Nanny State

Follow-Up: The Stakes Get Bigger


In October 1999, when Tom W. Bell wrote a story for reason about online gambling, Internet betting was a $651 million industry. In 2005 it was a $12 billion industry worldwide. Today a reliable figure is hard to come by, as changes in U.S. law have turned online gambling into a black market.

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

When the original article was written, the Gambling Prohibition Act of 1999, proposed by Sen. Jon Kyl (R-Ariz.), was under consideration. It didn't pass. But in 2006, the very similar Unlawful Internet Gambling Enforcement Act was passed as part of a port security bill; it had the strength of traditional casinos and racetracks, not to mention state lotteries, behind it.

These days, the CEOs of online gambling firms can't set foot on American shores. In July 2006, David Carruthers of BetOnSports, a respectable publicly traded company, was arrested in Texas while changing planes on his way from London to Costa Rica.

The bans are costing American citizens more than just a way to kill a slow afternoon. In December 2007, the U.S. Trade Office announced that the United States would make major concessions in negotiations with Europe, Japan, and Canada in order to keep its ban on Internet gambling. Though the government has refused to reveal the terms of the settlement—citing "the interests of national security"—they likely involve direct "compensation" payments to those nations or additional tariffs on some class of U.S. goods sold abroad. This is an unorthodox arrangement, to say the least, and may be struck down in the next round of World Trade Organization negotiations.

Despite all this, Hartley Henderson of is optimistic. "California is going to legalize online poker sometime in 2009, whether the [Department of Justice] likes it or not," he writes. "California feels this will provide the state needed revenue, and it is confident that it is not in violation of any federal laws. Other states will certainly follow suit, and before you know it you'll have an interstate poker network in the U.S. All gambling lawyers and pundits agree that it isn't a matter of whether it will happen next year, but when."