States bet on online gambling revenues
Several state legislatures recently have introduced bills designed to rake in revenue from Internet poker and other forms of online gambling. Opponents, however, may have found an ace in the hole: the U.S. Department of Justice (DOJ), which says placing bets in cyberspace is illegal under federal law.
Justice Department saber rattling in late March caused “the overwhelming death” of legislation that would have allowed offshore poker sites like Gibraltar-based PartyPoker.com to operate in North Dakota, says Rep. Jim Kasper of Fargo. The Republican state legislator had pledged to fund education and slash property taxes with the $500 million Kasper estimated online card rooms could generate for the state.
Kasper’s legislation passed the House 49-43 but won just three votes in the Senate following the receipt of a letter from DOJ. “We were gearing up to do battle in the Senate when lo and behold the Department of Justice letter appeared,” Kasper says. “The letter said it is illegal to pass this type of legislation under federal law.”
DOJ has used similar warning letters to quash efforts in Nevada and the U.S. Virgin Islands, and to regulate online gambling, Kasper says. A DOJ spokesman declined to comment on the communications. By legalizing and regulating online gambling sites, states such as North Dakota could generate jobs and protect consumers from shady operators, Kasper says. They might also raise substantial tax revenue. Worldwide Internet gambling revenue hit $5.7 billion in 2003 and likely will reach $16.9 billion by 2009, according to New Gloucester, Maine-based Christiansen Capital Advisors, a research and consulting firm. The Government Accountability Office predicts annual revenues from online gambling worldwide could grow to $14.5 billion in 2006.
About 2,500 Internet sites now offer everything from lotteries and sports betting to slots, blackjack, roulette and Texas Hold ’em, says Michael Corfman, president and CEO of Newton, Mass.-based CasinoCity.com, a gambling-industry resource site. Nearly all of the businesses are based in offshore locales, such as Antigua or Gibraltar, even though most of their customers live in the United States.
That is because DOJ reserves the right to prosecute U.S.-based operators of online gambling under the 1961 Interstate Wire Act. But its interpretation of the act — intended to stop telephone sports betting — is controversial. Federal court rulings in 2001 and 2002 declared the Wire Act germane only to sports wagering.
“The federal law certainly has vagueness to it,” says William Thompson, a professor at the University of Nevada, Las Vegas, who studies gambling. “It doesn’t speak to all gambling, and one of the loopholes would be poker games.”
Proponents of online gambling accuse DOJ of overstepping its bounds by using the threat of prosecution to “chill” the industry until Congress gets around to updating federal anti-gambling statutes. Corfman, a recipient of a letter threatening prosecution, says he recently sued DOJ to protect his First Amendment right to advertise online casinos.
Until the legal issues are clarified, state legislatures may be wary of taking up Internet gambling proposals. A Georgia bill that would have allowed the state to sell lottery tickets online died in March amid uneasiness about online wagering, says its sponsor, Rep. Terry Barnard of Glennville. Even Georgia Lottery officials doubted the viability of the measure. “The question concerning the legality of Internet gaming was really at the forefront,” says lottery spokesman J.B. Landroche.
Legal disputes aside, the subject is already divisive. The Christian Coalition of Georgia, for example, opposed Barnard’s bill on moral grounds. “We view the lottery as a tax on the poor,” says executive director Sadie Fields. “Trying to expand it and put it into homes will have an even more direct impact on families.”
At press time, a similar lottery bill in the Illinois Legislature also faced opposition from anti-gambling critics such as Illinois Rep. John Bradley of Marion. “Doesn’t it seem a little strange that the states are turning to the losses — the lost hopes — of the people in order to finance themselves?” he says. “There is something inherently flawed in that.”
— Joel Groover is an Atlanta-based freelance writer.
