Illegal Gambling Thrives on Internet

Being branded illegal by federal government authorities hasn’t stunted the growth of online gambling, which will become a US$20 billion worldwide industry by 2009, according to a report released Wednesday by the American Gaming Association, the Washington, D.C.-based lobbying arm of the commercial casino entertainment industry.

“Despite the official hostility of the federal government and most state governments, Internet gambling among U.S. residents continues to grow at a rate of more than 20 percent a year,” said the report, a copy of which was obtained by TechNewsWorld.

It maintained that the contradiction between government policy and market reality has had less than beneficial consequences for the nation, among them:

  • Millions of U.S. residents gamble online every day without the protection of reliable regulatory structures that ensure age and identity verification, the integrity and fairness of the games, or that responsible gambling features are included on a site.
  • Neither federal nor state governments receive tax revenues from online gambling.
  • Disrespect spreads for laws that are neither enforced nor evidently enforceable against an activity that enjoys wide and growing popularity.
  • The online gambling industry creates no jobs in the United States and American businesses earn no returns from online gambling.
  • Current inconsistencies in U.S. Internet gambling policy could lead to sanctions by the World Trade Organization (WTO).

Growth Industry

The White Paper noted that there are some 2,500 sites on the Internet that provide gambling services ranging from casino games (blackjack, roulette, slots) to sports and pari-mutuel betting, to bingo and lottery sales, to the recent poker phenomenon.

The report acknowledged that the size of the online gambling market is difficult to gauge because so much of it is conducted by privately held entities operating from lightly regulated jurisdictions. However, revenue estimates for 2004 range from US$7 billion to $10 billion — about half of that amount, $4 billion or more, coming from U.S. gamblers.

That compares to domestic revenues for legal gambling of $30.5 billion for commercial casinos, $19.4 billion for tribal casinos and $21.4 billion for state lotteries.

While Internet gambling revenues are only 10 to 14 percent of the legal gambling market in the U.S. now, if it continues to grow at its historic 20 percent annual clip, it could be the size of 30 percent of the U.S. legal market by 2009.

King Canute

In the face of the those numbers, some see efforts by the U.S. government to ban Internet gambling as futile.

“It’s like King Canute ordering the tide not to come in,” the report’s author, David O. Stewart, an attorney in the Washington, D.C. offices of Ropes and Gray, told TechNewsWorld.

“There’s 2,500 of these sites and to the extent those people are willing to stay out of our jurisdiction, there isn’t a lot our government can do about it,” he observed.

Legalization Option

Other countries, most notably the United Kingdom, are legalizing online gambling, he noted, which may be a better alternative than trying to ban it.

“By banning it, we’ve managed to quadruple the industry in the last three years,” he declared. “Some might think that that was not a successful policy option.”

On the other hand, some believe legalization not to be a wise approach to the problem.

“Online gambling is the most addictive form of gambling ever invented,” David Robertson, a board member of National Coalition Against Gambling Expansion in Washington, D.C., told TechNewsWorld.

“It has all the elements that make a product addictive,” he asserted. “Fast play, divorce from reality, loss of time — all those things make it tremendously addictive.”

Threat to Children

Meanwhile, efforts are afoot in Congress to continue the slapdown approach to online gambling. Rep. Bob Goodlatte (R-Va.) has filed a bill (H.R. 4777), as he has for several years now, to “crack down on the growing problem of illegal off-shore gambling as well as illegal gambling that crosses state lines over phone lines and Internet technologies.”

That bill has been approved by the House Judiciary committee and sent to the full House for action.

“I have been continuously committed to putting an end to gambling on the Internet,” Goodlatte said in a statement. “For too long our children have been placed in harm’s way as online gambling has been permitted to flourish into a $12 billion industry.

“Illegal online gambling doesn’t just hurt gamblers and their families, it hurts the economy by draining dollars from the United States and serve as a vehicle for money laundering,” he added. “It is time to shine a bright light on theses illegal sites and bring a quick end to illegal gambling on the Internet.”

Waking Up to Reality

The window for get-tough advocates may be closing, according to Tom W. Bell, a professor of law at Chapman University in Orange, Calif., and author of a paper for the Cato Institute on Internet gambling.

“When I did that report for the Cato Institute, the casinos were dead set against Internet gaming,” he told TechNewsWorld. “They’re interested now in entering that market. Those casinos carry a lot of political clout.

“When the lobbyists from the casinos start saying to the politicians, ‘You know, it wouldn’t be so bad if we did it just so and golly, look at all this revenue we could get into the tax coffers,’ I think you’re going to see the political winds go the other way,” he said. “They’re going to wise up and get realistic.”

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