Land-BasedInterview Can rewards operators withstand the Wire Act? April 29, 2019 By Gaming America Gambit Founder Richard Pistilli and AD:60 CEO Alex Matjanec talk to Tim Poole about their new token, which can be exchanged for loyalty points. Despite this offering a way around the Department of Justice's (DoJ) new Wire Act interpretation, they don't want to see it upheld Tell us about Gambit and how you arrived at the creation of the product. RP: Our background with Alex comes from the financial capital market. That is one of the most highly regulated marketplaces there is. The role of regulators has always been two-fold: maintaining an orderly marketplace and protecting the public. We took a look at the gaming industry and when you boil down the essence of regulators in gaming, it’s to protect consumers from themselves. It begged us to ask the question: What if we could preserve the fun and excitement but eliminate the risk of a cash loss for a user? We now have a patent-pending model in place for tapping into what is one of the largest sources of dead capital that consumers are connecting to - loyalty points. With our model, we can offer our free-to-play tokens as redemption of a free gift or loyalty point. Users are now able to access the same environment, play the games they want and take home a cash winning – but they’re never going to put their own capital on the table. In short, consumers get to play free games and win real cash, rewards companies get to differentiate their prize alternatives and offload liabilities, and gaming companies get access to an entirely new customer base and revenue stream. Did you already have this model in place well in advance of the DoJ’s reinterpretation of the Federal Wire Act? RP: Our model is regulatory compliant with all gaming statutes on federal and regional level. By creating a scenario where users are always granted free access, it is not a typical gambling definition. Our model isn’t really stopped by the Wire Act but it does bring a lot of the industry players to a standstill. The entire goal of the Wire Act was to stop the mafia from interfering with sports betting. From a regulator’s standpoint, that didn’t actually maintain an orderly market; it effectively prohibited the market. There are now some estimates from Forbes that over $150bn a year in illicit wagers are placed in the US. It’s the reverse outcome you would have expected. If you fast forward to last year, with the overturning of PASPA, you saw an effort to have an orderly regulated marketplace for the first time. The new interpretation has a very broad implication, which is why lawsuits are being brought by state lotteries and many other parties. In fact, the attorneys we work with closely on developing our model are actually co-plaintiffs in the main case against the Federal Wire Act. What is your financial model? How do you make money from transactions yourselves? RP: We aggregate the unused or unredeemable loyalty points from consumers. We sell our experience by acting as an exchange to the rewards programmes themselves. The user has a benefit of a free-to-play experience. The consumer rewards company also gets a benefit, which is why they work with us, as they get to offer a new, innovative prize alternative to their users. In that industry, you have a tremendous problem with regards to a growing glut of unused points. In the US alone, there’s over $100bn of unused loyalty points, about a third of which are expected never to be redeemed. That’s because you have either unattractive prize alternatives or you have very restrictive redemption terms, or you simply have redemption levels that are too high for consumers to commit to achieving. On the other side, you have the gaming industry. While we operate a free-to-play contest and are compensated for doing it, what we end up doing financially is aggregating micro-interests that we can offset by placing real transactions with gaming partners, done on behalf of our company. That becomes an interesting conduit for gaming companies, because they are getting a completely new revenue stream through us. Is the DoJ’s reinterpretation of the Wire Act increasing demand for Gambit and would this fall if the interpretation was overturned? RP: Like most others, I think our model is looking at the Wire Act for clarity. If it was to be overturned, our model is still satisfactory. Monetising loyalty points is unique to what we offer, so we’re simply outside of that. On the other side, if they were to uphold this interpretation, bringing online gaming to a standstill, our model is going to be a shining star on the hill, because our model is the only one that has withstood legal scrutiny. It is not a form of sports wagering or gaming. AM: The other thing to highlight for this product is the simplicity of being able to convert your rewards points. This is similar to converting credit card points or airline miles; we’re not trying to be different in that model. Additionally, the games we are playing have evolved, so we don’t only cover sports, but people will be able to bet on reality TV shows like America’s Got Talent or things along those lines. Players can donate to a number of charities after playing, as well. RP: It’s a really interesting connection we’ve made between two industries. Consumers want to play games, rewards companies want to move points and liabilities off their balance sheets and gaming companies want access. We do it all in a responsible manner. You’ll see sports betting go back to the black market, the unintended consequences of shutting down state lotteries and other forms of fundraising. Its implications could be so broad but its objectives don’t seem to meet what’s in the public interestRichard Pistilli On the reinterpretation itself, what do you think prompted the much-criticised decision? RP: I can only comment on what’s been made public, which are the political rumblings about what’s driving this interpretation. I think, from a practitioner’s standpoint, this is not something a lot of people saw coming. When you had the change from the Supreme Court (the PASPA repeal), you were asking a lot of credible parties to invest time and resources into devising frameworks for building a new marketplace. That seems completely out of sync with what this new interpretation now presents. Why would you have all these parties get engaged when the intent was always to bring the thing to a halt? I’ll give you a point from a non-legal mind: they don’t seem interested in analysing any precedent or case law. That’s interesting, given their same office in 2011 read the same plain text and came to the exact opposite conclusion. This is why you should have a system of jurisprudence based on precedent and case law. Do you believe it is genuinely enforceable in its current form? RP: In terms of enforcement, you ask yourself what the role of a regulator is. The essence is to maintain the market and protect the public. You have to ask yourself whether this is good policy. To apply this statute to stop what is a very nascent marketplace, the ramifications, as history has shown us, are not necessarily going to be optimal. You’ll see sports betting go back to the black market, the unintended consequences of shutting down state lotteries and other forms of fundraising. Its implications could be so broad, but its objectives don’t seem to meet what’s in the public interest. For those reasons, it’s difficult for me to see the interpretation stand. If the interpretation is upheld, would it be a victory for Gambit if it puts you in pole position? RP: If you think about what we really do, our company is an intermediary. We connect between rewards companies, consumers and gaming. While it’s a fair point, from our perspective, a robust, healthy marketplace is a much bigger opportunity. It allows us to scale, work with bigger partners and deliver better solutions. From a long-run standpoint, that would be a more optimal outcome.