Gambler's Web

Why online betting can't be stopped--and why Washington shouldn't bother trying.

When Angel -- mother, wife, and self-described "patriotic Italian-American" -- feels like unwinding, she heads to the bingo parlor. But Angel (not her real name) avoids the local church's game: She doesn't like the smoke, and besides, "The crowd can get pretty vicious at Immaculate Mary's when the callers are inadequate."

Nor does she fly to Atlantic City or Las Vegas. "I'm not against that personally," she explains on her Web site. "The coffee boys in Caesar's are very buff. They can serve me in their little togas anytime. But road trips don't go over real well when you're a Mommy. You sorta hafta stay home and take care of things, capice?"

For Angel, the nearest bingo parlor waits on just the other side of an Internet connection. Like an increasing number of Americans, she loves the convenience and fun of online gaming. "If I choose to be a chooch and spend my money here unwisely, it's my choice," she writes. But if a potent coalition of lobbyists and politicians gets its way, neither Angel nor any other American will have the legal right to make that choice.

Though it defies exact measurement, all studies of the Internet gambling market agree that it's growing explosively. It more than doubled from 1997 to 1998, according a widely cited report by economist Sebastian Sinclair, with the number of gamblers increasing from 6.9 million to 14.5 million and revenue jumping from $300 million to $651 million. By 2001, Sinclair predicts, 43 million Internet gamblers will generate $2.3 billion in revenue. Estimates of the number of gaming Web sites vary from 250 to 1,000, ranging from online casinos to sports betting sites to lotteries, tournaments, bingo games, and sweepstakes.

Not surprisingly, the old boys' network of licensed, land-based gambling businesses does not welcome competition from this worldwide digital network. They aren't losing much money to it yet. But they will soon, and they know it.

So do their political patrons. Politicians relish the taxes that pour in from tightly regulated casinos, parimutuel tracks, and similar operations--some $3.7 billion in 1997. Net gambling, by contrast, pays virtually no taxes.

What's more, the government itself owns a share of the gambling market, with 37 states and the District of Columbia sponsoring lotteries. Those lottos earned $14.9 billion in 1997, in part by offering the worst odds of any common form of gambling. They consequently have the most to fear from online competition.

The gaming industry helps politicians fight off another sort of competitor: candidates who campaign against them. The industry's federal campaign contributions increased 447 percent during the 1990s. Its soft money and PAC contributions hit nearly $6.3 million in the 1997-98 election cycle, more than double the $2.6 million it gave in the previous nonpresidential cycle. It spent even more at the state level, the locus of most U.S. gambling policy, giving more than $100 million in donations and lobbying fees to state legislators from 1992 to 1996.

Unsurprisingly, some politicians want to restrict Internet gambling. Sen. Jon Kyl (R-Ariz.) claims that online gaming lets you "click the mouse and bet the house." His response--the Internet Gambling Prohibition Act of 1999, whose penalties include fines of up to $20,000 and four years in prison--would send a different message: "Use e-mail and go to jail."

By their plain language, several federal statutes al-ready outlaw Internet gambling. The Federal Interstate Wire Act prohibits using interstate communications to run a gambling business. The Organized Crime Control Act of 1970 makes it a federal crime to engage in a gambling business illegal under state law. The federal Travel Act, as read broadly by the courts, criminalizes all interstate communications meant to facilitate the distribution of gambling proceeds. If Net gambling is unhindered nonetheless, this suggests not that the police lack the authority to stop it but that they lack the interest--or ability.

In essence, Kyl's law would make it illegal to send or receive bets using an interactive computer service. He misrepresents the bill as a mere update of the Wire Act. In fact, it targets online gaming for new and special penalties. It would expand the definition of a "gambling business" to include anyone who wins more than $2,000 in a day. It would also, unlike the Wire Act, make it a federal crime to gamble to and from states that have legalized the games in question. And whereas the Wire Act modestly limits its scope to transmissions "in interstate or foreign commerce," Kyl's bill targets any messages sent over a computer service connected to the Internet. It would thus cover e-mail sent across town, or even across the hall.

An earlier version of the act passed the Senate 90-10 last year, only to expire in the House when the clock ran out on the 105th Congress. This time, the prospects for passage look good. Kyl can cite support from both Republicans and Democrats, from state, local, and federal law enforcement, and from private groups ranging from the Christian Coalition to Ralph Nader's Public Citizen.

It's a funny bill, filled with telling loopholes. Kyl says he's targeting gambling because it "erodes the values of hard work, sacrifice, and personal responsibility." Yet his proposal aims selectively at those who would compete with the existing gaming industry. State lotteries, duly licensed parimutuel race tracks, and the booming fantasy sports business win broad exemptions under the bill. Casinos benefit, too, both because they participate in pari-mutuel betting networks and because their Megabuck shared-payoff slot machine network falls within the bill's loopholes. Even the Department of Justice criticized Kyl's bill for treating segments of the incumbent industry too favorably, arguing that "there are no legitimate reasons why these gambling operations should be exempted from the ban while other forms of gambling are not."

In June, Sen. Dianne Feinstein (D-Calif.), a co-sponsor of the bill, offered a candid explanation for the exemptions. Notwithstanding the bill's stated aim, she testified, "it became very clear that there were some legitimate interests that also needed some recognition, and so the bill does contain provisions for horse racing." A lobbying free-for-all apparently followed. "Now, the problem is that once that was done others wanted into it, and the bill contains a similar exception for dog racing, which is also dependent on wagering. Other modifications have been made to the legislation, making certain that legal fantasy sports leagues can continue to operate, and that an important source of revenue for state lotteries [is] not disrupted."

A similar odor of special interest dealing hovers around the National Gambling Impact Study Commission, whose final report--mandated by Congress and published last June--wails that "millions of families throughout the nation suffer from the effects of problem and pathological gambling," including "depression, abuse, divorce, homelessness, and suicide." Since no modern political statement is complete without an invocation of "the children," the commission duly links underage gaming to alcohol and drug abuse, violent behavior, truancy, and low grades.

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