Why Prohibition Won't Work

20 April 2004

Koleman Strumpf has spent the better part of the last two years spreading the message that prohibiting online gambling won't work in the United States.

Strumpf, a professor of economics at the University of North Carolina at Chapel Hill, got to know the industry two years ago while studying the habits of bettors, from an economics standpoint, who used illegal bookmakers in New Jersey.

As part of a criminal case, he was given access to the betting records and client information for a land-based bookie facing criminal charges.

Since then, he has quietly been studying the illegal betting industry in the United States

He helped produce a daylong seminar on the topic last year at the Cato Institute in Washington and made a subsequent appearance on the popular CSPAN program The Washington Journal.

This month he wrote an editorial on the subject for the Heartland Institute, a non-profit think-tanked aimed at turning ideas into "social movements that empower people."

Strumpf is finding out, however, what many in the industry have known for years.

"Politically what I have to say is a pretty tough sell," he said. "It seems the idea to prohibit the action is more popular than the idea of regulating it."

Strumpf insists his anti-prohibition stance has little to do with his economic background.

"Forget all that stuff (the economics of regulating the industry)," he said. "There is an activity in high demand, and some people could get in trouble, both financially and with addiction, by doing it. Prohibition isn't the answer, that would only exacerbate those problems and drive them further into the shadows."

If an economic argument is brought up, Strumpf said, there is plenty of evidence showing prohibition only adds to lining the pockets of criminals and illegal operators.

"Just take a look at the summary of economics during the prohibition on alcohol and the numbers are pretty staggering," he said.

As with alcohol in the 1920s, Strumpf said, there are a lot of congressmen who don't like the idea of online gaming, and it is easier for them to introduce a ban on the activity instead of looking at ways to regulate it.

"But if they think it will just go away that isn't going to happen," he said. "So they can either deal with it head-on or allow it to continue to prosper well out of their reach."

Strumpf draws parallels to the I-gaming industry with another industry he has studied extensively: file sharing.

"File sharing revenue is huge," he said. "The push in Washington is to penalize Napster, which they did. Then another service popped up. Napster was in California; now they are going after companies that have Dutch and Australian ties. If they are able to stop them, it will only be a short time before another service somewhere else pops up. It is just too big for them to stop. What will they do when one of these services pops up in China?"

Click here to read Strumpf's editorial, "Why Prohibitions on Internet Gambling Won't Work."