I was reading an article called Catch Me If You Can in which Forbes discusses the success of Calvin Ayre and his Costa Rica based Internet gambling business:

From this tropical oasis, Ayre has dodged and taunted those enemies, the main one being the U.S. Department of Justice. His Bodog Entertainment Group is in the not very kosher business of Web gambling. It takes bets from 16 million customers, most of them in the U.S. And that appears to violate the law--Title 18, Section 1084 of the U.S. Code--which forbids using telephones or other communication devices "in interstate or foreign commerce" in order to take bets. "Online gambling, whether it is located offshore or not, is illegal when it comes to the United States and its citizens," says a Justice Department official who works on Internet gambling crimes.

On a financial basis, he seems to be doing quite well:

Last year the privately held Bodog handled $7.3 billion in online wagers, triple the volume of 2004. Ayre says all this betting gave him sales of $210 million, and that he took 26% of the revenue to the bottom line. What's his business worth? Two similar ventures that are publicly traded (in Europe) go for well over 18 times trailing earnings. At that multiple, Bodog, along with other assets, gives Ayre a net worth of at least $1 billion.

That got me wondering... What's the big deal about letting someone gamble without flying to Las Vegas, Atlantic City, etc. to play slot machines or blackjack? Is it actually a danger to society or is this the remnant of some economic policy whose goals elude me?

We have state lotteries (i.e. "the tax on people with poor math skills") all over this country. What's wrong with using a computer to try to win some money?

Posted by jzawodn at March 12, 2006 01:15 PM

Reader Comments
# Robert Oschler said:

"Why is on-line Gambling Illegal?"

The Stock Market doesn't like competition?

on March 12, 2006 01:41 PM
# Jeremy Zawodny said:

Heh. Good point.

I'd make some point about a regulatory agency being involved (the SEC), but we saw how well that worked for Enron, Worldcom, and others.

on March 12, 2006 01:47 PM
# Brent Ashley said:

It's illegal because it's hard to tax. Governments only make gambling legal where they've managed to figure out how to get their cut.

on March 12, 2006 01:49 PM
# Jeremy Zawodny said:

How does that differ from other forms of overseas on-line commerce?

on March 12, 2006 01:55 PM
# ThinkingWisely said:

It's legal in the UK and we don't have rabid people running around foaming at the mouth from it. Ok, that's not entirely true because we do but it's mostly not from playing poker or punting online.

In fact, it's a huge, profitable business, contributes massively to the government's tax coffers and has lead to some incredible, innovative new businesses like Betfair, which are now worth over $1b and going global.

I still find it amazing that online gambling is illegal in the US!

on March 12, 2006 02:02 PM
# Gregor J. Rothfuss said:

Some financial types think betting could soon become a huge new asset class:

http://www.drkwrevolution.com/2015/

http://www.parkparadigm.com/

on March 12, 2006 02:07 PM
# Brent Ashley said:

I guess the difference is that while gambling can be considered "commerce" in many places, in many more places it's a controlled vice. I surmise that most places haven't made online commerce in general illegal despite not having found a way to tax it because it would be seen as arbitrary government control to do so, whereas controlling "harmful" activity is easy to justify. Al though not entirely parallel, while tobacco and marbles are both consumer products, they fall under entirely different regulatory domains and their online trading would too.

on March 12, 2006 02:13 PM
# Robert Oschler said:

Brent's comment about "vice" is actually the on point answer. If you dig deep enough, I'm sure it is due to religious reasons that gambling is illegal. Remember, it wasn't too long ago that "blue laws" still flourished in this country:

"Christian religious laws enforced by the civil authorities throughout much of the United States from colonial times until the 1980's."

from: http://www.datarat.net/DR/Lex-B.html

Gambling and prostitution were the two biggest vices that were made illegal. Well, they tried booze during the prohibition, but even the religious folk wanted to keep that one. :)

We do have "pockets" in this country where those two vices are legal. I think that's an outgrowth of the original provisions for state sovereignty that were put into our goverment.

on March 12, 2006 02:43 PM
# dda said:

Taxes, of course. As Brent Ashley said, gambling may or may not be construed as commerce. Besides, let's say you buy "stuff" abroad. There is a distinct possibility that your government is going to tax you on it if Customs intercept the parcel. However, gambling especially in the improbable case that you do win some money (c|w)ould be assimilated as a profitable activity whose profits should be declared to the IRS, and chances of winners to do that are low.

on March 12, 2006 02:48 PM
# said:

The all-powerfull Native American lobby will never let it happen.

on March 12, 2006 04:07 PM
# Alex said:

1. Money laundering issues. Historically gambling wins have been used for transferring large amounts of cash for illegal activities. Hence a big check coming from Antigua makes it hard for Feds to check whether you really won by practicing a good poker face, or just got a check from some shady buddies in Colombia for "services rendered".

2. Consumer protection. On games such as slots the states generally require casinos maintain minimum payouts. Competition in places like Vegas or Atlantic City pushes the casinos to offer payout levels much higher than required by the state, but offshore casinos are not regulated this way.

3. Taxes. Not that it's illegal to win, the Feds and state definitely like those little tax forms that legal casinos produce in case you win any substantial money. Good luck getting some entity in Bermuda to report to IRS.

on March 12, 2006 05:01 PM
# Dan Isaacs said:

Lotteries are not the Stupid Tax many people like to call them. $2 a week is a small price to pay for Hope. :)

on March 12, 2006 05:42 PM
# Hooda_Thunkit said:

Jeremy,

It's all about the TAXES!

No taxes, the lawmakers make it illegal.

Funny how our Gubment works that way.

--HT

on March 12, 2006 06:45 PM
# world traveller said:

Those businesses in the US that have legal gambling have well paid lobbists that working to keep internet gambling illegal. They view it (correctly) as competition.

Sports betting in particular is legal only in Vegas (not indian casinos) and they see online guys sqeezing them.Look at tradesports.com They essentially offer sports betting for much less cost (higher payouts on the same bet) than brick and mortar guys do.

on March 12, 2006 11:46 PM
# Brian Duffy said:

One reason that gambling is so restricted in the US is that state constitutions were modified in the early 20th century by reformers attempting to stamp out various vices (including alcohol, gambling, prostitution, etc) for various reasons.

Its a difficult and slow process to change state constitutions (Atlantic City is a "gambling zone" due to a voter referendum), and with the exception of places like Nevada, gambling exists by exploiting loopholes in the law.

Lotteries exist due to exemptions placed in the laws to allow churches and temples to raise money via bingo.

on March 13, 2006 06:16 AM
# Keith Ivey said:

Dan, unfortunately there are a lot of people who don't stop at $2 a week.

As for online gambling, sports betting is one thing, but for things like online poker I'd imagine you'd have to have a pretty serious inspection regime to have any chance of avoiding massive rigging of the games. They do that with gambling machines at casinos, but applying it to computer programs in offshore locations is a bit of a problem.

on March 13, 2006 12:07 PM
# Ed Kohler said:

If legalizing online gambling would cut down on lines at gas station checkouts when I'm trying to but a gallon of milk, I'm all for it. Every gas station in Minnesota seems like a small casino of scratch-off and Powerball tickets. Most annoying are the customers who start scratching their tickets right at the counter with a line behind them. Pathetic.

on March 13, 2006 02:13 PM
# Abhi said:

There are a few reasons why online gambling is not encouraged. Casinos, in the US are/were generally setup in economically depressed areas*. You cannot setup a R & D centre and people there are not earning enough or educated enough so how do you generate revenue for public administration?

Physical casinos pay about 30-50 % in taxes to the government. They provide direct employment to hundreds. Indirect to hundreds more. The taxes are used for local infrastructure, schools and medical care.

In the online world, the goal of IT is to reduce costs. Therefore if there are 30 casinos now, say one in each state. Some are good, efficient, others are not. There will be consolidation and only 3-5 will survive the shakeout. That means somebody gambling from Ohio will visit a website whose physical address is in Arizona. Who receives the bulk of the taxes from the gambling profits? Arizona.

In the physical gambling world, casinos are regulated. Some states have them, some don't. Therefore if there is no casino within 50 miles of your town, you are unlikely to go there on 4-5 times a week to sate your gambling thirst. If it was placed to your local shopping centre, there would be many more people visiting them.
Discouraging the poor from gambling. If you increase the costs of gambling(eg-placing the gambling centres away from towns), then the poor are less likely to hop into their car or take a bus, travel a few hours, gamble, spend money on food and drinks, probably stay a night and return. This is a high deterrent for the poor.

Gambling is a very acrimonious subject in state legislatures even in areas where they are present(eg- mississippi, lousiana, maryland.) When states begin to get an addiction from gambling taxes, it is very very hard to break them out of it. As revenues increase, so will expenditures. Gambling is considered a vice so if politicians can avoid relying on it, they will do so.

Coming to the difference between online gambling and physical gambling. When online gambling is open to all, they might be queasy at first. Gradually, they become comfortable because they have nobody to answer to(except maybe their spouses.) What might be a once a month habit might become 4-5 days a week habit. Have dinner, instead of watching tv, sit on the computer and gamble away. If you had to go to a physical casino to gamble, you would have to plan it out and gambling is the main focus of your trip. You will generally budget a certain amount of money for gambling and not exceed that. On online gambling, you tend to overshoot your budget because you generally have more time.

With phyiscal gambling, state regulators can usually make sure the casino is not rigged. With online gambling, how do you check that?

Having said that, online gambling has become so prevalent that trying to prevent someone from actually gambling is far more difficult. Americans can bet on williamhill, a UK sports betting website. If an American has a offshore(not necessarily just the Caribbean) account, he can bet at partypoker and online off-shore casinos. And the latest, intrade.com(found on the wsj yesterday), bet on when bird flu is coming to america, how much snowfall will ny city receive, who will win american idol.....

on March 14, 2006 11:15 AM
# Dillan said:

Concerns over legalizing online gambling in the U.S. are based on fears of:
- increasing gambling addiction
- underage access
- money laundering

The big players in this industry have systems in place to control all three of these potentially problematic areas. The large companies traded on the London Stock Exchange are subject to all kinds of scrutiny and go to great lengths to protect their customers and their business. Regulating online gambling in the US would eliminate the shady operators and increase protection for American gamblers. The question is not IF the U.S. will accept online gambling and regulate it, it's WHEN.

on March 20, 2006 08:39 AM
# John Fowler said:

Let us not forget the most basic problem here. Online gambling in the US is a 10 billion+ a year business. These US based Online sites still have to pay taxes on their earninge, winners have to pay taxes on their earnings...bottom line about 3 billion dollars a year in Tax revenus is about to be lost to the local and federal government. Who will wind up paying for this loss of revenue? Why the taxpayers of course (as we always do) if there is one constant in the universe its the shortsightedness of politicians and their demand for more money to pay for things we dont need...Like an indoor rainforst in Iowa!

Also this bill will cause us problems on an international level. It will put the US on a collision course with the WTO (World Trade Organization) of which the US is a major player (for the time being) which has ruled that the the US "must not block online gambling sites based overseas." If the bill passes, the US would be subject to WTO sanctions come April for not bringing its laws into compliance with the WTO ruling. A Ruling which the US was not only aware of, it participated in!

I have yet to see a US based casino that does offer information on Gambling Addiction. If there is one thing history has proven its that any form of prohibition doesnt work. When they enacted prohibition with the 18th Amendment to make alcohol illegal, they literally created organized crime! Then They made marijuana, cocaine and heroin illegal. They literally invented the Drug Cartels...almost 50 years of drug prohibition hasnt stopped that. So Only an idiot would believe this prohibition would work. Make something illegal and people will want it even more and someone out there will figure out a way to provide it.

I think the representatives from West Virginia need to re-evaluate their stand on this bill, personally I doubt they will! I often wonder about the motives of any politician anymore with regards to any laws. I dont think this situation is any different. My belief is their only doing this because West Virginia has only 4 casino's and VLT's all over. Well we all know Casino's are considered a boon to economically depressed areas (HA!) And since many of the citizens are all spread out, their spending money at online casino's based in other states and not spending their grocery money in W-WA!

You do the math!

on October 13, 2006 11:57 AM
# Frank Carver said:

Does anyone have any suggestions on places to vacation across the world that actually have sports wagering on U.S. sports? I am aware of Canada and U.K. already! Any help would be appreciated! Preferably where the dollar goes pretty far if you know what I mean.

Sincerely,

Frank

on February 22, 2007 01:53 AM
# Debby Fidler said:

Please help this windows online took 7300 from me when doctors order them to close the account as I was under medication the account is still open they will not give money back. HELP PLEASE STOP THESE ONLINE IN CANADA I AM GETTING SICKER. GET RID OF THESE PEOPLE OR GET ADDRESS CAN NOT REACH THEM WILL NOT HELP AT ALL.

on December 16, 2007 06:40 AM
# Casino gambling online news said:

Sorry, but it's not that simple. It's kind of like asking if it's legal to have a gun -- the answer depends on the circumstances. There are several different kinds of potentially illegal activity. There's a difference between making bets, taking bets, facilitating payments to casinos, accepting advertising for it, or buying advertising for it, and even then there's a difference between casino wagering and sports betting.

on February 26, 2009 12:12 AM
# Nathan Pearce said:

Hmmmn. Theres many reasons for and against - most of them are covered by the blog at www.right2bet.net, which is a European site which is trying to standardise the laws there, which are very different from country to country, and make the U.S laws look easily understood.

Probably the main thing mentioned here which appears rather incorrect is the idea that legal gambling increases corruption within sports and money laundering and issues outside. With regards to corruption, this will happen anyway if its going to (from illegal gambling cartels)and most of these people operate from the far east.

Secondly there are such controls in Europe that money laundering is not an issue at all, you have to upload and return credits to the same payment card etc etc, theres FAR easier ways to launder money (ice cream vans, car washes etc etc).

As for underage access, we have gambling machines in places such as unsupervised highway rest-stops (what we call motorway services) and these have never been an issue for underage use, certainly no-where near the level of drinking or watching 18 rated films. I think there was some concern when pubs started introducing quiz machines that paid out, but I think that was just a fad.

on November 27, 2009 04:47 AM
# Online Gambling said:

It's illegal because the transference of money and all the methods used would make it easier to launder money. There supposedly was a judge who tried to made it legal to wire money to a gambling establishment as long as it wasn't sports gambling. that law is a null now.

has also been alleged that the largely unsupervised electronic funds transfers inherent in online gambling are being exploited by criminal interests to launder large amounts of money.[35]

However, according to a US GAO study, "Banking and gaming regulatory officials did not view Internet gambling as being particularly susceptible to money laundering, especially when credit cards, which create a transaction record and are subject to relatively low transaction limits, were used for payment. Likewise, credit card and gaming industry officials did not believe Internet gambling posed any particular risks in terms of money laundering."


but that would in truth just lead to an additional means of laundering and use of funds.. all you have to do is make it legal.

on June 27, 2010 12:49 PM
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