Findings and Observations

19 February 2000
Internet Gaming. While it has been the position of the states that they typically should choose the forms of gambling they wish to legalize within their own borders, Internet gamblingencompasses problems beyond the scope of state sovereignty, the Internet, by its very nature, violates traditional state boundaries. Internet gambling is a rapidly growing and highly unregulatedindustry that has the potential to create untold social problems.

There is a legal dispute over whether the gambling need only be legal in the state in which the gambling actually takes place, that is, in the state where the Internet gambling company's server is located, or in that state as well as the state the bettor is in when the wager is made. If Internet gambling does not have to be legal in both the state that receives the wager as well as the state from which the wager originates, then states have lost control over Internet gambling.146 In testimony before the PSGSC, it was indicated that Internet gambling is considered illegal until it is made legal by individual states, a position that is in direct opposition to that of the Internet gambling industry.147 To date, only Nevada has legalized limited Internet gambling, and it has done so cautiously.148

A recent federal court ruling from New York supports the positionof the states. 149 World Interactive Gaming Corporation, headquartered in Delaware but with corporate offices in New York, was operating an Internet gambling site through its Antiguan subsidiary, Golden Chips Casino. Golden Chips Casino required bettors to open an Antiguan bank account from which the money that was wagered was transferred. As the exchange of funds took place outside the United States and the actual wager, via the company's Internet server, took place outside the United States, the company maintained that it was not in violation of federal law prohibiting the advertising, promotion, and operation of betting on sporting events via the Internet and telephones. The federal court, however, ruled otherwise. As the company was located in New York, and as it was soliciting and accepting wagers from New York residents, it was in violation of federal law. This is particularly helpful to the states, since, in effect, the court ruling implies that the location where the bettor places the wager is the place where the wager actually occurs.

In addition, in March of 1998, the U.S. Attorney for the Southern District of New York, and the New York office of the Federal Bureau of Investigation filed complaints against 19 owners and managers of six Internet-based sports betting companies headquartered in the Caribbean.150 These companies included Worlds Sports Exchange (Antigua), Galaxy Sports (Curacao), Global Sports Network (Dominican Republic), Grand Holiday Casino (Curacao), and World Wide Tele-sports (Antigua). The companies were charged with owning or operating sports betting businesses that illegally accept wagers on sporting events through telephones or the Internet. These complaints represent the first federal prosecutions of sports betting over the Internet; the outcome of these complaints is yet to be determined.151

One case that has received recent national attention occurred in California. 152 An individual incurred $70,000 in credit card debt gambling online. When the credit card companies attempted to collect, the individual sued them under the premise that Internet gambling is illegal it) California, making the credit card debt collection unenforceable. A ruling was made against the credit card companies, and they were unable to collect any of the money owed to them.

These examples illustrate the PSGSC's concerns about Internet gambling. The PSGSC believes that Internet gambling is already illegal under federal law, but it recommends that legislation be enacted that makes this clear and that federal authority be exercised with respect to the enforcement of such laws, with the exceptions of telecommunication transmissions from lotteries, parimutuels, and Indian Class 11 bingo conducted on-line. The PSGSC also recommends that laws prohibiting the collecting of Internet gambling debts charged to credit card or the wiring of money to Internet gambling companies be put in place. Advertising regulations should be expanded to prevent Internet gambling sites to advertise on television or radio or through the Internet.


146See oral testimony of Joel Schwarz, State of New York Assistant Attorney General, before the Public Sector Gaming Study Commission, June 18, 1999.

147See oral testimony of Dale Youngs, State of Missouri Attorney General's Office, and Joel Schwarz, State of New York Assistant Attorney General, before the Public Sector Gaming Study Commission, June 18, 1999.

148However, as of December 1999, no one has been licensed by Nevada's gaming regulators to conduct Internet gambling.

149"It's not a Wonderland Out There," Casino Journal, September 1999, p. 24.

150The information contained in this paragraph is from

151In addition, review the meeting of the National Council of Legislators from Gaming States.

152 The information contained in this paragraph is from