By Fred Faust, St. Louis Post-Dispatch
Knight Ridder/Tribune Business News
CHICAGO--May 25--When the National Gambling Impact Study Commission held two days of hearings here last week, the primary focus was Midwestern riverboat gambling. But the Commission also spent an afternoon discussing Internet gambling.
The witnesses before the Commission either wanted to prohibit Internet casinos or legalize and regulate them. For both groups, the question is whether either course is technically possible.
The topic produces an unusual grouping of opinions. The American Gaming Association (representing the traditional casino industry), Gamblers Anonymous, the National Coalition Against Legalized Gambling and the National College Athletic Association all support pending federal legislation that would ban Internet casinos.
Although most gambling regulation is left to the states, the National Association of Attorneys General supports federal legislation to outlaw Internet gambling. Missouri Attorney General Jay Nixon and a few of his counterparts have taken legal action against cyberspace casinos. The proposed federal ban is opposed by both left-wing and right-wing groups who are concerned about the implications for free speech.
A Commission research report shows some opponents of prohibition are afraid it would set a precedent for federal regulation of Internet content.
None of the Internet gambling sites is based in the United States, and estimates of the industry's size are difficult to make. The Commission report, released Thursday, says predictions of Internet casino revenues range from $1.5 billion to $10 billion by 2000. The industry has grown rapidly since it started in 1995, the report says, in part because of a low cost of entry. Citing a Sports Illustrated story earlier this year, the report says a Web casino can be set up for as little as $135,000. Costs are about the same regardless of how many gamblers frequent the site.
One witness before the Commission was J. Dale Youngs, an assistant attorney general in Nixon's office. He testified, "There is no effective way for states like Missouri to regulate the activity of those who offer Missourians the opportunity to gamble over the Internet."
Youngs posed several rhetorical questions about Internet casinos: "Who owns these Web sites? Do the owners have ties to organized crime? Is this a money laundering scheme? Is the company a `fly-by-night' operation that will simply take consumers' deposits and disappear? How do consumers know the games offered are being run fairly?"
Alan R. Kesner, Youngs' counterpart in Wisconsin, agreed that effective regulation is impossible and attempting to regulate Internet casinos would send the wrong message to consumers. "A public stance of prohibition tells consumers that they should be extremely wary," Kesner told the Commission. "A regulatory system that is ineffective, but is endorsed by government, only gives a false sense of security to participants."
But other witnesses argued that prohibition is impossible. The problem starts with jurisdiction. If a Missouri resident places a bet with an Internet casino based in Antigua, can state or federal law apply to that casino?
Anthony Cabot, a lawyer from Las Vegas, told the Commission that Caribbean countries like Antigua, Grenada and Belize are selling licenses: "For $100,000 per year, an Internet gaming operator is assured of no regulatory oversight, anonymity and tax-free profits."
The inevitable analogies to Prohibition were made by those who favor legalization and regulation.
"Moving a Web site is much easier than moving a 1920s-era speakeasy," Sue Schneider told the Commission. She's chairwoman of the Interactive Gaming Council and editor of Rolling Good Times Online, an Internet magazine based in St. Charles. Banning Internet casinos, Schneider said, will drive honest operators out of business. "Only the unscrupulous will remain," she said.
Tom W. Bell of the Cato Institute, a Libertarian group, told the Commission said that online casinos not only are impossible to ban but offer advantages. They will increase competition among all casinos, he said, leading to better odds for consumers.
They also will spur advances in Internet development, Bell said, and they will "provide a more wholesome environment than real-world casinos."
The Commission, created by Congress, will end its work with a report in June 1999.