shares in that gambling operator can betransferred to the new owner.Such requirements as the ones describedabove are not unique for Denmark, butare a part <strong>of</strong> the gambling legislation inall European jurisdictions that <strong>of</strong>fer thepossibility <strong>of</strong> obtaining a gambling and/or betting license. There are as manydifferent systems as there are jurisdictions,and the Danish legislation is one <strong>of</strong> theless demanding and strict in Europe, butnone <strong>of</strong> the European jurisdictions are asdemanding as some US jurisdictions.The United States AsAn Emerging MarketIn recent years, private equity firms havemade significant inroads in the gamingindustry in the United States. Perhaps theprime example <strong>of</strong> that is the controllinginterest in Caesar’s by Apollo and TPG,two <strong>of</strong> the largest private equity funds inthe United States. With the emergence <strong>of</strong>the online gaming industry, particularlyin Nevada, private equity firms, primarilythrough acquisitions via the gaming firmsthey <strong>current</strong>ly have interests in, are startingto have a presence in the online market.Again, Caesar’s is a good example as itexpands into the online field. However, theprivate equity interest tends to be in more <strong>of</strong>a growth model, that is appreciation <strong>of</strong> thevalue <strong>of</strong> the stock, as opposed to a dividendor return model where investors are lookingto receive pr<strong>of</strong>its from the earnings <strong>of</strong> thecompanies.Since online gaming is in its infancy inthe United States, it does appear that thegrowth model will become the primarymodel for online gaming companies in thenear future. Thus private equity will likelybe interested in participating in these onlinegaming operators.Private equity and capital investors thatare interested in acquiring an interest inoperators and operators which are interestedin ceding control or selling substantialownership stakes to private equity entities,should be cognizant <strong>of</strong> the complex andvaried regulatory environment in the UnitedStates. Operators are going to be licenseddirectly by a state or tribal entity whichis going to require the regulatory entity’sapproval prior to the change <strong>of</strong> controloccurring. Even if the private equity andcapital investors take a minority interest,or a passive interest, in the operator theremay be licensure requirements or waiversrequired to be <strong>issue</strong>d by the local gamingjurisdictions.As most land-based casino operatorsand suppliers doing business in the UnitedStates are well aware, the licensure processin some states can be very thorough, evenbordering upon onerous. Substantialfinancial records, criminal backgroundhistories, and interviews are the norm inmost licensing jurisdictions if an entity isgoing to take control <strong>of</strong> an existing licensedoperator or have a substantial controllinginterest in such an operator. As onlinegaming is truly emerging in the UnitedStates, entities seeking to get in the fieldwill go through what may in many casesbe the first licensing experience for certainjurisdictions. This initial experience alwaysentails a more thorough review which <strong>of</strong>tenis more time intensive and possibly morecostly due to the relative lack <strong>of</strong> knowledge<strong>of</strong> the online gaming field in mostregulatory jurisdictions.As a result, private equity interests,which have not gone through the licensingprocess, need to be cognizant that investingin online operators in the United States willentail a substantial level <strong>of</strong> investigation andregulatory compliance. Similarly, an existinglicensed operator, who has an interest inceding a portion or all <strong>of</strong> control to privateequity interests, will have to understand thatthere could be substantial delays in allowingthose transactions to occur if the privateequity operators have not previously beenlicensed in such jurisdiction.Since the online gaming market is stillsmall and new in the United States and isconfined <strong>current</strong>ly to intra-state gaming,it may take some time until economies<strong>of</strong> scale and the value <strong>of</strong> operators reacha point where private equity will have aninterest in making substantial investments.However, if the federal regulatory climatewere to change, either by action <strong>of</strong> Congressor through the judicial system, it is possiblethat the market may grow much morequickly and thus the appeal <strong>of</strong> investing inonline gaming in the United States woulddramatically increase.Ultimately, online gaming operators andinvestors who have an interest in onlinegaming operators should be laying plans toexpand into the United States market and inconjunction with the same, ensure that theywork diligently to maintain positive publicrelation strategies and effective compliancestrategies so that as the United States’market opens up they will find licensuremore easily obtained.As is evidenced in the discussion above,the United States market is substantiallybehind the European market in onlinegaming, but as time and technologyadvance, it is likely that the US market willcatch up and operators and investors needto be prepared for that occurrence.ConclusionWith the opening <strong>of</strong> the European onlinemarkets the online operators are looking atbetter access to the European markets, butthe price for this in increased marketingexpenses, gambling taxes and high licensefees places additional financial pressure onthe online operators.In a market where the banks and financialinstitutions are reluctant at best to accept theonline operators as legitimate entertainmentbusinesses the access to external capital islimited.Until now this has not really been aproblem, but with the increased costs<strong>of</strong> operation combined with increasedcompetition, it cannot be excluded thatsome operators are forced to consideralternatives to the cash flow financedbusiness model.For capital investors around the worldthis might turn out to be an attractiveopportunity to explore, much the wayinvesting in land-based casinos in theUnited States have become common.MARC H. ELLINGER, Attorneyat law with Blitz, Bardgett &Deutsch, Missouri, USA. Tel:Phone: +1 573.634.2500 or Email:mellinger@bbdlc.comHENRIK NORSK HOFFMANN,Attorney at law in Denmark, Tel:+49 40 3496 0212 or Email:hnh@hnhlaw.eu34 | European <strong>Gaming</strong> <strong>Law</strong>yer | Autumn Issue | 2013
Global ResponsibilityNovomatic Group is one <strong>of</strong> the largest integrated gaming companies worldwide and theleading producer and operator <strong>of</strong> high-tech gaming equipment in Europe. Founded bythe industrialist Pr<strong>of</strong>. Johann F. Graf in 1980, Novomatic owes its success to more than 30years <strong>of</strong> experience and the commitment and creativity <strong>of</strong> 19,000 employees worldwide.Novomatic stands by its responsibility and strives to <strong>of</strong>fer its guests high quality entertainmentwithin a safe environment. Responsible <strong>Gaming</strong> as well as ecological and socialconsiderations are key aspects <strong>of</strong> the company’s principles and the basis for the Group‘seconomic success.www.novomatic.com
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