California Moves To Go After the Casual Bettor

25 April 1997

IGN is enamored with the State of California's website. We're not surprised...we'd expect that from the Golden State; but tracking pending legislation there on internet gambling is a joy. Constant updates on hearing schedule changes and amendments arrive routinely. But now, there's a treasure trove which gives us the sponsor's rationale as well as info on whose supporting an opposing SB 777. Here's the latest:


Existing law provides various criminal penalties for illicit gambling.

This bill would provide that it is a misdemeanor to use the Internet to participate in gambling activities which are otherwise illegal.

The purpose of this bill is to stop illicit gambling activities which are using the Internet to skirt the law.


1. Expressed Purpose of the Bill

According to the author:

Gambling, like the other more dubious attractions of modern life, has rushed wildly to get a piece of the Internet action in the past few years. There are hundreds of Web sites devoted to some form of gambling, and more are being added every month.

The problem is, on-line gambling, at least in most parts of the United States, is not clearly legal or illegal.

The stakes are enormous. Americans shell out approximately $550 billion a year on gambling, not just in casinos but at the racetrack, on sports books and state-run lotteries, in cardrooms, Indian gaming facilities and church-run bingo halls. It is understandable that Internet entrepreneurs would want to get in on it.

Many corporations are flaunting existing laws against casino-style gaming by opening accounts for betting customers through offshore subsidiaries. One of them is the International Gaming and Communications Corporation of Blue Bell, PA. Since 1992, IGC has enabled its customers to engage in gaming activity through a subsidiary, Sports International Ltd. of Grenada, West Indies, letting the punters place bets using a toll-free number from anywhere in the world. IGCÕs International Sports Book has generated approximately $50 million annually in telephone wagers. In May 1995, it accepted its first wager transmitted over the Internet.

Since then, a number of sites have sprung up offering sports-book wagering, with offshore accounts, on the Internet. Some sites use play money accounts for pretend blackjack, roulette or slots. IGC, which put a prototype blackjack game on its Sports Book Web site last summer, wants to be the first to implement real-money, live casino-style gaming on the Internet.

In Minnesota, the state is taking on a company called On-Ramp Internet Computer Services. Basing its case on consumer protection laws, the state is accusing the company of misleading customers by claiming that they can legally bet through its service, which is based in Nevada (where gambling is legal). The state argues that if people can access the site in a state where gambling is illegal, it's illegal.

Existing law, however, is vague. Although it prohibits using wire communications for transmitting bets in interstate or foreign commerce, it does not specifically address the Internet. Until the law is clarified, most Internet gambling entrepreneurs seem to consider themselves immune.

Ignored in the scramble for profits are the potential societal problems a new explosion of gambling could cause. And then there are the regulatory issues: how will states prevent neophyte Internet gamblers from getting ripped off by sleazy operators? Who is responsible for blocking access to minors? What about other security issues?

Legislation has been introduced at the federal level by Senator John Kyl, R-AZ. It appears to be gaining bipartisan support and it looks like it is supported by the White House as well. (Our Attorney General had a representative on the working group which drafted the legislation.) The legislation would extend criminal penalties to companies who offer all types of computer gambling. Further, communications companies regulated by the FCC would be required to discontinue services to any companies they carry that offer gambling.

I (Senator Leslie) am carrying Senate Bill 777 in an attempt to clarify at the state level that gaming which is otherwise illegal in California shall not find a safe haven on the Internet. Individuals who would otherwise be violating state law by participating in illegal gaming activity ought not be granted immunity by shifting the forum to the Internet.

Senate Bill 777 is a work in progress. It is our understanding that the United States Supreme Court in June will be issuing guidelines to the states for regulation of activity over the Internet. While it would be my preference to address the issue of Internet gaming on a broader spectrum, including under the purview of this measure those who set up the gaming operations in question, it clearly would be premature.

However, as Internet sites continue to exist that provide a forum for this type of activity and the aforementioned dangers linger, I find it necessary to proceed in some regard.

Therefore, I have authored amendments to be offered in committee which would restrict the scope of this bill to the individual who places the bet. Should there be a compelling need to expand the scope of this measure when guidelines are provided by the Court, I commit to bring the bill back to committee for further discussion.

2. Author's Proposed Amendments

The author proposes to strike SB 777 as introduced and insert a new Section 337j in the Penal Code:

337j. (a) Every person who knowingly uses an interactive computer service or system to engage in gaming, to transmit bets or wagers, or to receive money or credit as a result of gaming or placing bets or wagers, is guilty of a misdemeanor. (b) As used in this section:

(1) "Gaming" means to play, for an opportunity to obtain something of value, the award of which is determined by chance, any type of game that the Legislature is prohibited from authorizing pursuant to either subdivision (a) or (e) of Section 19 or Article IV of the California Constitution, or any type of game prohibited and made unlawful by Chapter 9 (commencing with Section 319) or Chapter 10 (commencing with Section 330) of Title 9 of Part 1 of the Penal Code.

(2) "Interactive computer service or system" means an information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including an information service, system, or access software provider that provides access to a network system commonly known as the Internet, or any comparable system or service. (c) This section does not apply to the California State Lottery. However, nothing in this subdivision shall be construed to make lawful any activity that is prohibited by Chapter 12.5 (commencing with Section 8880) of Division 1 of Title 2 of the Government Code. (d) Except as provided in subdivision (c), this section does not apply to any type of gambling operation otherwise authorized by law. (e) Nothing in this section shall be construed to make lawful any activity that is prohibited by any other provision of law.

3. General Comments

The scope of the state's ability to regulate the Internet is unclear. The United States Supreme Court will likely resolve some issues regarding Internet regulation this summer. Since the author's intent is to provide for regulation of the Internet only to the extent that it impacts on California activities, and activities which are illegal under existing law, it appears that this bill would not adversely affect the interests of other states or nations.

It is likely that the bill will require some amendment after the Supreme Court reaches its decision. The author has promised to return this bill to the Committee if it is substantively amended later in the session.