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Wednesday, August 27, 2003
Business
Future of Web Based Betting, CNNfn
David Haffenreffer
DAVID HAFFENREFFER, CNNfn ANCHOR, MONEY & MARKETS: Right now on the Internet there are hundreds of Web sites offering people the opportunity to gamble. In fact one account says about 1800 of them. Washington has no regulatory power over the sites since many of them are located offshore. And even though Internet bets are expected to top $6 billion worldwide this year, not a penny of tax is collected in the U.S. Congress is taking a new look at whether to regulate this booming business. Some lawmakers want to go as far as to outlaw these sites entirely.
Joining us now to talk about the future of Web based betting is Eric Goldman, assistant professor at Marquette University law school who joins us now from Milwaukee, Wisconsin and Dan Walsh, the vice president of Williams Mullen Strategies, a firm that represents the Interactive Gaming Counsel. He joins us now from Virginia Beach, Virginia. Call us with your opinions of whether the government should regulate online betting. The number to call 1-800-304-3638 or e-mail us at money&markets@cnnfn.com.
Eric Goldman we’ll start with you. Certainly the government wants in on some of these tax revenues if they can get a hold of them. What’s the best way to proceed for the government?
ERIC GOLDMAN, MARQUETTE UNIVERSITY LAW SCHOOL: I think the government is interested in the taxes, but I think more specifically they have a schizophrenia about the morality and the collateral effects of gambling. So I don’t think that there’s a plum out there that the government is particularly interested in. I think if anything they’re much more interested in controlling these tools that they think are being used for illegal activities.
HAFFENREFFER: The way they currently control the morality surrounding casinos in Las Vegas and Atlantic City and as well as the other Native American casinos?
GOLDMAN: Well, I think you have to break it apart. There’s many layers of control over gambling. The federal government is the one that is most interesting because they have not made a formal commitment about which way they want to go. Bills have been proposed for years now in Congress and Congress can’t decide. State legislatures have taken a large variety of attacks towards regulating gambling. Anywhere from being more tight and restrictive to more loose and permissive. At the federal level though I think that’s where we’re seeing he paralysis because Congress has not decided what they want. That’s why I think the tax initiative is really not a question for them.
HAFFENREFFER: Dan Walsh you’d rather see loose and permissive than tight and restrictive wouldn’t you?
DAN WALSH, WILLIAMS MULLENS STRATEGY: Well, I don’t know if I’d say loose and permissive. I’d say a rational policy though. The question on how to regulate Internet gambling is a tough one because historical it has been a state area of regulation. And we’re talking about a uniquely interstate – international medium that we’re seeking to regulate. Congressman John Conyers and CongressmanChris Cannon introduced a bill it would have created a federal commission to look at how to regulate it. Not so much from the standpoint of guaranteeing morality but from the standpoint of guaranteeing consumer protection, protection against gamblers gambling online, protection for problem gambles, but also to make sure that whatever billion dollars are wagered on the Internet from the United States some economic benefit and some tax revenue accrues to the United States.
HAFFENREFFER: OK. We’re going to go to the first phone call of the discussion here to Andy in the state of Michigan with a question. Hi, Andy.
CALLER: Hi.
HAFFENREFFER: what’s your question?
CALLER: Well actually I was -one other guy. He got it. Almost $200 on gambling and we think this (INAUDIBLE) tax is just like funny game. But once we go and click OK and they start us buy the online service. And online service like (INAUDIBLE) Harris are our credit card numbers and they charge us on our account and. And we never know they’re charging us. So we feel all Internet gambling should stop totally because no one knows if it’s game or it’s real.
HAFFENREFFER: Yes. And I guess that’s one of the problems. Eric maybe you can speak to this first. Initially here the government as already gone as far as to try to prevent you from using those online payment services to go ahead and gamble. What’s your sense about Internet fraud and how that enters into this game.
GOLDMAN: I think that the bill is still pending in the Senate. The house has passed he law and we’ll see if Congress can actually get that law through. I think it remains to be seen if in fact it will be able to do so. I have some discomfort with the idea of putting financial services at the apex of attacking the problem. I’m not sure that they’re as well equipped to do it as the government may think they are and putting the burden on them also would mean that they’re going to have to build out an infrastructure to police he system, which is going to end up costing consumers more money to attack the problem.
HAFFENREFFER: Dan how would the International Gaming Counsel like to see credit card companies and online payment Web sites, I guess, involved in online gaming or wouldn’t they?
WALSH: Well, I think probably about as much as most people would like to have their credit card company be the morality police in their life. We’re opposed to that legislation. One, we don’t think it will work. It will drive settlement from one form, that is primarily credit cards to other forms, which are less transparent. We don’t think it will work. But what it will do is be another step towards prohibition in the United States, which means there will never be a legal licensed regulated industry in the US. There will only be an offshore, unlicensed, unregulated industry in the US. I should say unlicensed, unregulated by a US authority. They are licensed and regulated in the jurisdictions where they operate. Places like the UK and Australia. But the US could extend protection to people like the caller if there were US licensed and US regulated sites..
HAFFENREFFER: OK. Let’s go to another phone now to Bob in Florida. Hi, Bob.
CALLER: How are you, sir?
HAFFENREFFER: Good.
CALLER: I just want to say I think it would be a great idea to have gambling on the Internet and have it controlled by the government so that the average person – everyone enjoys, I know a lot of the guys that I hang with enjoy getting on, making a small wager. And a lot of them don’t do it because they’re afraid of all the fraud that goes on going out of the government. I think that if our government could control it, tax it reasonably it would provide a lot of people with some fun things I think. I’m just for it. I know I’d enjoy it on a Sunday afternoon being able to place a small wager, you know just (INAUDIBLE) Almost like the office pool is how it’s popular and it’s fun and if you could keep it like that it would be great.
HAFFENREFFER: Yes. And certainly a lot of people do enjoy gambling. What’s striking to me was the fact that we have seen the companies that own the major casinos in Vegas and Atlantic City and other places as well sort of be split on how to feel about online gaming. Eric, as you look at the issue, I guess the major casino companies sort of want to hedge their bets because at some point they’re going to want to have an online system, right?
GOLDMAN: Oh, there’s no doubt about it that they want to. In fact, there were initiatives to do that. MGM launched a Web site in fact and had to turn it off because it was concerned about the legal implication. So, they’re chomping at the bit to get into the industry. And I think from a gambler’s perspective that probably would be a good thing. At the moment now they have to gamble with Web sites that they really don” know and trust. They certainly would like to have the brand associated with major casinos behind them.
HAFFENREFER: Sure. OK. Another phone call now to Kim in North Carolina. Hi, Kim.
CALLER: How are you doing?
HAFFENREFFER: Good.
CALLER: My question is why is it that if the government can’t get a piece of something it’s deemed to be wrong and illegal and if they get compensated for it that it’s perfectly OK and accepted with the masses?
HAFFENREFFER: Good question. Dan do you want to take that one?
WALSH: Well, it’s not a question of whether Internet gambling is right or wrong it exist and it will exist. People will find ways to do it. There’s plenty of sports betting in the United States even though sports betting is illegal outside the state of Nevada. Plenty of people can place a bet on a sporting event. But as long as it exist it might as well be something that provides economic benefit to the US and revenue to US jurisdictions. I don’t think it’s made right or wrong by the involvement of the US or federal or state governments.
HAFFENREFFER: OK. Another phone call now out to David in Wisconsin with a question. Hi, David.
CALLER: Yes. More of a comment than a question. We all know that gambling is there. It’s going to continue and I would like to see a way that our government could tie it in unless the books out in Las Vegas go ahead – go online, get a little tax money and get a little more control of it because we do know or people on (INAUDIBLE) night may not know some offshore places where people have placed their bets have gone belly up and people did not get their money. And that unregulated (INAUDIBLE) could rip people. That’s my comment.
WALSH: Can I speak to that, David?
HAFFRENREFFER: Yes, please.
WALSH: The Interactive Gaming Counsel is a trade association that’s designed to provide protection for consumers who want to wager online. It’s — the companies have to pass a test for financial solvency, for prohibity. Their games have to be shown to be fair in order to get the IDC bug. We’ve gone as far as we can go with industry regulation in creating the Interactive Gaming Counsel. And a site that has the IDC bug on its site, I can tell you, is a site that will pay out its winnings and that has been in business and has the resources to continue to exist. But industry regulation can’t take the place of government regulation. The best outcome for U.S. players would be for the U.S. government to step up, recognize that this exists, and to assume a role of a protector for consumers.
HAFFENREFFER: And that protection is needed. Most of the Internet gambling sites, we understand, are based outside the U.S., and yet 40 percent of all the online gamers are Americans. And obviously, that does present the issue of accountability at this point. And if you’re saying the IGC is going to be the sort of clearinghouse for an upstanding Web site, is there any other way for people to sort of make sure where they’re going is an upstanding operation?
WALSH: Well, they can look at the licensing jurisdiction, certainly. There are operations licensed in certain places in the United Kingdom, the Isle of Man, Alderney in the Channel Islands, Australia. Antigua and Curacao have recently brought their gaming regulation into line. Those are the top tier of regulating jurisdictions as well as out of Canada, the Kahnawake Mohawks. If you look at the licensing jurisdiction, it will tell you a little bit about the site. If the site doesn’t list its licensing jurisdiction, that should be a source of concern for a player.
HAFFENREFFER: Eric, what are the big challenges here for Congress, then, when they get back to this issue that you see in the near term?
GOLDMAN: I think they’re caught between a panoply of political forces. You have the problem of casinos being split: some casinos favoring online gaming because they’d like to get into it, others opposed to it because they’re concerned about it cannibalizing their existing business. You have the law enforcement generally favoring different forms of criminalization because they want to use this as a tool to go after the terrorists or the money launderers or the other elements that they’re concerned about. And then you have the American public, who really doesn’t have a great voice in this discussion that may very well favor much more liberalization with regulation so that they have competent (ph) safety (ph) in their decision- making. And I’m not sure that that voice is easily heard at the table.
HAFFENREFFER: Interesting subject. Thank you both for being a part of it.
GOLDMAN: Thank you.
WALSH: Thank you.
HAFFENREFFER: Eric Goldman from Marquette University Law School, and Dan Walsh from Williams Mullen Strategies.
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