem solving.  Video games are testosterone driven affairs – the players are for the most part young men, each trying to outdo the other and prove his masculine superiority.  There will never be a more perfect audience for contests of skill nor will there be more perfect opportunities for wagering.

Audio files pulled from Grand Theft Auto 5’s recent Beach Bum update have hinted at a number of upcoming activities headed to the game’s already-bulging open world. Characters from the game’s single-player can be heard referencing casinos, custom car racing and a new indoor off-road dirt track. Specifically, characters mention a new casino that’s opened and a fresh set of races where you gamble your custom car on the outcome. Considering the furor surrounding the game’s real-world micro-transactions for in-game money it’ll be interesting to see how casino funds are handled.  Tom Phillips, Eurogamer, 11-27-13

The games are not currently regulated, nor is there any pending legislation, although some states have objected to the violence in particular video games.  Any legislation prohibiting gambling on video games is likely to come from the states and not the feds.  Delaware, Nevada and New Jersey have authorized specific uses of the internet for gambling, all other uses are illegal.  But that still leaves the majority of nation will no clear laws on the subject. But the lack of regulation is not the whole story.  Bitcoin is the second part of that story.  Bitcoin is a private currency that can be bought, spend and traded online.  Bitcoin, or another like device, offers a perfect opportunity for making, paying and collecting wages online.  It is not regulated by any government, it does not require a bank or credit card and it is not traceable any more than individual coins in circulation are traceable.  I can hear them now, young men I know, shouting at each other across cyberspace: “I will bet you 10 Bitcoins that I can kill you in ten minutes!”  Bragging rights with a financial kicker – just like fantasy sports only better.

Yes the cat is out of the bag, but not the cat we are all watching.  The most important cat to get out of the bag this week was not New Jersey’s online gaming, but Grand Theft Auto’s hint of street races with wagering.  We are entering into unknown territory.  When warning her child of hidden dangers in life, my mother just to quote her grandmother; “The road to hell is paved with good intentions.”

It may not be the road to hell, but it is the road to destinations as yet unknown. I do not think anyone has thought online gaming all the way through.  New Jersey, Nevada and Delaware all have good intentions.  The states and the casino companies are trying to solve a current revenue problem using something that none yet know where it will lead us.  But this cat will not go back in his bag, ever.  Cyberspace and real space are about to mix.  Step into your electronic device, it may be cyberspace, but it will be your real world.