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Gambling prohibition a long shot?
By Margaret Kane, ZDNet News
March Madness -- the NCAA basketball
championship -- tipped off Thursday.
The
64-team playoff is not only one of the
biggest events in U.S. sports -- it's a
sports-betting bonanza. For the next few
weeks, gamblers will scan charts and
statistics, monitor their bracket choices,
and, in many cases, log onto the Internet.
Dozens of sites are offering information
on the tournament, and contests to pick the
bracket winners. Here and there, wired
gamblers may even find places where they can
lay an e-bet on, say, that big Duke match
up.
And that's where they could foul
out.
That's because, despite estimates
by a Bears Stearns report that it could be a
$3 billion industry by 2002 and that five
percent of all new Web sites are gambling
sites, Internet gambling is illegal in the
United States.
"It has tremendous
potential to take off," said Ellen Guion, an
analyst at Greenfield Online, which has done
its own study of the online gambling world.
And that potential is already, according to
the Bears Stearns report, converting itself
into an Internet gambling industry that's
"thriving in the loopholes."
Kyl,
Goodlatte bills But how does this "thriving"
industry beat the gambling prohibition? For
one thing, the illegality of Internet
gambling is hardly clear cut.
Internet
gambling currently falls under the 1961
Federal Wire Act, which bans the use of
telephone lines for betting on sports
events, contests and races. But several
people have challenged that law, claiming
that: it doesn't cover the Internet; and,
even if it does cover the Net, it doesn't
cover offshore operations.
Congress is
working to rectify that situation. A bill
proposed by Sen. Jon Kyl, R-Ariz., that
would explicitly prohibit all Internet
gambling has passed the Senate. Meanwhile, a
companion bill sponsored by Rep. Bob
Goodlatte, R-Va., is currently working its
way through the House of Representatives.
The Goodlatte bill would make running an
Internet gambling operation an offense
punishable with fines and up to four years
in prison.
"I'm opposed to gambling and
I wanted to do what I can to halt its
"It's the equivalent of having a casino
in your home town," he added. "All the
problems -- addiction, crime -- they're all
there."
Feds cracking down Rather than
wait for the bills, though, federal
authorities have begun a crackdown.
Last
month, a federal jury in New York convicted
Jay Cohen of one count of conspiracy and
seven counts of violating the Wire Wager Act
for operating a sports betting business that
illegally accepted wagers from U.S.
citizens.
Cohen, whose World Sports
Exchange is located on the Caribbean island
of Antigua, is scheduled to be sentenced in
May. He faces a maximum total of 19 years in
prison and fines of up to $1.75 million.
But it's not just anti-gambling advocates
who are backing the new laws. Goodlatte's
bill is co-sponsored by a Nevada-based
Republican, Rep. Jim Gibbons, and Rep. Frank
LoBiondo, R-N.J., whose district includes
Atlantic City. The American Gaming
Association, which represents casinos, has
also supported legislation that would outlaw
Internet gambling.
Net gambling
proponents argue that gambling interests are
just fighting to protect their mainland
monopolies. According to the statistics,
though, Las Vegas and Atlantic City don't
have that much to worry about.
The
Greenfield Online study found that, while
online gamblers spend more time in casinos
than traditional gamblers, they don't spend
nearly as much money.
Greenfield Online
determined that a typical casino patron
makes 6.2 visits a year and spends around
$300 per visit, while an online patron makes
20.8 visits per year and spends $30 each
time. On the other hand, Bear Stearns
predicted that, if gambling were legalized
in the United States, big-name casinos would
easily trump the market and "devour the
smaller Internet gaming companies and a slew
of the some 650 gambling Web properties."
"There is a certain fear by the states
that they'll lose money. But I don't think
it's fair to say that the American casinos
are afraid they'll lose money," said Joseph
Kelly, a professor of business law at the
State University of New York College at
Buffalo.
What the casinos are worried
about, he said, is their reputation.
Backlash concerns The tight regulation of
gambling in Nevada and New Jersey involves
extensive checks and measures to make sure
that everything is on the up and up.
Venturing into online gambling, even in
countries where it is legal, could put
American casino's licenses in jeopardy.
'If we were really serious about stopping
it, could we? Sure, if we were willing to
shoot every tenth bettor, install an
inquisition or cut off people's left
hands.'|SUNYCB law professor Joseph Kelly
"Our license to operate in Nevada is
predicated on anything we do anywhere else,"
said Alan Feldman, vice president of public
affairs at Mirage Resorts Inc.
"In our
industry we go through unbelievably rigorous
background checks at levels which the
current Internet properties don't
understand. In our state, and most states
with casinos, every check you've written in
the last 10 years has to be produced. They
go to your hometown, they talk to your
teachers. The process takes a year with 20
individuals investigating you," he added.
The casino industry is concerned that a rise
in Internet gambling could cause a
concurrent rise in the problems associated
with gambling, such as addiction and crime,
and that lax regulation could erode trust
among consumers.
"They're afraid that if
Internet gambling catches on, it might
result in a national backlash against all
gambling," Kelly said.
Banning no simple
task Banning anything on the Internet is
problematic.
Besides the local, national
and international legal issues, enforcement
is a nightmare. For instance, virtually all
online gambling sites already operate
outside the United States in countries like
Australia and Antigua, where online gambling
is licensed and legal. And, while Cohen may
have been willing to reenter the United
States to fight his gambling charges,
authorities may have a much tougher time
prosecuting other offenders who reside out
of the country.
"Prohibition will not
work, just like prohibition against booze
did not work," Kelly said, pointing out that
the only people the United States could go
after inside the country are the gamblers
themselves. "If we were really serious about
stopping it, could we? Sure, if we were
willing to shoot every tenth bettor, install
an inquisition or cut off people's left
hands."
Goodlatte's bill originally did
go after the actual bettors, but that
provision was eventually eliminated because
the states are able to handle it on their
own without federal assistance.
Kelly
said the United States should be able to
work with countries that license online
casinos, encouraging them to prohibit those
online casinos from soliciting American
gamblers and developing extradition
policies. The U.S. government could also
work with ISPs and credit card companies to
make the gambling more difficult to achieve
in the first place, he said.
Credit card
firms gun shy The credit card companies are
already wary of online wagering. A major
blow came in October when Cynthia Haines, of
Marin County, Calif., settled a lawsuit
brought against her by her bank after she
refused to pay credit card debt from money
lost gambling online.
Haines' attorneys
argued that California law barred the
collection of gambling debts. She eventually
settled with both Visa and MasterCard --
prompting Providian National Bank, the
sixth-largest Visa issuer in the United
States, to create a policy to automatically
deny approval for most online wagers
requested by its customers.
That suit,
along with a few others has put a scare into
credit card firms. Add in some requests from
Congress and federal law enforcement, and
online gamblers could find themselves
without means to wager online.
But Kelly
thinks that, even if the credit card
companies do get scared off, gamblers will
find another way to bet, be it wiring money,
setting up special offshore accounts or
using new forms of electronic cash.
"Once that happens I don't see how federal
authorities can enforce the prohibition," he
said.
Australia the model? What does
make sense, say advocates of online
gambling, is regulation.
In Australia,
for instance, the government decided that,
rather than fight online casinos, it would
set up a regulatory system to license them.
Several of the country's six states have
legalized gambling, and some state
governments actually subsidize casino
companies.
"What we would like to see is
a regulatory bill," said Sue Schneider,
chair of the Interactive Gaming Council, a
trade association representing online
gambling firms. "It's our opinion that you
can't regulate the Internet but you can
regulate the gambling product. It's being
done in 50-odd countries. They do the same
kinds of thing they do with land-based
operations."
Schneider said that
regulation would help solve many of the
problems posed by Internet gambling,
including concerns about shady operators.
And the technology itself could be put in
place to work on other problems -- for
example, including loss limits in software
to prevent addictive gambling behavior.
Regulating the industry would also encourage
online operators to engage community efforts
to prevent problems like teen gambling.
"That's the way to stop it," she said. "It's
just a matter of time before things sort out
and U.S. name brands get in on this. That's
when the market will really expand."
expansion on the Internet," Goodlatte said.