Licensing Net Casino Operators

21 March 2000
Today, there are at least 400 virtual casino gaming sites on the Internet run by up to 200 different operators. Internet gaming revenues worldwide have been estimated to exceed $810 million this year. In 2002, that revenue projection surpasses $3 billion, with some estimates reaching as high as $10 billion by 2003. With revenues like those, it is no wonder that companies from around the world are positioning themselves for a piece of the action and jurisdictions from Australia to the British Isles to Kahnawake are licensing, regulating and taxing Internet gaming with various regulatory schemes.

As a former director of the New Jersey Division of Gaming Enforcement, I initially had concerns with Internet gaming, mostly with regard to enforcement. As I became more aware of the vast wealth of information available through the World Wide Web, my own attitude changed.

In fact, I instructed my legal staff at the DGE to prepare a report with regard to the Internet and its effect on gambling for submission to the New Jersey Attorney General. That report, which turned out to be very thorough and unbiased, concluded that Internet gaming should either be made illegal, in which case enforcement would be difficult, or be legalized and regulated, which would produce some tax revenues. This is where we stand today, with two radically opposing philosophies. One philosophy, that of some lawmakers in the United States and members of the National Association of Attorneys General, is to make Internet gaming illegal and attempt to enforce the prohibition against the rest of the world. The other philosophy, that of a majority of people who understand the global impact of the Internet, is to legitimize and regulate Internet gaming rather than trying to prohibit it.

In my view, the rhetoric on both sides of this issue has been entirely too strident and absolutist in its approach. On one hand, the argument of the industry that "you better regulate us because you can't stop us" is guaranteed to offend policy makers, law-enforcement authorities and gaming regulators everywhere Internet gaming is opposed.

This argument hasn't worked for drugs, prostitution or bookmaking, and it will not work for Internet gaming either. In fact, there are many things a jurisdiction can do to make it difficult, if not impossible, for Internet gaming to operate, including making credit card debt uncollectible, forcing Internet service providers to block out gambling Web sites, and taxing Internet gaming winnings at very high rates.

On the other hand, when so much legalized gambling is already available to so many people in so many places, moral arguments against Internet gaming seem hypocritical, if not irrational. It reminds me of the that famous scene from Casablanca when the French captain tells Rick he is shocked to learn that gambling is going on in Rick's café-just as someone brings over the captain's winnings.

How can a government have gambling easily accessible in various forms, while at the same time prohibiting other forms, specifically Internet gaming? Nothing illustrates this hypocrisy more clearly than legislation to ban Internet gaming, more commonly known as the Kyl Bill, introduced in the U.S. Congress.

Proponents have to admit that Internet gaming does raise some legitimate consumer-protection issues. But what if those issues can be addressed by technological advances? Wouldn't the opponents have to rethink their position?

I think this is exactly the point we're at now. The debate shouldn't be whether Internet gaming is wrong or right. The people of the world have already decided in overwhelming numbers that gambling is a legitimate, acceptable leisure activity, no less moral than seeing a movie or attending a sporting event. The debate should be whether Internet gaming can be regulated and controlled to the degree that it can take its place as just another legitimate leisure pursuit for those who so choose.

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 insure honesty, integrity and the financial security of operators. There are those, notably in the United States, who think this cannot be done, but the possibility of effective regulation needs to become part of the debate.

Let's examine an example of the creation of Internet gaming rules and regulations-those developed by the Mohawk Indians of the Kahnawake Territory.

I have been consulting for the Mohawk Indians of the Kahnawake Territory, located just outside of Montreal The Kahnawake Territory, a sovereign nation that is proud to have never lost a battle nor seceded or decreased any of its sovereignty by treaty, asked me to work with them in preparing regulations for an Internet gaming site. They had already created the Kahnawake Gaming Commission, a three-member panel charged it with promulgating gaming regulations.

Together with the KGC and its general counsel, we prepared Internet gaming regulations that were adopted in July 1999.

The licenses granted to entities and "key employees" by the KGC are subject to regulations, sanctions, suspension, fines and revocation by the commission. The same type of application submitted by applicants in most traditional gaming jurisdictions, setting forth essential details necessary to complete an extensive background suitability investigation, is filed with the KGC. Along with the application, the applicant submits a license fee and a deposit to cover the cost of a thorough investigation by an independent investigations firm.

To have effective regulation, it is essential to have regulations with substantial enforcement powers. The licensees must be aware that their licenses could be jeopardized if they fail to adhere to the Internet regulations.

Internet gaming is a difficult and complex policy issue. The easy solution is to make Internet gaming illegal, and forget about it. It is my belief that the first jurisdictions with regulations that offer consumers fair, honest and responsible gaming on line will be successful, and they will reap great benefits.

Proponents of the Internet and Internet gaming need to move the discussion forward. We need to open the eyes and ears of opponents to the possibility of effective regulation.

Frank Catania is the principal of Catania Consulting Group Inc. and a partner in the New Jersey-based public-affairs firm of Catania, Furlong Snyder Public Affairs LLC. He is a former assistant attorney general and director of the New Jersey Division of Gaming Enforcement.
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