Experts Say Don't Ban Internet Gaming

Panel urges states to join international move to regulate fast-growing business.

Internet gaming is here to stay and, instead of trying to prohibit it, state governments should start regulating this exponentially growing business, a panel of experts told state lawmakers.

Speaking before the National Council of Legislators from Gaming States on June 14 in Napa, Calif., the diverse panel of industry experts updated the lawmakers on the aftereffects of the federal Unlawful Internet Gambling Enforcement Act of 2006. The assessment included an examination of the 5-year-old international dispute between Antigua and the federal government, which is trying to keep foreign companies out of the domestic market. The World Trade Organization ruled against the United States’ position.

While the U.S. has tried to prohibit Internet gaming, other countries have chosen to regulate it.

“The United States is going one way, and the rest of the world the other,” said consultant Frank Catania, who predicted that after the 2008 presidential election the U.S. would join the regulatory wave.  “The online gaming market will continue to expand regardless of decision to regulate. Consumer demand and industry growth will force governments to act.”

Horse racing still enjoys an exemption from the federal Internet gaming laws, but state interpretation of those regulations varies greatly. According to the panelists, about a dozen states prohibit all Internet gaming including account wagering.

“Congress amended the Interstate Horse Racing Act to include Internet access,” said Ken Kirchner, former senior vice president of the National Thoroughbred Racing Association and Breeders’ Cup Ltd. “But of the ADW companies, each has its own policies. Some will permit wagers from any state where horse racing is legal; others limit themselves to states where legal issues have been resolved.

“But I shouldn’t have to call a bookie to make a bet on the Lakers-Celtics game tonight,” he added. “I should be able to do that in a legal matter regulated by state government. It’s an entertainment experience and it’s my money. It’s like going to the movie theater. I should know that my funds are deposited with a legitimate company and that I’ll be paid if I win. And I should not be fearful of prosecution by federal or state authorities for my activity.”

Fear of prosecution has banking officials in a quandary, too, noted Ted Teruo Kitada, senior company counsel for Wells Fargo.

Under the federal law, banks are charged with screening all transactions for questionable purposes, including Internet wagering, but “imagine what we have to do when the federal government and Congress can’t decide what is and what is not unlawful,” said Kitada.

He said that Wells Fargo handles millions of transactions every day. “We’re not prepared with the volume of transactions we face daily. Perhaps the idea behind the act is commendable, but the challenge is the implementation.”
Catania estimated the value of current online gambling in the U.S. at more than $15 billion.

“States are better equipped to regulate online gaming than the federal government,” he said. “States have done an excellent job in regulating traditional gaming facilities and that experience could be used to regulate online gaming.”

The reasons for regulation of Internet gaming are the same as for regulating traditional casinos or other gambling outlets, said Catania, former assistant attorney general for New Jersey’s gaming authority. “Keep out those that do not have good character and provide fair and honest games as a means of protecting the public from unscrupulous operators.

“We’re talking basic consumer protection,” he added, noting that states should be able to regulate such aspects as age restrictions. “We need requirements to know where that player is and how old. Some lessons have been learned. The states have the experience and they should use it. Indian gaming is the only gambling area that the feds regulate and they’ve done a terrible job.”

Florida State Sen. Steve Geller, a past NCLGS president, moderated the discussion. “We may end up with Internet gaming whether we like it or not,” Geller said. “It’s an incredibly complex area that seems to change each week.

“States lose their ability to control what form of gambling takes place in their states,” Geller added. “With new forms of technology, the effort now is to regulate it the best you can.”

That likely will be a different approach than that taken by the federal government, noted the experts.

The federal Internet gambling act “is bad public policy and impossible to enforce,” Catania said. “There’s an active effort now to unravel that act.”

Internet gaming is a hot-button issue for many constituents, noted John Pappas, executive director of the Poker Players Alliance. The federal ban on Internet gambling has swelled his grassroots group from 75,000 members to more than 1 million, he said.

“We have more than 100,000 members right here in California,” Pappas told the lawmakers. “These are your constituents. More than 70 million Americans play or have played poker. Poker is not a crime.”

The Internet puts more people at risk of developing gambling problems, noted Rev. Jim Butler of the California Coalition Against Gambling Expansion. “With Internet gambling, every home with a computer is potentially a gambling facility. We’re faced with a daunting task.”