Does Internet gambling strengthen the U.S. economy? Don't bet on it.

• Author: Hammer, Ryan D.

1. INTRODUCTION

   Commercial gambling in the United States is a mammoth industry. In the past few decades, the United States developed from a country with few gambling options to one permitting some form of legalized gambling in every state except Utah and Hawaii. (1) A series of incremental decisions by local and state governments paved the way for tremendous growth in the gambling industry. (2) Presently, a new wave of technology affects this industry. Legislators and regulators must deal with the phenomenon of Internet gambling--once dubbed "the crack cocaine of gambling." (3)

   The advent of the Internet introduced an entirely new medium for individuals to participate in gambling activities. Unlike traditional land-based casinos, the action at online casinos is perpetual and available to anyone with Internet access. (4) Many online gambling sites operate from locations such as Antigua and Belize, unsupervised by U.S. government regulators. (5) Perhaps the most frightening aspect of Internet gambling is the rampaging growth of the young industry. The Internet gambling explosion poses serious concerns to society.

   This Note asserts that Internet gambling must be curbed to lessen its negative impact on the American economy. Many state and local governments are dependent on tax revenues associated with traditional forms of gambling. Internet gambling not only deprives the economy of these valuable tax revenues, but also costs the economy valuable jobs and assorted fees associated with traditional gambling. In order to lessen its negative impact on the economy, Internet gambling must be more judiciously regulated in the United States.

   This Note provides a general overview of Internet gambling in Part II. Included in this section are discussions on the history of gambling, the current statutory landscape of Internet gambling, and relevant cases on Internet gambling. An analysis of the negative consequences of Internet gambling appears in Part III, followed by a discussion on viable options to curb Internet gambling in Part IV. This Note concludes in Part V with recommendations for limiting the negative effects of Internet gambling on the economy.

2. BACKGROUND ON INTERNET GAMBLING

   In order to understand the impact of Internet gambling in America, it is critical to understand how this phenomenon developed. This section begins with a broad overview of the history of Internet gambling. The overview discusses the legalization of traditional gambling in America, as well as the rapid increase in Internet gambling over the past few years. Next, this section analyzes the statutory landscape surrounding Internet gambling. This portion includes a detailed discussion on four laws, or proposed laws, that impact Internet gambling. This federal legislation includes the Interstate Wire Wager Act (Wire Act) and the Indian Gaming Regulatory Act (IGRA), as well as two failed bills--the Internet Gambling Prohibition Act of 1997 (IGPA of 1997) and the Internet Gambling Prohibition Act of 1999 (IGPA of 1999). Lastly, this section considers relevant Internet gambling cases. Due to the infancy of the industry, few Internet gambling cases have been tried. The cases that exist, however, possess broad implications for the entire Internet gambling industry.

   1. History of Internet Gambling

      Gambling predates America. According to some philosophers, gambling began in the Garden of Eden. Some have posited that Eve ate the infamous apple to settle a bet she made with the serpent about the number of seeds in the apple. (6) In America, different forms of gambling, notably lotteries, remained popular until the 1890s when lotteries and all other forms of gambling were made illegal by direct prohibition. (7) Gambling was reintroduced to Americans during the 1920s. During this time, gambling became more accepted due to the holding of bingo sessions by churches and the building of legitimate racetracks. (8) In 1931, gambling became completely legalized in Nevada to provide a replacement for lost revenues after the ore-rich mountains became depleted. (9) Until thirty years ago, the primary legal option for gamblers was to visit Las Vegas.

      During the 1970s Atlantic City, New Jersey legalized casino gambling. Over the past two decades, riverboat casinos, poker clubs, Indian reservation casinos, and state lotteries developed throughout the United States. (10) In 1997, Americans spent more money on gambling (approximately $50 billion) than on recorded music, theme parks, video games, and movie tickets combined (approximately $39.9 billion). (11) The ongoing development and increasing influence of the Internet led gambling interests to shift online. Thus, a new industry was born on August 18, 1995, when the first online casino, Interactive Casinos, Inc., began business. (12)

      The Internet is an international network of interconnected computers that was first contrived in the 1960s. (13) By the 1980s, the Internet grew to over 50,000 networks and was used for daily functions. (14) The Internet has grown tremendously in the past decade as individuals have utilized its wide variety of communication and information retrieval methods. (15) As a result, the accessibility and convenience of Internet usage have spawned a new method of gambling. Thanks to the Internet, gamblers can partake in their preferred choice of gambling from the confines of their homes. As the chairperson of the National Coalition Against Gambling Expansion stated, online gamblers can "literally click their mouse and bet the house." (16)

      In 2000, Internet gambling brought forth an estimated $2.2 billion in worldwide revenues, (17) a figure that dwarfed the estimated $300 million gambled online in 1997. (18) According to an article in the ABA Journal, online wagering could reach $100 billion a year by 2006. (19) Consumer spending on traditional gambling generated a $61.4 billion input to the U.S. economy in 2000. (20) Of that $61.4 billion, about thirty-four cents of every dollar, or more than $20 billion, was received by the government in the form of a gambling privilege tax. (21) It is estimated that more than 4.5 million Americans have gambled online at least once. (22) Online sports books presently collect more money from the Super Bowl than from all of the sports bookies in Las Vegas combined. (23)

   2. Statutory Landscape of Internet Gambling

      Gambling is traditionally regulated on a state-by-state basis, with minimal uniformity and little federal oversight. (24) One reason for this lack of uniformity lies in the great variation of philosophies among the states. Utah and Hawaii prohibit any form of gambling, whereas Nevada relies on gambling as a major source of revenue. Efforts to regulate Internet gambling are better addressed by federal legislation as it is difficult for states to adequately monitor and regulate such gambling. (25) The National Gambling Impact Study Commission recommended that states are best suited to regulate gambling in all but two areas: Internet gambling and tribal gambling. (26) Additionally, Internet gambling poses major challenges for local and state law enforcement authorities. Nonetheless, federal legislation does exist to regulate gambling in America. This legislation ranges from the generation-old Wire Act (27) to more modern attempts like the IGPA of 1999. (28)

      1. The Wire Act

         Congress passed the Wire Act in 1961 to prohibit individuals from utilizing telephone facilities to receive bets. (29) The Wire Act "most directly precludes efforts to use the Internet to communicate with U.S.-based gamblers." (30) The Wire Act criminalizes the use of "a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest...." (31) It is important to note that "[t]he language [of the Wire Act], on its face, is broad enough to cover Internet gambling." (32) Individual bettors, however, cannot be prosecuted under the Wire Act. (33)

         One major problem hampering the Wire Act's effect on Internet gambling is that it was enacted in 1961, when it was impossible to foresee what technological advances would be achieved. With the advent of wireless Internet access, uncertainty exists as to whether the Wire Act is applicable to a transaction performed on a wireless device. Due to advances in wireless technology, future legislation must address problems that were not conceived by the drafters of the Wire Act.

      2. Internet Gambling Prohibition Act of 1997

         The IGPA of 1997 represented one of many attempts by Senator Jon Kyl of Arizona to limit Internet gambling. The 1997 Kyl bill, which passed the Senate by a ninety to ten vote, (34) would have amended the Wire Act by penalizing the individual bettor. (35) The 1997 Kyl bill would have also enlarged the scope of the Wire Act to include any type of bet placed on the Internet. (36) Three levels of enforcement existed under the 1997 version of the IGPA. (37) These levels included fines, imprisonment, and a mandated elimination of the particular Internet gambling site. (38)

         The 1997 Kyl bill included exemptions for horse racing and fantasy sports. (39) The fantasy sports exemption excluded participation where "winners receive a prize if such participation is without charge to the participant or any charge is limited to a reasonable administrative fee." (40) Groups that were displeased with the 1997 Kyl bill included Native Americans and Internet service providers ("ISPs"). (41) Native American tribes were unable to gain an exemption for Internet lotteries. (42) ISPs were angered because the bill would have allowed federal authorities to terminate customer accounts that had participated in Internet gambling. (43)

         After passing in the Senate, the IGPA of 1997 had to be reconciled with a similar version from the House. The House Subcommittee on Crime approved the bill, but due to a shortage of time, the bill was...