Internet Gambling Operators Better Act Quickly if the U.S. is to Regulate Rather than Prohibit Internet Gambling

Whether you are an avid gambler or someone that would not bet a nickel on a "sure thing," whether you live in Las Vegas or Utah, whether you believe gambling is an excellent form of entertainment or a terrible vice, you would be hard-pressed to disagree with the following fact: gambling is here to stay in the United States. More than $400 billion dollars is spent annually in the United States on gambling. More than 125 million people visit U.S. casinos each year. Forty eight states permit gambling in one form or another. Thirty-seven states have lotteries. Twenty-three states have either commercial casinos, casinos on Indian reservations, or both. So, the question with regard to Internet gambling is not whether it along with all other forms of gambling should be prohibited in the United States. The question is whether Internet gambling should be prohibited even though other forms of gambling are prevalent throughout the United States. The answer to that question is no.

Many people, however, would answer that question in the affirmative notwithstanding the apparent incongruity of such a response. In fact, numerous government officials are actively seeking to ensure that Internet gambling is illegal throughout the United States. While Internet gambling operators and others in the industry want regulation and not prohibition in the U.S., they are facing a tough fight against a multitude of opponents. This article identifies some of those opponents and the arguments they will raise. This article also briefly responds to some of those arguments and sets forth several reasons why Internet gambling should be regulated and not prohibited. Finally, this article stresses that it is critical for internet gambling interests to persuasively present their position to the appropriate government officials and the public in order to avoid the prohibition of Internet gambling in the United States.

In a report prepared by a subcommittee of the National Association of Attorneys General (NAAG) released in June 1996 (the "Attorneys General Report"), Internet gambling was assumed to be an evil that must be prohibited and the only issues were what steps should be taken to ensure that result. The Attorneys General Report concluded that Congress should modify the existing federal gambling laws to unambiguously provide that it is a crime to (i) gamble over the Internet while physically located in the United States, or (ii) operate an Internet gambling operation from either inside or outside of the United States that accepts wagers from people physically located in the United States.

The Attorneys General Report included many other recommendations, including (i) clarifying federal law to clearly permit law enforcement authorities to obtain injunctions preventing Internet service providers from allowing their facilities to be used for gambling purposes, and (ii) enacting states laws that prescribe civil penalties (to co-exist with the criminal penalties that already exist) for gambling violations, which would permit civil forfeiture of property used for illegal gambling purposes.

In the last session of Congress, Senators Hatch and Kyl introduced an amendment to a bill that would have made it clear that federal law prohibits the operation of an Internet gambling site that accepts wagers from people physically located in the United States. While that amendment did not pass last year, Hatch and Kyl may reintroduce the bill in an effort to have it enacted in 1997.

In August 1996, President Clinton signed into law a bill that was sponsored and supported largely by gambling opponents, which requires the formation of a nine person gambling commission to study the social and economic impact of gambling on governments, families and businesses in the United States. The commission is required to assess, among other things, the effects of Internet gambling, the relationship between gambling and levels of crime, the effect of compulsive gambling on families, businesses and the economy, and the role of advertising in promoting gambling. Within two years of its formation, the commission must issue a report with its findings and conclusions, and it may hold hearings and subpoena documents to gather the information it needs.

Five of the nine members of the Commission have been named and the other four should be chosen shortly. Two of the five members selected have strong ties to a group that is vehemently opposed to gambling. Two of the other members claim to be neutral on the issue of gambling and the fifth member is associated with a Las Vegas casino. Thus, none of the five members are associated with the Internet gambling industry even though Internet gambling is a focus of the commission's investigation. Moreover, to show how little consideration has been given to the views of the Internet gambling industry, the Committee on the Judiciary gave a list of the types of professions of the person who should be considered for the commission, and while the list was nonexhaustive, it included professions associated with just about every aspect of gambling, pro and con, except a representative of the Internet gambling industry.

Opponents of Internet Gambling have raised the following arguments in an effort to ban it: (i)legalized Internet gambling will increase the number of compulsive gamblers; (ii) with Internet gambling, there is no mechanism to prevent minors from participating; (iii) Internet gambling will lead to the elderly and physically impaired losing money they can ill afford to lose; (iv) there is no way to ensure that the games are not rigged; (v) there is no way to ensure that the operator will pay when someone wins; (vi) there is no way to ensure that organized crime will not become involved in Internet gambling; and (vii) the government will not be able to receive revenue from Internet gambling.

Set forth below is a brief response to each of the seven arguments referred to above. Obviously, these responses, and particularly those involving regulatory issues, will need to be fleshed out in even greater detail during meetings with public officials regarding Internet gambling issues.

If a legislator proposed a law banning the sale or purchase of alcohol that could be taken home for consumption such a law would be shot down faster than Olympic gold medalist Michael Johnson can run the 200 meter dash. A proposed law that would ban individuals from purchasing a six pack of beer at the grocery store or a bottle of gin at the liquor store, and limit alcohol consumption to bars and restaurants, would have no chance of gaining significant support. It is true that such a proposed law would have a redeeming feature -- presumably some very small percentage of people develop drinking problems because the beer or liquor is only a stroll to their refrigerator away. One must presume that there would be fewer "problem drinkers" if people were forced to go to the trouble of traveling to restaurants and bars every time they want a drink. Yet despite this benefit such a proposed law would never fly.

People value convenience too much. They always have and they always will. As long as drinking alcohol is legal why shouldn't people be able to enjoy a can of beer or a glass of wine at their convenience in the comfort of their own home? The answer is they should -- and they can -- and it is simply not good enough to claim that people should be prevented from doing so because a small percentage of individuals will abuse their ready access to alcohol. A small percentage of people will also sniff glue and use steak knives to injure people. That does not mean that we should all use tape and require everyone to cut their food with butter knives.

This same logic applies to Internet gambling. Internet gambling will allow people to gamble from the comfort and convenience of their own home. As with alcohol, the vast majority of people will not become addicted merely because they can engage in the activity at home. Moreover, given the variety of gambling activities that are already available with relatively little inconvenience most people that will develop a gambling problem will do so regardless of whether there is Internet gambling. In all but two states, people can engage in some form of legalized gambling. In the majority of states, people can play the state lottery. Given the compelling advertisements that various states use to promote their lotteries -- e.g., it could be you, this could be your chance to get out, etc. -- many who are highly susceptible to pathological gambling will develop a problem regardless of whether Internet gambling exists. Moreover, in most states, residents do not need to leave the state to gamble in casinos. In fact, some experts predict that by the year 2000, 95% of Americans will live no more than a three to four hour drive from a casino. Sports betting is also rampant in the United States and is often done over the phone to offshore sports books.

In sum, short of banning all forms of gambling, which is not going to happen, the answer to compulsive gambling is heavy emphasis on education and public awareness with respect to how a person can become a compulsive gambler, the telltale signs of compulsive gambling, the problems it can cause, and how a person can avoid becoming a problem gambler. In that vein, Internet gambling operators should do their share to educate the public. For example, web pages that discuss these issues should be mandatory at all Internet gambling sites.

Finally, some opponents of Internet gambling, such as Minnesota Attorney General Hubert Humphrey, claim that if Internet gambling is legal every living room will be a casino. The myth is that if Internet gambling is allowed, we will all become addicted to gambling. It is simply unfair to assume that most law-abiding citizens will be seeking treatment for compulsive gambling if Internet gambling is permitted. The evidence is to the contrary. Most of us have ready access to gambling now and yet we are not a nation composed primarily of compulsive gamblers. We are not a nation of alcoholics even though we can take beer, wine and liquor home with us to drink. Most of us know when to say when, whether its drinking or gambling or any other legal activity.

Internet gambling operators should require that the customer use a credit card to gamble. Most minors do not have credit cards. Even if they "borrowed" their parents credit card, they would not be able to play unless they are also willing to send false information regarding their age and social security number to the operators, who generally require such information before their systems can be accessed. Even in that event, the minor's parents almost certainly would discover the problem at the end of the first month in which the minor played as it would show up on the credit card bill.

Moreover, as technology improves it will become even more difficult for minors to gamble over the Internet. Even the Attorneys General Report acknowledges that there will come a time when the operator will be able to ascertain with reasonable certainty the age of the user.

In fact, because of this extra level of protection from the Internet operator, it will ordinarily be much more difficult for a minor to gamble over the Internet than it will be for a minor to take a beer out of the refrigerator or liquor out of the liquor cabinet. With respect to the latter, the minor needs only to engage in the activity outside of his or her parents' presence to "get away with it." Yet, once again, we don't prohibit people from purchasing beer or liquor to take home or for that matter any other legal products that minors are not allowed to use. I seriously doubt very many people would advocate prohibiting adults from taking home any product that minors were not allowed to use simply because minors might gain access to the product. Our society does not operate that way. It never has and it never will.

Some opponents of Internet gambling argue that it should be prohibited because the elderly and physically impaired will lose their savings. This argument does not give the elderly or physically-impaired enough credit. Like other people, the vast majority of elderly and physically-impaired persons are not going to whittle away their money on gambling simply because it becomes available on the Internet. In fact, Internet gambling can provide such people a great benefit. It allows them to enjoy the entertainment of gambling without the burdens of traveling. People who are not physically capable of traveling will now be able to enjoy poker, black jack, craps, etc. from the convenience of their own residence. There is no reason why such individuals should not also be able to engage in this type of entertainment now that the technology permits them to do so.

Presumably, an Internet operator cannot fix the results of sporting events any more than the average citizen, which is to say not at all. Thus, the concern that the games will be fixed focuses primarily on non-sports Internet gambling such as poker, craps, etc. The fear is that the algorithms used will greatly stack the deck against the player or that the player will not be playing with a full deck (missing an ace, for example, in blackjack). The answer to this concern is the same answer to the same concern with respect to Las Vegas, New Jersey or Indian reservation casinos -- regulation.

Internet casinos must submit to regulation and comply with such regulation in order to be licensed to solicit U.S. customers. Regulations should be promulgated by the federal government to ensure that Internet casinos that solicit U.S. customers are playing above board. For example, such casinos could be required to have a reputable accounting firm examine the algorithms, as well as ensure, for example, that when someone is playing video poker over the Internet all of the cards are in the deck. Regulations can be promulgated that will provide as much assurance that Internet games are not rigged as games played at established casinos. In fact, there is no reason why such regulations cannot be adopted.

The question of who will promulgate such regulations and oversee this industry must be worked out, but there is no question that such issues can be worked out as long as there is cooperation from all sides. For example, Internet operators who refuse to agree to abide by the regulations promulgated or who refuse to consent to the jurisdiction of U.S. courts in the event of a dispute will not be licensed. It is as simple as that. And, any operation that is not licensed in the U.S. will have great difficulty attracting U.S. customers. U.S. gamblers will presumably prefer to gamble with regulated entities that offer the protection that regulation affords and the legality that customers prefer.

This concern also can be alleviated by regulation just as it is for established casinos. Moreover, if an operator does not pay when a party wins, word of such conduct will spread like wildfire over the Internet and that operator will have trouble convincing anyone to use its services. Operating an Internet gambling operation can be very lucrative. It does not make sense to kill the goose that laid the golden egg by trying to cheat customers out of their winnings.

This is a serious concern that must be addressed with at least the same vigor as it is addressed for casinos in Las Vegas, New Jersey or on Indian reservations. The regulations that are promulgated for the Internet casinos should be similar to the regulations for these other casinos with respect to this matter. It is well known that there are a multitude of regulations for the established gambling industries which seek to prevent those in the criminal element from becoming involved in those establishments.

This concern is a non-issue. There is no reason why the government cannot tax the gambling revenue of Internet gambling operators received from U.S. residents in the same manner that it taxes other foreign companies that sell products from overseas into the United States. Moreover, to the extent that the government is concerned that Internet gambling operators may take away money from state lotteries or other government sponsored gambling operations, there are two responses. First, such concern is not a reason to prohibit Internet gambling because, if it were, then the government of states that have lotteries would prohibit all other forms of gambling, which they ordinarily do not.

Second, competition in the gaming industry, as in any other field, is a positive development. A state government certainly should not prohibit other forms of gambling in its state under the guise that any other gambling is evil when such prohibition is merely an attempt by the state to gain a monopoly over the gambling market in that state.

For numerous reasons, Internet gambling should be permitted in the United States. First, Internet gambling provides a more convenient way to do what most Americans already do:...gamble. There is no question that it is more convenient to gamble from home than it is to go to a casino or travel to the racetracks, and there is also no question that most Americans gamble. In our hectic lives, people want convenience in their entertainment as well as in all other aspects of their life. Internet gambling does that in the gambling arena just as HBO, Showtime and video on demand do that in the movie industry, or Take Out Taxi and similar ventures do that in the restaurant industry.

Second, Internet gambling permits those who wish to gamble without being surrounded by strangers, such as is often the case at a casino or racetrack, to gamble in privacy. Third, Internet gambling will provide greater entertainment possibilities than standard casinos because new games and variations on old games can be offered that may not be offered at many established casinos because there is a limited amount of physical space available for use at such casinos. Fourth, as discussed earlier, Internet gambling will give certain people who are unable to travel the ability to enjoy poker, blackjack, craps etc. where they otherwise would not have such an entertainment option.

Fifth, it will be virtually impossible for the federal and state governments to prevent U.S. citizens from engaging in Internet gambling, so such gambling operations should at least be regulated to prevent the kind of problems discussed in the previous section. Given the inability to enforce a prohibition of Internet gambling as well as the well recognized legality of many forms of gambling in the U.S., many U.S. citizens will gamble over the Internet whether it is legal or not. If it is illegal, these gamblers will be forced to gamble with operators who may or may not be on the "up and up."

If, however, Internet gambling is legal, U.S. citizens will have a choice of gambling with an operation that is regulated or one that is not. Obviously, the vast majority of citizens will choose the former, and thus there will be far fewer occurrences of unregulated operations successfully soliciting U.S. business, which can only lead to serious problems.

Finally, once regulation addresses the concerns regarding the integrity of such Internet gambling operations, it is hypocritical for the U.S. and particularly states that have casinos or run lotteries to seek to prevent Internet gambling. These governmental entities would be hard-pressed to argue that gambling is an evil that should be avoided. After all, they not only condone gambling, they encourage and promote it.

The Internet gambling industry faces a critical test in the United States. If Internet gambling is prohibited in the United States, it may take many years or even decades for such a result to be reversed. The time to act is now, before such a result is written in stone. Internet operators and others in the industry must inform the relevant lawmakers as well as the public of the appropriateness of regulating rather than prohibiting Internet gambling. The points raised in this article as well as other pertinent arguments should be made repeatedly to the proper parties in order that the right result be reached: the regulation -- and not the prohibition -- of Internet gambling in the United States.

©1997, All rights reserved. Reprinted with permission