Betting on the US market; the IT infrastructure of gambling – DatacenterDynamics

If you have ever been to a Las Vegas casino, its likely you will remember the experience vividly. The lack of windows, and clocks. The sound of coins jingling, of slot machines, of cries of delight and angry frustration. If you arent a gambler, you may have marveled at the sheer lack of seats available for anything other than betting or playing.

Casinos are an experience all of their own, like a candy store where the sugar high comes from the constant flow of money rushing to and from - though lets face it, mostly to - the house. The chance, however small, of myriad financial problems being solved by a single spin of the roulette wheel means gambling remains an enticing prospect for many, so it is no wonder that the sector seems endlessly popular, and this popularity is spreading to the online, virtual world.

This happened earlier in Europe than in the US but slowly, state by state, online gambling - also known as iGaming or simply gaming by those in the industry - has opened up on the other side of the Atlantic too.

As with anything based on the Internet, iGaming needs to be hosted somewhere, and that appears to be where significant complexity has arisen.

Continent 8 Technologies is one company providing the digital infrastructure for the gaming industry. It offers colocation and cloud services specifically to the gaming and online gambling markets. Its a credit to our founder [and former Telecity CEO], Michael Tobin, says Justin Cosnett, chief product officer at Continent 8, of the businesss move into the US market.

Michael always had the ambition to service the US market once it was regulated. He took the incredibly unusual step of getting a casino license in Atlantic City to service New Jersey and then build a data center in Atlantic City.

From there, Continent 8 has been opening colocation sites as each state legalizes the online gaming industry.

We do data centers where other people wouldnt, because lots of other data center providers are looking for cheap power and great connectivity. We dont actually need to be in those places, we go where the vertical takes us and locations are needed for regulatory purposes.

This technique of keeping a keen eye on where new locations are opening up is also being followed by competitor Internet Vikings. Rickard Vikstrm, founder and CEO of Internet Vikings, told DCD that, similarly, the company is attempting to offer its services in every state applicable.

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Internet Vikings is based in Sweden, and along with Continent 8, began its operations in Europe as the market is, according to Vikstrm, 10-15 years ahead of the US in terms of regulations.

This is not to say that gambling was not popular in the US, but that a variety of federal and state laws have held the sector back. In 1961, the Interstate or Federal Wire Act was established, prohibiting the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest or a communication that enables the recipient to receive money or credit for bets or wagers via a wire communication facility.

The Wire Act prevents you from placing bets on sporting events across state lines, explains Cosnett. Its meant that each state has to regulate and have that transaction happening in the state - so even users on their mobile devices using a mobile app have to be in that state.

Beyond that, there was the Professional and Amateur Sports Protection Act (PASPA) of 1992 which effectively outlawed sports betting nationwide excluding a few states, and then the 2007 Unlawful Internet Gambling Enforcement Act which prohibited gambling businesses from "knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law."

In combination, these three laws make the US a hostile environment for online gambling, and sports betting - both major parts of iGaming.

However, in 2018 PASPA was overturned, thus freeing up states to begin making their own choices. This has created an extremely challenging market, with each state having its own regulations, and hosting service providers must get licensed to comply with every set of rules.

It depends on which state you are in. Its so fragmented because every state has its own rule book so it's impossible to just know In this state, you do this or do that, explains Vikstrm. Ive had to send in fingerprints and tax returns for the last 10 years, Ive had interviews with investigators. Everything in my life has been gone through. Then they need to check the servers and our company to make sure we are a good supplier, and also the shareholders behind us.

These regulations slow down the process of business expansion for the likes of Internet Vikings and Continent 8, but they have both now made the process as efficient as possible.

According to Cosnett, Continent 8 was, at one point, opening new locations once every two months over a period of six months as new states added wiggle room for iGaming activities.

Theres no guarantee that every state is going to regulate, but all of our customers that want to come to the US want to be first to market, so weve had to compress our ability to open up a new location to between two and six weeks we can be ready for customers to start installing their equipment, explains Cosnett.

Currently, Continent 8 has been leasing space in other colocation facilities - always at a Tier III-quality site with good connectivity and capacity availability - but in the future, the company is looking to acquire and own its premises.

Not only do the likes of Internet Vikings and Continent 8 need to be licensed, but in some states the colocation facility they operate from will need licensing.

That is a bit of a competitive differentiator, argues Cosnett. We might look like we're just buying or leasing someone else's data center, but we're also bringing that regulatory approval to operate and provide our customers as well as the network and cybersecurity.

But even beyond the complex regulatory landscape, iGaming as a sector has a key set of needs.

Justin Cosnett, Continent8 Continent8

According to Vikstrm, iGaming is very similar as a sector to e-commerce in terms of its IT needs.

Its more about security, more about making sure it's always online, rather than a lot of capacity needed because, at the end of the day, it's not that much data, says Vikstrm.

Cosnett reaffirms this, noting that Continent 8 has been offering services including DDoS (distributed denial of service) protection, WAF (Web App Firewall), and has added a SOC and SIM service and end-point protection.

It's a rich target for cyber attacks, says Cosnett. We've seen that in the press in the land-based casino world over the last year or so.

While he does not explicitly name any particular incident, one heavily reported on was in September 2023, when a cyber attack against MGM Resorts brought down the casino and hotel groups slot machines and hotel room key systems in Las Vegas, as well as its website.

Cosnett continues: It is just as viable a threat to an online business as it is to a land-based casino. Almost more so because all these guys are doing is servicing the bet, so every second that a site is down or unable to service its customers, significant potential revenue is lost. And thats not just for the gaming company, but for the regulator in tax revenue as well.

Beyond security implications, latency is a key consideration. Online sports books, in particular, have a competitive advantage by having low latency connectivity and being able to deliver the user the latest possible betting odds and information about a game, particularly with options like cashing out, says Cosnett.

Because of this, Continent 8 drags its multiprotocol label-switching (MPLS) network to all of its locations to try and speed things up. Label switching can be faster than a routing table lookup because switching can take place directly within the switched fabric and avoids CPU and software involvement.

Depending on the data center in question and its location, which is sometimes impacted by the state it is based in, this could be even more important.

The debate in each state as to whether they should legalize iGaming is a complicated one. Currently, iGaming is only fully legal in seven states, though several more allow online sports betting and other limited gambling services.

A major driver in favor of iGaming is, predictably, money. Once something is regulated, it can be taxed, and such a popular sector has the potential to bring in a lot of tax revenue. There are few industries in the world that tell a regulator or a state or government, please regulate us, please take our tax money, says Vikstrm.

New York is one market the vendors are studying closely. Late last year it was revealed that it is expecting its budget deficit to reach $4.3 billion. Senator Joseph Addabbo proposed legislation to authorize iGaming and iLottery in New York, arguing that it could produce $1bn in tax revenue for the state. Despite this, the state has not included the sector in its 2024 Senate Budget Proposal.

While iGaming as a whole is not allowed in New York, online sports betting is, though only from a few select locations - the casino resorts.

The transactions have to happen inside an actual casino, so we havent yet managed to get to a position where we could take a data center or even build a data center in a casino property, explains Cosnett. Instead, Continent 8 intends to provide casinos that already have their own servers with better connectivity.

That could help them connect with iGamers elsewhere in the state, and also potentially the hyperscale cloud providers as many online gaming platforms use cloud services.

According to Vikstrm, New York currently has four licensed locations. There are a lot of rules, and it costs a lot of money to set up commercial operations there, he says. These casinos do not have a secret and vast colocation data center in their basements for this purpose - Vikstrm suggests it is closer to a few racks than a big commercial data center.

As with anything with limited supply, these casinos are able to charge a premium for hosting there. At the end of the day, we [Internet Vikings] are not paying for it, it's the operators. We forward that cost to them, and they then forward it to the player, says Vikstrm.

DCD reached out to the licensed casinos in the state, but did not receive any comment.

Notably in New York, those casinos that are licensed for sports betting exclude any on Native American land, in line with the Indian Gaming Regulatory Act.

A Native American casino operator that asked not to be named confirmed this limitation to DCD, adding that some are in negotiations with the state for a new Compact - an agreement with the state that Indian Gaming sites need to operate - that would enable tribal casinos to take part.

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The tribal casinos are, in many states, a motivation to not allow iGaming, according to Vikstrm. The reason states dont want to legalize it is the Native American tribes, he says. Tribal gaming and casinos have a big influence politically, and online casinos would cause them to lose a lot of money.

"The government would then have to give something back to the Native American facilities.

The history connecting Native Americans with casinos and gambling is complex and rife with colonialism, dating back to the invasion of the US by European countries in the 1500s, which led to conflict with tribes and saw many Native Americans displaced as their land was annexed.

Centuries later, Native American reservations were established by treaties and executive orders, returning some of that land that should never have been stolen in the first place. Inequalities prevailed, though, with federal and state government, regulations and grant funding often leaving the reservations with few options and limiting their ability to empower themselves.

In the late 1970s and early 1980s, many Native American tribal governments began establishing casinos and gambling locations which brought in significant revenue to the reservations.

In 1988, the Indian Gaming Regulatory Act (IGRA) was established; a federal law dictating the jurisdictional framework governing gaming sites on tribal land. According to the act, its purpose is to protect gaming as a means of generating revenue for the tribes and to boost economic development. But the IGRA states that all Indian gaming must take place on native land, which is problematic for igaming, which is mobile by nature.

An example of such can be found in the 2018 court case of the State of California vs Iipay Nation of Santa Ysabel. The federally recognized Indian tribe tried to revitalize its gaming revenue stream by establishing a server-based bingo game over the Internet.

Those servers were located in Iipays casino on tribal lands, which has since closed down. The casino had an on-site staff member who was supposed to act as a proxy for the patron by placing bets.

While the proxy and the server remained within tribal lands, judges ruled this was in contravention of the act, as the patron would not necessarily be within tribal land. Thus, the Iipay Nation was not allowed to continue its operations of the online bingo game.

DCD contacted several tribal gaming establishments and gaming regulatory boards for comment, but none were willing to do so.

Another important layer for digital infrastructure providers in the sector is the ethics of gambling itself. The phrase the house always wins is well-known, and not inaccurate, because the business model of casinos relies on them winning more money than they lose.

At every level of iGaming, each service provider, be it the gambling platform or the IT hosting company, relies on the customer continuing to place bets that will end in failure. Cosnett is philosophical about this.

Everyone will have their own personal view, he says. Continent 8 isnt a company that is full of gamblers. We are a technology provider, rather than a gambling company ourselves. My normal response is that what weve seen is that the best regulation and regulated companies will offer the best consumer protection.

Continent 8 remains in favor of regulation, with Cosnett saying that, if asked by regulators, they will switch customers operations off. Total prohibition has been tried in certain environments, and it's not necessarily successful, he adds. People respond accordingly, they carry on doing it but in ways that arent necessarily the most suitable to the providers or the consumer.

This philosophy is further supported by Internet Vikings Vikstrm. For me, its easy. It needs to be regulated, licensed, and controlled by someone because it's an industry that can come with a lot of implications, like alcohol, tobacco, or anything like that. People will always do it, so it's much better that it's regulated, he says.

Regulations mean you have to prove things such as source of funds, Vikstrm says. If you want to bet with $100,000, you need to prove that it is legal money and that you actually have an income that can support that kind of gambling.

In unregulated gaming, they will try and squeeze as much money out of every single person as possible.

Indeed, besides Nevada, which is home to Las Vegas, there does not seem to be a clear link between a states friendliness to gambling and gambling addiction statistics - the results are mostly scattered, but the data itself is also hard to establish. It relies on self-reporting, which many gambling addicts would not do.

The US is unlikely to see a widespread opening up to iGaming. Cosnett puts this down to politics: At a federal level, trying to get approval has been almost impossible, he says.

We [Continent 8] view it as part of the entertainment industry but, morally, you can have different views on gambling, and no one is going to win votes by legalizing and or making gambling easier.

While the politics in some states means legalization of iGaming is unlikely to ever happen, there does seem to be a continuous trickle of states changing their policies, with Rhode Island among those joining the legalization list this year.

Be it for better or worse, demand for iGaming is unlikely to go away.

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Betting on the US market; the IT infrastructure of gambling - DatacenterDynamics