The Future of Online Gaming

Little more than a month ago, the international gaming and financial communities were rocked when Congress for the first time passed federal legislation restricting the burgeoning online gambling sector.

As most everyone by now has learned through exhaustive media coverage of the issue, Sen. John Kyl (R-Ariz.) and Senate Majority Leader Bill Frist (R-Tenn.) assured passage of the Internet bill when they were successful in attaching the unrelated measure to federal legislation crafted to increase the security of U.S. ports.  The action took place in the waning hours of the most recent congressional session, and later was signed into law by President Bush.

Since its passage, there has been much confusion in the media and among the general public about what the Unlawful Internet Gambling Enforcement Act of 2006 actually does.  Rather than attempt to reach off shore operators by strengthening U.S. anti-gambling laws, the legislation attacks the payment mechanisms used to place bets on the thousands of offshore online gambling sites currently in operation. The bill makes it illegal for banks, credit card companies or similar institutions to collect on a debt incurred on an online gambling site.  The language closely mirrors the legislation sponsored by Jim Leach (R-IA) that was easily passed out of the House Financial Services Committee earlier this year.

The language included in the port security bill is quite different than the bill that earlier this year was passed out of the House of Representatives.  That bill, H.R. 4411, was a hybrid of the Leach bill and legislation sponsored by Rep. Bob Goodlatte (R-VA).  Goodlatte’s bill would have updated the federal Wire Act of 1961 to specifically apply to all forms of online gambling.

Because the Goodlatte portion of the House-approved Internet gambling bill was left out of the legislation that ultimately passed, there are several things it does not do.  It does not resolve the dispute between the U.S. Justice Department and the Fifth Circuit Court of Appeals on whether the Wire Act applies to all forms of online gambling.  It does not resolve whether the U.S. horseracing industry is legally entitled to an exemption from a ban on online gambling.  Nor does it resolve whether Native American tribes, as sovereign nations, retain the right to operate online gambling sites regardless of federal restrictions.  Essentially, the bill maintains the status quo in the U.S., never clearly defining exactly what is legal or illegal online wagering.

Since its original introduction, the AGA maintained its neutral stance on the Leach bill because it did not violate any of the three legislative tests the AGA uses to evaluate federal legislation: It does not make illegal any form of gaming that currently is legal, nor does it create a competitive advantage for any one sector of the U.S. gaming industry.  Finally, through its provision to allow for intra-state online wagering, it protects the right of each individual state to regulate gaming within its borders.

What the real impact of this legislation ultimately will be, and whether it will prove to be effective at curtailing the expansive growth and popularity of online gaming, remains to be seen.  Much will depend on the nature of the regulations ultimately crafted by the Treasury Department and Federal Reserve Board to guide and enforce the new law, a process that could take up to nine months to complete.

There is a likelihood that passage of the legislation could create more friction with the U.S. and the World Trade Organization (WTO), which has increasingly become wary with what some foreign governments have labeled as the U.S.’s “protectionist stance” on online gambling.  Several prominent online gambling companies already are exploring possible legal action along these lines.

Whatever the ultimate result of this legislation, it will not resolve the ongoing confusion that persists with regards to the legality of online gambling, and most experts agree it will not stop bettors from continuing to go online in increasing numbers.  This uncertainty, and the doors left open by the new bill, point to the continued need for an independent study commission to evaluate the impacts of Internet gaming.

The AGA has supported the concept of a study commission since April of this year, and Rep. John Porter (R-Nev.) introduced a bill calling for such a commission this summer.  In the maelstrom of activity on the Hill this year related to online gambling, the study commission bill was introduced too late in the game to move through the committee process, but it received significant bi-partisan support and at last count had 50 co-sponsors.  The introduction of the bill this year lays the groundwork for its reintroduction in the next Congress, which now seems more vital than ever.

A comprehensive study commission could illuminate how best to protect children and problem gamblers in cyberspace, as well as consider the implications of WTO actions related to the issue.  Finally, the study commission could determine whether legalization, regulation and taxation of online gambling – on a state-option basis – may be a more viable option than a complete ban on the activity.

I must reiterate that the AGA’s support of the study commission approach does not signal our unequivocal support for online gambling.  If a study commission concluded after thorough investigation that the technology does not exist to provide for rigorous regulation of this sector with the appropriate level of legal and law-enforcement oversight, we would have no choice but to accept that decision.  Our industry prides itself on the transparency and integrity implicit with strict regulation, and our companies have no desire to get involved in an online industry that would not be just as controlled.

The coming months will illuminate much about the future of online gambling.  But it is more clear to me every day that this is an issue that is far from resolved.  I hope members of Congress will heed our call for a more thorough look at this issue.  The protection of all American bettors depends on it.