Editorial: The Sensible Solution is Regulation

30 October 2001
By Frank Catania

The recent news out of the New Jersey attorney general’s office with regard to the filing of additional civil complaints against Internet gaming sites is at best untimely, given the increased manpower necessary to combat the threat of terrorism since the terrorist attacks of Sept. 11.

Given that the issue is in the news, my congratulations to the attorney general’s office for finding that Internet gaming exists and children need to be protected. The problem is that there is no need for debate about whether gaming over the Internet is a reality.

The most recent statistics state there are as many as 1,400 to 1,650 gaming Web sites in operation, a significant increase from only one year ago. According to The River City Group, Internet gambling expenditures for the year 2001 will eclipse the $3 billion mark. The number is expected to rise to $4.5 billion in 2002 and then $6.3 billion in 2003.

Billions of dollars are reportedly being bet over the Internet with very little, if any, oversight or guarantee that the operators of these sites are fair and honest or that protections are in place to keep children and compulsive gamblers away. These revenue projections imply that a percentage of this money is from our citizens and leave New Jersey with no subsequent benefit, directly or indirectly, including no dedicated funds for protecting children and problem gamblers through education or other programs. The Internet gaming industry has its own international trade association, the Interactive Gaming Council (IGC), and has been the spotlight of published research reports from firms such as Bear, Sterns & Co. Inc.

My question: What now?

In June 2001, the attorney general filed the first set of civil complaints against various Internet gaming companies that were advertising in New Jersey. To date, whether the defendants named in these civil complaints were ever officially served is doubtful.

The attorney general’s civil complaints declaring Internet gaming illegal are simple administrative measures in the face of a complex dilemma. Declare Internet gaming illegal, file a few civil complaints (never mind how to serve the complaints to foreign companies whose owners are mostly unknown to the New Jersey attorney general’s office), and forget about it. If Attorney General John J. Farmer Jr. wants to provide protection for children, compulsive gamblers and the general public, I believe the answer is regulation.

In my opinion, an effective solution lies in a regulated alternative aimed at ensuring the presence of harm-minimization measures, not the least of which relate to the protection of children and compulsive gamblers. The key issues of such an approach are protection of minors, appropriate problem gambling measures, protection of revenue and the integrity of products and probity of those involved.

In land-based gaming, jurisdictions devote significant resources to preventing minors from gambling. Obviously, the physical presence of minors identifies them as minors. Yet, even with the opportunity presented by the physical presence of minors, no gaming jurisdiction is 100 percent effective in keeping minors from gambling.

By contrast, many tools, including data cross checks and age verification software, are available to exclude minors from participating in gambling online. Stringent computerized screening mechanisms implemented by Internet gambling operators, and monitored by regulators, will be more effective than existing land-based measures in preventing most minors from gambling. In my view, new technologies would provide regulators with tools not previously available in most traditional forms of gambling, including the ability to provide an audit trail for each transaction, to limit players to total or individual amounts bet and to block participation by specified players or classes of players, such as college athletes.

Similar arguments have been made regarding problem gamblers. That is, if they must be present in a casino to gamble, there is more of a chance that they can be identified and assisted. But is this assumption accurate? How many problem gamblers are actually identified and assisted by casino personnel? It would appear that a computer-based system that allows a gambler to self-exclude or to establish loss limits stands a far greater chance of being effective than the systems in place in most casino jurisdictions today.

While technically it may be possible to limit Internet gaming through content controls, this solution would come at a great cost. Technical solutions, of which none would be 100 percent effective, could potentially degrade general Internet performance and most certainly would involve a significant intrusion into an individual’s privacy.

These facts have not gone unnoticed by public officials. In fact, the legislatures of both New Jersey and Nevada have proposed laws to legalize online gambling by allowing licensed land-based gambling businesses to potentially operate online. (Nevada Gov. Kenny Guinn signed legislation on June 14 that could make Nevada the first state to offer legal Internet gambling.) The online gambling industry is attracting interest from some of the most respectable names in gambling and business: Sun International, William Hill, Harrah's, MGM, Victor Chandler, Playboy (which just announced a venture with Ladbrokes and Penn National), and many others.

While the attorney general may be uncomfortable with the increasing popularity of Internet gaming, a proactive debate on the benefits of regulation would help protect consumer interests far more than civil actions that deprive consumers of their freedom to exercise choice.