Online gaming in the shadows

By Liz Benston

Tuesday, July 17, 2007 | 7:17 a.m.

The speedy passage last fall of legislation making it more difficult for Americans to gamble online has led to three bills that take aim at the restrictions.

They are finding robust support from Internet gambling enthusiasts, but garnering little attention from politicians, who face more pressing policy issues than the right to gamble from home.

Indeed, some experts say, the shadowy world of Internet betting will remain that way for some time, or at least until a new president is elected. For most lawmakers, pushing for legislation benefiting what some call a "sin" industry isn't a way to win votes.

"People in Nevada think its our inalienable right to gamble," said David Cherry, press secretary for Rep. Shelly Berkley, D-Nev. "But it's a different world outside of Nevada."

Moreover, the American Gaming Association, which represents casinos and the power of millions of casino-generated dollars in federal campaign coffers, doesn't explicitly support Internet gambling legalization, instead supporting the most cautious of the three bills.

That bill, co-sponsored by Berkley and Rep. Jon Porter, R-Nev., would authorize the American Academy of Sciences to study whether Internet gambling can be regulated and would assess the federal government's de facto ban. Another bill, sponsored by Rep. Robert Wexler, D-Fla., would specifically legalize Internet poker. A third bill, sponsored by Rep. Barney Frank, D-Mass., would repeal last year's legislation and regulate all forms of online gambling.

The gaming association's caution is understandable because it represents land-based casinos rather than the companies now operating Web casinos from offshore, more loosely regulated locations.

Some Nevada operators say the online gambling industry lacks credibility and first needs an independent study showing that the business can and should protect against underage and problem gambling through regulation.

Casinos have another reason to reserve support for legalization.

The prospect of federal oversight and taxation of online betting is troubling for an industry that has spent more than a decade keeping commercial casino gambling regulated and governed by the states.

The primary role of the gaming association, born from the threat of a federal casino tax, has been to avert federal legislation rather than lobby for it.

The industry isn't facing any frontal attacks from the feds now that state-run gambling has become mainstream. But fears that the federal government could tinker with casino regulation linger.

That's one reason why only one American casino company has openly and consistently championed Internet gambling.

"This is a step in the right direction," MGM Mirage spokesman Alan Feldman said of Frank's bill. "Parts of the industry have some concerns about it. But this is an important issue that's moved beyond the 'wait and see' approach. The current policy is unrealistic and irresponsible. And we know from decades of history that prohibition doesn't work."

MGM Mirage, which folded a short-lived Web casino for foreigners because it couldn't compete against offshore sites courting Americans, is hopeful that regulation of Internet gambling could be authorized by the feds but still regulated by states.

The relative silence from casinos and their gray-market counterparts online leaves a big vacuum for the Poker Player's Alliance, the nascent lobbying group that says it has signed up at least 600,000 poker players. The alliance is pushing Wexler's bill to specifically legalize the game with arguably the most passionate following online.

Their ace in the hole is Alfonse D'Amato, the poker aficionado and former New York senator hired to lobby for the alliance and Wexler's bill.

D'Amato, a Republican in a Democratic-controlled Congress, is a skilled political operator and consensus builder.

Instead of raining on last year's prohibition bill, D'Amato's critique is careful and measured.

"There's been concerns about all these people gambling online and in an attempt to deal with this issue I think there was an overreaching," D'Amato said. Last year's bill, which made it illegal for banks and credit card companies to process online bets, was "a well-intentioned effort that wasn't studied like it should have been," he said.

"You're not going to stop the Internet. By legalizing it, you can keep the bad guys out and raise the revenues , by licensing , that are necessary to police it."

That doesn't sway conservative Christians and others who oppose the spread of gambling on moral and philosophical grounds.

"Is the president, in an election year, going to say we want people to be able to gamble in their homes? No," said the Rev. Tom Grey of the National Coalition Against Legalized Gambling.

Grey says making gambling more accessible will increase addiction, a view shared in bipartisan circles.

Democrats, now in control of Congress, don't want to rile conservative voters during the campaign season.

Advocates say there's more momentum for legalization this year, and it's not just coming from the United States.

There are more disgruntled gamblers with frozen online accounts and others who are waiting weeks to complete transactions by mail or wire that used to occur with the click of a mouse.

Although Frank lacks broad support for his legislation, his ascendancy to the chairmanship of the House Committee on Financial Services, for an activist lawmaker with a libertarian bent, is a positive outcome for the casino industry.

"Last year there was no real discussion about Internet gambling on the floor of Congress," said Jeff Sandman, a Washington attorney representing the Safe and Secure Internet Gambling Initiative, which formed this year to push for legalization. "But now there's new interest and a new Congress."

The initiative represents accounting and processing firms involved in online wagering outside of the United States in places such as the United Kingdom, which is legalizing Internet gambling.

There's also a new number being bandied about in the halls of Congress: the more than $6 billion in taxes that could be raised from Internet wagers annually.

Meanwhile, publicly traded casino operators have accepted defeat, pulling out of the United States, while gray-market operators have moved further underground, hosting fewer marketing and charity events and refusing to fly to the United States for fear of being arrested.

Legalization may ultimately be decided by bigger forces beyond our borders.

Growing pressure on the United States to soften its position on Internet gambling "is huge," Sandman said.

The European Union and a handful of individual countries recently filed claims with the World Trade Organization seeking compensation in the billions of dollars from the United States for unfairly prohibiting foreign online gambling operators from accessing the U.S. market while allowing U.S. horse-racing networks to accept online bets. The federal government says that the trade agreement didn't include gambling, a unique form of commerce, and that the country can prohibit activities that threaten public morals and safety.

"The stakes are much higher now," D'Amato said. "We don't want to be the country that says, 'We will do what we want.' "