The US Government Needs to Step in On Gambling

As the first writer on the blog for this semester, I am excited to write about a topic that I’m passionate about and will explore even further as I write my paper this year. There are a few serial blog posts below mine that also talk about gambling from the previous semester that are well written and well researched. If you’re interested in gambling, you should definitely try to read them as I might link to them in this post in order to not repeat myself. I am writing this little intro because, although the previous posts cover a lot about gaming law,  I am hoping to give my perspective on not only what is written below, but to give my comment on the current, yet ever-changing gaming law universe.

What is the first association when you hear the word gambling? Mine is sports betting. For a lot of you it might be poker. Or blackjack. It probably includes some form of the idea of “risk”. The point is that there are so many different things that encompass “gambling” and the 50 U.S. states agree. Within our country, there is no agreement among the states as to what pertains to gambling and what should be legal, illegal, or otherwise regulated.

In one of the readings I was assigned this week, it shortly discusses the laws each state has relating to online poker. What stood out to me immediately was the word “definition” as it relates to gambling and the descriptor preceding it. To list them: vague, narrow, expansive, broad, broadest, statutory, and no. That’s 7 different kinds of adjectives describing the definition of gambling and this is just a site describing poker laws!!  It’s maddening to me that this country has gone so long and continues to avoid federally addressing gambling law. An argument against my comment could be that UIGEA (Unlawful Internet Gambling Enforcement Act) and the Federal Wire Act are examples of the government attempting to address issues, but both are not reasonably long-term solutions. As the Federal Wire Act was mostly overruled in 2011 (reversing it’s decision to ban all internet gaming, re-instating just a ban of online sports betting), the shelf life of UIGEA (which attempts to attack the money gamblers make) is also nearing its end. With workarounds being produced in the market, I predict that the government will ultimately have to accommodate the banks and the people who want to process their gambling winnings. Until we have concrete federal law and stop allowing states to make their own laws regarding the topic, this will remain a grey, inconsistent, and frustrating area of law

Economically speaking, if there is a demand for something, a market will emerge. This is the framework behind the idea of “internet cafe sweepstakes”. For those that don’t know what internet cafe sweepstakes are, I’ll try to explain. The models of these cafes are similar to that of the McDonald’s monopoly sweepstakes that occur every year. McDonald’s has been running their monopoly sweepstakes since 1987 and has seen its profits rise during those months because of it. The idea is that the hope of getting that “boardwalk” piece keeps customers coming in to try and win that $1,000,000 grand prize. By giving away little items like free breakfast sandwiches, fries, or drinks, McDonald’s incentivizes the consumer to come back in and spend money on the food to play the “free” monopoly game. The benefit to McDonald’s is obvious. Someone cannot win the grand prize without coming to their store and actually purchasing something. You are paying for food, but hoping that you win an even bigger prize. It is the same idea for internet sweepstakes cafes. A main form of this includes letting customers into your cafe filled with computers and charging them for the time they spend on the computer/internet and allowing them to play games, quite similar to casino games, in hopes of winning other prizes during their allotted time. Is this any different than a McDonald’s sweepstakes? It may seem so, and much more obvious, but these kinds of places have operated within a grey area of the law for over 10 years. Some places have been shut down, but as I said before, if there is a market, new producers will find ways to emerge.

Colorado passed a bill earlier this year prohibiting internet sweepstakes cafes (and they’re not the only state that is anti-gambling). The bill address these cafes specifically and also attempts to account for future iterations of cafes by including a ban to “simulated gambling devices” like the computer programs installed on the computers inside the cafes. Colorado’s main concern with cafes is the regulation of them, or lack thereof, relative to legal gambling areas in the state. I would agree with Colorado in its concern regarding the regulation of such places and the protection of its citizens. The bill notes in section 1(f) that the voters of Colorado have voted to approve which forms of gambling they want to allow, but have never been given the opportunity to vote for the approval of internet sweepstakes cafes. Why is this the case? It is evident to me that there is a demand for these cafes if their growth was so widespread that the legislature felt the need to pass a bill to ban them. Why not attempt to legalize, license, and regulate them as an alternative form of consumer protection while also granting the state a share in the revenues?

A reason might be the subpar results in the three states (DE, NJ, NV) that have legalized online gambling. It’s interesting to note the somewhat drastic drop in actual and expected revenues from online gambling in these states given the anticipated market for it. The article linked above discusses some reasons for this difference including low consumer education and high start up costs. I have an alternative theory on this. History in the US has shown us that the government cannot always operate as efficiently as a private company can. The fixed costs associated with this project along with the government’s lack of experience operating in such a field could definitely be a cause for the slow start. If the federal government finds a way to pass laws that allow and properly regulate online gambling, I think things could drastically change. It would allow for experienced market producers to get involved, whether foreign or domestic, and operate more efficiently than market producers in each individual state could. There have been problems related to technology with the current launch of online gambling in the three states that a federal law could more easily solve. Where it has been discussed that geo-location technology has been a problem in some areas determining whether a consumer is within the borders of a state, a legal online gaming country would help solve that issue. Again, the market would expect to be filled with specialists in each part of the market, helping not only the cost but also the quality of the service.

Further, I believe that marketing has been an issue as well. Through my initial research, I haven’t found much written on this topic, but it is a big deal. There is a reason big corporations have dedicated marketing teams and unique marketing strategies. Let’s take a look back at McDonald’s again. Their monopoly campaign is always plastered everywhere – TV ads, radio ads, billboards, etc. They might still get a decent size of extra consumers simply by word of mouth if they didn’t advertise, but that is a testament to their market share. These new online casinos do not have that benefit. For all the talk about how big the gambling industry is as a whole, if consumers do not know your product is out there, how will they know to buy it? The fact that I haven’t found much information from the three states regarding their marketing strategies concerns me. Google, Microsoft, and Yahoo! paid over $30M in fines for advertising gambling in 2007 when gambling was a smaller market and a smaller segment of their ad revenue. Those three powerful companies could help advertise and inform consumers to help boost the previously stated “consumer education” and boost the user base. Did we really need the government to spend time, money, and other resources to sue these companies for federal crimes on advertisements?

As the previous gambling poster noted, prohibition is not something realistic or something that works. It is time for the government to take a clear stance on both the allowance of internet gambling for casino games and sports betting on a national level. I’ll admit that the legal sports betting angle might cause more trouble than legal online casino gambling, but they are both highly successful in vegas and sports betting revenue might even exceed that of casino games, if legalized. New York has already commissioned studies on the effect and extent of legal and illegal gambling in the state. This should be done nationally as well. These laws should not be implemented without proper research and strong considerations for consumer protection. There are still issues with the likes of fantasy sports and internet sweepstakes cafes, but ideas like that have spawned in response to shifting gaming laws in the last decade. It is clear that this country has a huge demand for this market that will generate revenue, and it’s up to the government to step in and work for the people.

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~ by aklam19 on September 11, 2015.

12 Responses to “The US Government Needs to Step in On Gambling”

  1. I definitely share Anthony’s sentiment on this topic regarding how frustrating it is that we do not have such a federal law in place regulating online gambling. Prior to doing our assigning reading and going over some of the pieces Anthony linked to, I already held the opinion it should be legalized in federally regulated, but I was extremely surprised as I learned about the lengths those states that have legalized it are having to go to regulate it. My surprise came from the fact that I lived for most of my life in Florida—a state in which it is not legal— and yet I know several people who regularly gamble online. This was why I was so surprised to learn about the efforts states have made in geolocation technology.

    The fact that online gambling is so common outside of New Jersey, Delaware and Nevada proves that states are having trouble implementing it (a sentiment that was echoed in The Pew Charitable Trusts story Anthony linked to), it is as trivial of an obstacle for tech-savvy gamblers to overcome as our assigned reading indicated, or that there are other sites outside of the legally existing ones in those three states that the government simply does not have the resources to regulate.

    Legalizing online gambling and federally regulating it would be beneficial in multiple ways. It would allow the companies already legally in existence to invest the substantial resources they have been putting into the geolocation technology into themselves instead, thus stimulating their development and creating more jobs. It would also allow the government to benefit from reallocating all of the resources it has been futilely putting into stopping online gambling into any other endeavor that does not involve trying to stop an industry that will seemingly continue to exist no matter what. And most importantly, it can derive substantial revenue that can be put to any number of good uses from taxing the online gambling industry.

    I look forward to reading Anthony’s full paper on this topic, and hope to see action taken by the federal government in this area in the not-to-distant-future.

  2. Before reading the article and this post, I knew virtually nothing about online gambling. I cannot wrap my head around why the federal government is fighting the expansion of this industry to such a great extent. The law cannot keep up with technology. There are already states that have online gambling sites. Just because you don’t live in those states doesn’t mean you can’t access the websites. It seems like it would be much more beneficial to just legalize online gambling rather than waste so many resources trying to stop it. It will be virtually impossible to stop online gambling completely and those who want to participate badly enough will find a way to do so. As the “Welcome to Nevada” article discussed, even though I would have no clue how to do so, apparently it isn’t too difficult to fake an IP-based geolocation. The government’s efforts would be better focused elsewhere. This is a market that people clearly want to spend money in. Why not stimulate the economy and why not create more jobs.

    As the article stated, the rules on online gambling seem to be very unclear. I agree with Anthony that it is baffling that the government has not addressed the problem because technology continues to grow even though the laws do not change. I think it would be smart to allow States that do allow online gambling to have agreements with each other to allow people to gamble in more than one jurisdiction.

  3. Prior to reading Anthony’s blog post and the readings for this week, I pretty much knew nothing about the world of online gambling. The blog post and reading assignments were very interesting and eye-opening for me. I think the Internet has made so many things possible and the government and lawmakers just can’t keep up.

    I agree with Anthony that some type of federal regulation needs to happen. However, I think more states would need to pass their own laws regarding online gambling before the federal government will get involved. This seems to already be happening in some states, according to the 2015 Internet Gambling Legislation that Anthony linked. Like the reading suggested, there aren’t enough big players in the states that have already legalized online gambling to make it so intrastate online gambling is a big enough issue for the federal government to get involved. When more states become more involved, the federal government will likely get more involved. As of right now, it seems like the Department of Justice is perfectly complacent with the laws on the books. I think if California legalized online gambling, the federal government would become more involved.

    Once the federal government does become involved, I think using software like Locaid will help in collecting location data. As long as the data being collected is used to solely prove the location of where a player is gambling, the software should be used. However, I find it hard to believe that some of these software companies would not want to try and capitalize on the data that is being collected. Perhaps future online gambling regulation could also regulate how the data from this kind of software is to be collected, stored, and used.

    Overall, the future of online gambling seems very uncertain. I do agree with Anthony that the federal government needs to get more involved. However, I think more states should pass their own laws before the federal government gets involved.

  4. I had never really considered online gambling a crime; to me, it had always seemed to be a victimless crime. If an adult wants to spend their money playing online poker, or betting on a sports team, I’ve always held the belief that they should be allowed to do so if they wished. It was a surprise to me, then, when I found out that only three of the fifty states have legalized online gambling. While I recognize that there may be political issues involved (current physical casinos organizing opposition to online gambling, as it would hurt their business, for example), it seems rather silly that we have yet to pass laws successfully regulating this market.

    I view this as an issue similar to prostitution, or the trafficking of more harmless drugs like marijuana. If the federal government would simply legalize and regulate the field, they could reduce the costs associated with it (tracking, policing, and enforcing laws prohibiting it), cut down on illegal transactions, and put regulations in place to safeguard the general populace AND the businesses involved from people who would try to take advantage of the current “lawless” state of affairs.

    • I appreciate your reply. Just wanted to comment on brick and mortar casinos: all three states that have legalized it have agreed upon percentages that go to the state and brick and mortar casinos. They would not be left out in the cold. Those casino owners would otherwise lobby very hard against online gambling. However, since they are getting a share, why not increase the pie?

  5. As appears to be a common thread amongst the comments, prior to Anthony’s post and the articles, I too knew close to nothing about online gambling (or gambling generally). Without focusing on any gambling specific detail, I don’t understand the reluctance of the Federal Government in getting involved in the regulation of online gambling. Historically-speaking, any kind of prohibition seems to have an overall marginal effectiveness and fails entirely to capitalize on any potential positive effects that could be drawn out from whatever the thing being prohibited is.
    From a government perspective I understand wanting to protect the populace from the numerous harms that can result from a rampant gambling culture. However, I don’t think that means a stance of all out illegality, and/or marginal involvement is a viable solution. To simply leave something like online gambling, which can produce all sorts of deceptive and predatory practices, up to individual States to decide what and how to handle, seems to me to be a recipe for even more convolution and problematic results. I would think it better to create a uniform system of regulation that allows a market where those who are interested in online gambling to do so in a “safe” environment. If online gambling were to somehow “open up” on a federal level, I would think that would incentivize the market to grow, or at least allow it to expand to its natural level, in such a way that taxation upon it would cover whatever costs such regulation would require. Thus, everybody wins. Consumers who want/need to gamble or able to do so without convolution, and the government could ensure a degree of safety or protection.
    I would think that a position such as this would be far preferable than missing out entirely on any potential benefit the Federal Government could coax out of online gambling.

  6. It seems that as long as online gambling is only allowed in certain states, and not nationally, the only way for the gambling sites to correctly regulate that people are physically in the state will using the site would be to only allow citizens with a permanent address in the state to play. Jim Barbee, the chief of the technology division at Nevada’s State Gaming Control Board, gave a vague answer on how to allow users to gamble online without a permanent address when he said that “It would involve multiple data points, incorporating IP address, registration information, street address… we would be marrying all the data points together.” Until I see an actual strategy by a gambling company that is allowed by the a State like Nevada I do not see how it will be possible.

  7. Thanks for the great information, Anthony. I was not too familiar with online sports betting and gambling before reading Anthony’s post. After reading the post, links, and comments, I agree the need for legislative intervention is great. As for the likelihood of any change, I suspect it is remote as consensus on such a topic would be tenuous at best. Still, even if there are some fantastic options on the table, it’s easier for legislators to just take a pass on the issue year after year than take a stand and risk their political position.

    Any truly comprehensive reform/solution will include a well thought out tax regime that can garner bipartisan support. The revenues projected should be enticing enough to bring the activity “above board” but not so oppressive as to facilitate an argument for those business or entities that have to impose the tax. The revenue from the gaming activities should fund partnerships that serve a mix of the gambling industry employees, those concerned about the health risks of online gambling, and those concerned about the societal risks of online gambling. Neither ignoring the problem, or thinking that online gambling and sports betting can be eliminated entirely are reasonable solutions.

    Considering the activity can’t be eliminated, some pointers could be taken from state lotteries. Florida has done great things with the Bright Futures scholarship program. Thanks to the program, my college education was free and I graduated undergrad with no student loans. Perhaps the bright futures model could be implemented with online gambling and sports betting and the program could fund $150k+ law school educations for promising young attorneys!

  8. I agree with Anthony and the responders that point out that the prohibition of online gambling is futile. There are people who desire to gamble, whether on sports or more tradition casino game, and there are individuals that are willing to take the risk of criminal penalties because of the money involved. I think that for this reason it should definitely be legalized and regulated. It is largely a victimless crime and there is a huge tax incentive for the government.

    One of the reasons I think there is more hesitation to legalize online gambling is the ability for those under age the age that society believes is responsible enough to gamble. Another poster stated that this seems be very similar to the prohibition of marijuana or prostitution. The difference with legalizing these is there is more ability to prevent underage individuals from partaking once legalized. Similar to the problem now of not knowing where someone may be gambling from, if federal prohibition is ended how would a casino guarantee that a 13 year old isn’t lying about their age to be allowed to gamble?

    Let me be clear, I think that the next step should be the end of the prohibition of online gambling in the United States. I just also think there are still big problems facing it first.

  9. This was a very informative post. To echo what others have said, I also had not thought about online gambling much before. I didn’t realize that it was only legal in a few states thus far. Before doing the readings and reading this post, I woud have thought online gambling would be such a lucrative business that states would be jumping at the chance to get involved. I didn’t consider what was stated in the “State-by-state” article: that it has been difficult to draw in big players when there are so few states, and consequently, so few people, involved in online gambling in the U.S. so far.

    I have to agree with Anthony that federal regluation seems to be the best way to deal with online gambling. My belief is in part due to the seemingly difficult start states have had in getting more players involved, but it is also in part because of difficulty states will have in regulating the location of the participants. The “State-by-state” article gave a list of things that Nevada would require in order to determine the player’s location. In addition to that seeming like it may not work as well as Nevada hopes (in that people could fake the information), I think it may also deter people from participating because they may have to provide more personal information or jump through more hoops than they would like. I think federal regulation would resolve a lot of these complications.

  10. I would like to start off by thanking Anthony for the great post and useful information about gambling. I personally did not know much about gambling in general so I found this post to be very interesting. When I think about online gambling, I think poker or just something that really can’t be harmful to anyone. I do agree with Anthony and believe that federally regulating online gambling would be the best way to tackle the online gambling issue. I am surprised to know that we do not have any regulations already set in place for this. Reading that only three states have officially legalized online gambling seems like a low number. I know that it would be difficult to regulate it among the states because of where people are located but I think it should be addressed.

    Now, whether it will be addressed anytime soon is another issue. I am sure people don’t want to do the work and figure out how to go about properly regulating online gambling and maybe some just really don’t care or don’t want to know more about it because they think it does not affect them. I do wonder why this issue has not been prioritized more based on the information that was provided in the blog and the readings though. Another reason I can think of in regards to people not addressing the issue is that perhaps people are not aware of the consequences of online gambling and therefore never consider it to be a problem. Maybe educating the public would be a start! I know I personally didn’t even know much about it to begin with so thinking about a way to even regulate did not cross my mind.

    I do appreciate your blog and look forward to discussing this topic a little more!

  11. Congratulations on a very good inaugural post, and thank you to the class for your thoughtful comments. Here are a few questions you can think about for class tomorrow:

    1. The UIGEA has been the law for some years now. Why is it people are surprised that online gambling is against the law? Would it make a difference to the gamblers if they knew it was against the law?

    2. The UIGEA only prohibiting processing payments for online gambling but they exempted completely online wagering on horse races and online gambling in any state that allows it. How is it that online gambling can be acceptable for horse racing but not for other types of gambling?

    3. The current approach of state-by-state legislation can eventually create a crazy patchwork of regulation. What will happen to the person in Colorado (where online gambling may be banned) if he visits a website for a legitimate online gambling site in Delaware?

    4. Do you think that having software that can capture multiple data points when trying to determine whether a person accessing a legitimate site, is actually in that state is going to be efficient or productive? Will there be a potential for abuse either on the part of the player or law enforcement personnel who try to verify compliance?

    5. Gambling may or may not be a victimless crime. Even if we agree it is, should it be legalized or just decriminalized?

    Looking forward to our discussion tomorrow.

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