While all eyes in the interactive gambling industry are on Net
betting at crossroads in Australia and the United States, the United
Kingdom is quietly making assessments of its own. In an effort to bring
Britains gambling laws into the 21st century, the U.K. Gambling Review
Body has been taking submissions from concerned groups and individuals
regarding a number of gambling issues, including Internet gambling. The
Interactive Gaming Council took the opportunity to forward a submission
to the GRB for review, which IGN has obtained for your reading pleasure:
As representatives of the Interactive Gaming Council (IGC), the
following remarks deal specifically with the phenomena of Internet
gambling as opposed to other forms of gambling that will be reviewed by
your committee.
Internet Gaming: the Numbers
According to the River City Group, an Internet-related marketing
firm, there are over 250 operating companies or governments involved
with the Internet gambling industry with more than 850 online gaming
sites. Additionally, at least 80 publicly traded companies have an
interest in Net betting, many of which are directly involved in the
industry as operators, software developers, marketing firms, and
e-commerce providers. And, the numbers increase almost daily.
What will be the impact of the Internet and new technologies on
gambling?
The Internet has become an important communications tool and, much
like the telephone before it, more and more people are becoming reliant
on the Internet for business, entertainment, and social interaction.
While the adoption of the Internet into our global society has provided
unprecedented
opportunities, it has become apparent that many challenges lie ahead for
public policy, not the least of which are consumer protection and
taxation issues.
The growth of Internet usage within the last three to five years has
been phenomenal. According to some estimates, there are over 200 million
web users in the world and projections reach as high 320 million users
by the end of the year 2000 (statistics by the International Data
Corporation).
Trends in the UK
It is reported that forty-five percent of UK firms are not yet
engaged in e-commerce, although 91 percent of these companies plan to
make the shift sometime within the next two years. In a survey of 332
firms by MediaCast, only 6 percent of the companies researched generate
40 percent or more sales
over the Internet, but within the next two years 25 percent expect to
hit similar Internet sales levels. Eighty-three percent of these
companies have web sites and 50 percent use their site as a marketing
tool. At the same time, only 24 percent actually take orders over the
Internet and 15 percent accept Internet payments (www.mediacast.co.uk).
According to research by MMXI Europe, U.K. Internet users are
flocking to entertainment sites and staying at them longer. Gaming sites
and music download sites are among the most popular Internet
destinations. Additionally, users spend three times longer on
entertainment sites than sports sites. For the month of April, MMXI
lists the top five UK entertainment sites as virgin.net,
windowsmedia.com, freewin.co.uk, pokemon.com and channel4.com
(www.mmxieurope.com).
Forrester reported recently that Internet penetration in the U.K. is
on the rise, climbing from 21 percent in May 1999 to 25 percent in May
2000. The increase takes the total number of people in the U.K. with
Internet access to 19 million. William Reeve, Forrester group director
of European Data Products, pointed out, "Whilst access at work was an
early driver to growth, home use now accounts for 74 percent of Web use
in the U.K." He also said that subscription-free ISPs are driving
Internet use. The study additionally determined that the Web is
impacting British buying behavior as well, with 89 percent of users
polled having investigated some kind of goods and services online
(www.forrester.com).
A recent study by the Stanford Institute for the Quantitative Study
of Society on the effects on the effects of the Internet on society came
to some notable conclusions with regard to the American market alone
(these conclusions are expanded when the entire global community in
included):
- Sixty-five percent of American Households have at least one computer
and, of that group, 19% report a multi-computer household
- Forty-three percent of American households are connected to the
Internet
- Fifty-five percent of individual Americans have access to the
Internet
By the growth of Internet usage alone, it is apparent that more
individuals will have convenient access to gambling then at any other
time in our history.
Should Internet Gambling be regulated?
A clear distinction needs to be made between attempts to regulate the
Internet and attempts to regulate gambling. If a type of gambling
product is permitted within the jurisdiction then the nature of the
medium should not affect the nature of what is being regulated. If
gambling is lawful, the means of distribution should not affect the
lawfulness.
Internet gaming is a difficult and complex policy issue. The simple
solution is to make Internet gaming illegal, and forget about it. If
governments want to provide protection for the public, however, then the
answer is regulation. Since a ban will only stop British companies, or
companies with a nexus to Britain, from participating in the Internet
gaming industry and providing gaming to British consumers, regulation is
the best way to protect consumers and to ensure that a well-regulated,
safe and fair alternative is available. The sooner governments and
Internet gaming operators realize the need for regulation, the quicker
that fly-by-night operators or those operators with organized crime and
other unsavory backgrounds, will be put out of business.
According to policy experts, the timeframe for action is short
because the technology is still developing and can be influenced to
provide better personal protections. For example, in the United States,
the National Association of Attorneys General (NAAG) has expressed a
need for leadership by policymakers now while the Internet is still in a
growth stage.
How Can Internet Gaming Regulation Work?
Internet gaming regulation must be based on the same principles as
the regulations established for traditional, brick and mortar casinos.
Put simply, regulators must have the power to ensure honesty, integrity
and the financial security of operators and to oversee the integrity of
products being offered. Let's use the British Gaming Board as an
example. Please keep in mind that the casino gaming regulatory system in
Britain has evolved over the years. It was only over time that the
regulatory scheme was modified into the effective system that it is
today.
In Britain, no person or company can receive a license to operate a
casino unless they undergo an intensive background investigation, and
casino regulators find them to possess the highest degree of good
character, honesty and integrity. Can government perform the same kind
of investigation and qualification of Internet gaming operators? Of
course they can, in exactly the same way. The proof is evident in the
regulations already established in several countries throughout the
world. Internet gaming regulation may not be perfect at the beginning,
but just as with traditional gaming regulation, an effective regulatory
scheme will evolve over time.
The impact of technology in the general business community is
resulting in increasing globalization of businesses and products.
Internet gambling is not alone is this regard. Many of the traditional
gambling entities are establishing strategic alliances with partners
based elsewhere and are diversifying their target markets and product
range. Coupled with the growth in technology is the presence of new
players in all gambling fields, moving away from the historic
perspective of "born and bred" participants; Hence
the need for cooperative and stringent regulation of participants.
Suitability investigations will be paramount to ensure the character,
honesty and integrity of the licensees. A cursory suitability
investigation will not be acceptable. Those applying for licenses in
land-based casinos are subject to extensive background investigations,
why shouldn't the same be true for Internet gaming operators?
Just like regulation of traditional casinos, there cannot be any
short cuts with regard to suitability, especially in the infancy of
Internet gaming. Any regulatory structure would have to be particularly
sensitive of the allegations and rumors of impropriety over the
Internet. The suspicion and mistrust of Internet gambling that exists
must be countered by strict regulations allowing only those with
impeccable suitability to be licensed, the same requirements as
established for traditional casino licensing. There
should be no difference in the licensing process between a traditional
gaming license and an Internet gaming license.
The same level of scrutiny needs to apply to the evaluation of
systems and games and to the general good business practices and
internal controls addressing the operational and administrative
processes. This is something that is common with all well-regulated
traditional forms of lawful gambling.
The regulating body must be able to ensure the consumer that Internet
gaming operators are legitimate, that operators offer fair and honest
games and that they have the financial stability to pay winnings to its
players. The Internet gaming regulator must do everything possible to
ensure the honesty of the games offered the consumer. They must ensure
that Internet gaming consumers are given the opportunity to play fair
games, games with government approved odds, the same requirement as for
electronic slot
machines in most traditional gaming jurisdictions. In this regard, a
draft technical functionality document has been developed in Australia,
outlining the technical requirements to be satisfied prior to an
operator commencing gambling operations.
In Britain, gaming regulators check continuously to assure that
casinos are financially stable, that there are sufficient resources on
hand to pay all winnings, and that a customer's financial information is
not misused.
Why not establish regulations that can provide these same assurances
to Internet gaming customers? Operators who cannot demonstrate the
ability to pay large monetary prizes or the necessary security measures
to protect customer information would simply not be licensed.
In Britain, casino regulators check and monitor all gaming equipment
and the conduct of the games themselves to make sure the games are
honest and offer patrons a fair chance of winning. As an example, gaming
regulators spend thousands of hours verifying that computer programs for
slot machines, keno, video poker and other electronic games perform as
represented by the manufacturer; and, similar regulation and testing
needs to be performed in cyber-space. If we can test the computer chips
and software in gaming
jurisdictions throughout the world, why can't we inspect and verify the
software used for Internet gaming? Operators and government need to
create systems that, at the most basic level, allow a gambler to know
that their $10 wager will provide them with the same opportunity of
winning as if they were to wager the same $10 at a traditional casino.
Social Implications: Underage and Pathological Gambling
In Britain, significant resources are devoted to preventing minors
from gambling. Obviously the physical presence of minors helps to
facilitate their identification. Yet, even with the opportunity
presented by the physical presence of minors, neither the British Gaming
Board nor any other gaming jurisdiction is 100% effective in keeping
minors from gambling. Currently, Internet gaming operators use many
tools, including data cross checks and age verification software, to
exclude minors from participating in gambling on-line. Who is to say
that stringent computerized screening mechanisms imposed by Internet
gambling operators, and monitored by regulators, will be less effective
in preventing minors from gambling.
While there is a lot of emotive outcry regarding minors gambling away
the family home, there is little, if any, evidence to support this
statement. It is suggested that there are likely to be more concerns
with minors running up charges for items such as mobile telephone
accounts. Parents, with any form of credit card spending by their
children, will be aware of what has transpired. It becomes more an issue
of ensuring that appropriate controls exist for credit cards generally,
in particular those held by minors. With new technologies there is the
need for a robust (well-regulated) registration process for players
wishing to participate in interactive ambling. Coupled with this should
be the presence of verification procedures for each time a person wishes
to participate in any form of gambling. New technologies actually
provide regulators with tools not previously available in all
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. Rules of
games can be made constantly available, as can be contact
details for bodies that aim to assist those with possible problem or
compulsive gambling issues.
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 really
true? How many problem gamblers are actually identified and assisted by
casino personnel? It seems to me that a computer-based system that
allows a gambler to self-exclude or limit losses stands a far greater
chance of being effective than the systems in place in most casino
jurisdictions today. In fact, computer technology provides an
opportunity to identify patterns of behavior that may lead to problem
gambling, and offer intervention when necessary. Sure, a gambler who is
determined to gamble can hop from Web Site
to Web Site. But a gambler who is determined to gamble can hop from
casino to casino in many places just as easily.
Continuous inspection by gaming agents is an essential requirement.
Inspections at the server location of the hardware and software will
occur randomly and online testing is being devised to assure the games
being offered to the public are the same as the original program
approved by the regulators. Testing and random auditing is necessary for
effective regulation and compliance.
Does this testing and auditing mean that all operators will be
compliant? No. No system is totally foolproof. But, licensees found not
in compliance must be dealt with swiftly in order to protect the
consumer and the credibility of the industry. The sanctions must be
strong enough to deter operators from breaking the rules. If necessary,
sanctions should include license revocation.
As with any form of e-commerce good business practices and internal
controls should be in place to ensure transaction integrity, the
security of the site and the privacy of information. These same
philosophies underpin any form of business.
Regulators must require strict internal audit procedures for the
operation of their site. Licensees should be required to adopt a
comprehensive set of internal controls with proper records being kept
for review by regulators. The regulator should have the ability to
review periodically, and randomly, the gaming records of each licensee
to ensure the financial responsibility of the licensee and fairness of
the games being
offered. The brick and mortar casinos must comply with these type of
regulations, why shouldn't Internet operators?
Once the suitability of the licensees has been established and
assurances are made that the games being offered are fair and honest,
the regulators must have the authority to take proper action when an
operator fails to comply with the established rules and regulations. The
regulators must be able to impose fines, suspensions and in some cases
revoke licenses. Without this authority in conjunction with their
investigative powers, regulators have no value and can not assure the
fairness, honesty and financial
responsibility of licensed operators.
Taxation
The draft regulatory control model for interactive gambling developed
in Australia provided for not only the mutual recognition of licenses
and games approvals but also the calculation and remittance of tax to
those jurisdictions participating in the cooperative regulatory model. A
participating jurisdiction did not necessarily have to license an
operator, it could simply participate for the sake of receiving the
taxation
attributable to the participation of residents of that jurisdiction in
well-regulated games. Tax is calculated on the gross win at the rate
applicable to the receiving (participating) jurisdiction and based on
the
proportional contribution of the jurisdiction's residents to the actual
play. In so doing, a participating jurisdiction does not lose taxation
revenue to another jurisdiction. Taxation attributable to a
non-participating jurisdiction is retained by the licensing
jurisdiction.
Conclusion
It is worth repeating that Internet gaming is a difficult and complex
policy issue. The simple solution is to make Internet gaming illegal,
and forget about it. If governments want to provide protection for the
public, however, then the answer is regulation.
While there are many questions that still need to be answered, it is
clear that unregulated or poorly regulated Internet gaming offers little
or no assurances that: operators are fair and honest; games are fair;
player financial records are secure; money laundering monitoring occurs;
legitimate tax monies are collected; and significant resources are
devoted to underage and problem gamblers. No one has testified before
any body, at least to our knowledge, that regulation will be easy, but
real cognitive efforts to
understand the power of the Internet-- its advantages, disadvantage and
challenges-is a step in the right direction.
The Interactive Gaming Council applauds the time and efforts of the
members of the U.K. Gambling Review Body. The Interactive Gaming Council
and its representatives are available if you have any questions or
require future testimony before your body.