Logging in to the Internet Gambling Debate

Last summer, I wrote in these pages about the growing phenomenon of online gaming, and noted the confusion and uncertainty surrounding this sector of the gaming market.  Nearly a year later, despite the growing popularity of the activity and significant attention in the media and on Capitol Hill, this confusion still lingers. 

In an attempt to illuminate and explore the issue, the American Gaming Association recently released a new white paper on Internet gaming that provides an overview of the current online gaming market, explores current U.S. policies, analyzes proposed legislation and its possible impact, and ultimately suggests that a Congressional study commission is needed to properly address the issue in the United States.  Authored by David O. Stewart, an attorney at Ropes and Gray, LLP, in Washington, D.C., An Analysis of Internet Gaming and its Policy Implications is the latest white paper in the AGA’s 10th anniversary research series. 

The paper shows that, while the U.S. Department of Justice and several individual state governments have long held that Internet gambling is illegal in the United States, the online gambling industry currently is thriving, due in large part to participation from U.S. bettors.  In fact, the paper indicates U.S. bettors make up at least half of the current global online gaming market, going online to bet more than $4 billion at off-shore, non-U.S. entities in 2004.  The trend shows no sign of slowing, as Stewart notes the rate of Internet gaming among U.S. residents is growing by more than 20 percent a year.  

In addition to a detailed discussion of the current online gaming market, Stewart’s paper takes a hard look at the apparent contradiction between policy and reality regarding Internet gaming. He writes that the millions of U.S. residents who gamble online every day do so without the protection of reliable regulatory structures that ensure age and identity verification, the integrity and fairness of the games, or that responsible gaming features are included on a site.  He also notes that the current regulatory structure has bred disrespect for Internet gaming laws that are neither enforced nor evidently enforceable.

This reality recently was confirmed by the results of a recent poll of online gamblers included in the AGA’s 2006 State of the States survey.  According to those results, more than half (55 percent) of online gamblers believe online gaming companies find way to cheat them, and nearly half (46 percent) think their fellow online gamblers may be cheating.  And nearly one-third (31 percent) of online gamblers give Internet gambling sites poor marks for developing effective responsible gaming programs to eliminate illegal or underage use of their products.  Finally, fewer than one in five online gamblers (19 percent) recognize – or are willing to admit – that it is currently illegal in the United States.

Stewart’s paper notes that by driving all Internet gaming business to foreign entities, the current regime also ensures that no jobs are created for American workers, no returns are earned by American companies, and no tax revenues are paid to American governments. 

Stewart’s paper also details the various proposals that have over the years been suggested to curb online gambling, including legislative alternatives recently introduced by Reps. Bob Goodlatte (R-VA) and Jim Leach (R-IA).  While these and similar proposals would take an important step in protecting U.S. customers from the potential hazards of the current illegal, offshore, unregulated online gaming market, Stewart contends these measures alone will not solve the problem.  He advocates the creation of a Congressional study commission to evaluate the impacts of Internet gaming in the U.S. and determine whether legalization, regulation and taxation may be a more viable option than a complete ban on the activity.

The position mirrors that of the AGA, which recently modified its legislative position on Internet gaming.  While it remains neutral on all pending legislation on this issue, including bills advocated by Reps. Leach and Goodlatte, and Sen. Jon Kyl (R-AZ), the AGA board now strongly supports the creation of a one-year Congressional study commission that would evaluate the impacts of online gambling. 

The AGA board thinks a comprehensive study commission should take into account policy issues ranging from how best to protect children and problem gamblers to whether Internet gambling can be effectively legalized and regulated in the United States rather than leaving bettors to fend for themselves on illegal, unregulated offshore sites.  The study also should include consideration of recent WTO rulings indicating the United States’ position on Internet gaming may be in violation of international trade obligations.

Such a commission could evaluate whether legalization, regulation and taxation – on a state-option basis – may be a more viable option than a complete ban on Internet gambling, and would report back to Congress its recommendations on the best way to deal with the issue. 

Since the announcement of this new position, some individuals have incorrectly jumped to the conclusion that the AGA now wholeheartedly supports online gaming.  This is not the case.  But further study is needed to investigate whether perhaps the technology does now exist to provide for rigorous regulation of this sector with the appropriate level of legal and law-enforcement oversight.

The bottom line is that millions of Americans currently gamble online, and they will continue to do so despite the current restrictions on the activity.  Technology has advanced a great deal since Internet gaming first came on the scene more than 10 years ago.  And with many nations, including Great Britain, in the process of legalizing, regulating and taxing online gambling, it’s time for Congress to take a good, hard look at this issue.

The discussion surrounding Internet gaming will be long and complicated, but it is important to clarify and establish regulations that serve the country’s – and its consumers’ – best interests.  Last year I said the first step to controlling online gaming would be to understand it.  Today I offer the concept of a Congressional study commission as the mechanism for that understanding.  Only through careful consideration of all the issues involved in this debate can we determine the best way to protect the millions of Americans gambling online.