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Best of I. Nelson Rose

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Will The Internet Gambling Prohibition Act Actually Prohibit Internet

12 December 1999

The campaign to outlaw Internet gambling in the United States is inching toward victory. It was given a boost by the National Gambling Impact Study Commission's Final Report, which had nothing nice to say about at-home betting of any kind.

But politics is the art of compromise. The authors of the proposed Internet Gambling Prohibition Act have carved out so many exceptions that the bill may be opposed by federal law enforcement officials in the Department of Justice.

It did not start out that way.

In 1995 Senator Jon Kyl (R.-Arizona) circulated a proposed bill that would outlaw everything related to gambling on the Internet. This first draft of what has come to be called the Kyl Bill for short was so broad that it was probably unconstitutional. A bingo hall would have been committing a felony simply by posting the times and days of its sessions on the web.

Everyone agrees that Congress needs to rewrite the present law, principally the Wire Act, which was enacted in 1961. This statute was designed to go after illegal bookies, so it uses terms like "wire communication facility," meaning telephone and telegraph, and "transmission... of bets or wagers on any sporting event or contest."

It is unclear whether the Wire Act applies to other forms of gambling, like casinos, bingo and lotteries. In recent Senate testimony a representative of the Department of Justice admitted that the Wire Act "may relate only to sports betting and not to the type of real-time interactive gambling (e.g., poker) that the Internet now makes possible."

By its own term, the Wire Act applies only to gambling businesses that use a wire that crosses a state or national boundary. Developments in satellite and radio technology have made it possible to be "on-line" without having a physical line connecting the home computer to a central server.

The evolution of the Kyl Bill is a classic example of how laws are made. Only those groups that have a political presence in Washington D.C. have had their special interests protected. Legal gambling operations that do not have lobbyists in the Capitol have no more influence with Congress than illegal operators.

As it is now written, the Kyl Bill still has a broad prohibition on all forms of Internet gambling. Anyone involved in a gambling business would face up to four years in prison for knowingly using any interactive computer service "to place, receive, or otherwise make a bet or wager; or to send, receive, or invite information assisting in the placing of a bet or wager."

But the Kyl Bill carefully defines "bets or wagers" to exclude everything from stock and commodity futures to certain forms of sports betting. State lotteries, horse racing and even fantasy sports leagues are also specifically exempt, under certain circumstances, from the prohibition on Internet wagers.

The result is that both legal and illegal gambling is prohibited from using interactive computers, with significant exceptions for powerful special interests.

For example, American state lotteries were able to win a concession allowing their cross-country games, like the Big Game, to continue. Lotteries in Australia and Liechtenstein, which run lotteries on-line, may soon be committing felonies if they sell tickets in the United States.

Provincial lotteries in Canada were similarly ignored and therefore are treated the same as illegal numbers games. This would make it illegal for state lotteries in the U.S. to ever join with other countries to run international games.

Horse and dog racing won greater protection. Betting on the Kentucky Derby is big business in Canada and Mexico and Churchill Downs will continue to be able to send its signal to foreign countries. Patrons of Hollywood Park will continue to be able to bet on tracks in Asia and Florida's dog tracks can legally take bets on races run in Russia.

The Kyl Bill would allow Nevada's licensed sports books to accept phone and computer at-home wagers, with one significant restriction: The bettor must be physically present in the state. The system must also be a "closed-loop subscriber-based service," meaning no direct connection with the Internet. However, modems can dial this service, hang-up and then dial an Internet site so swiftly that no one will be able to tell the difference.

Indian gaming would be a big loser. The Indian Gaming Regulatory Act clearly allows linked interstate bingo games, but the Kyl Bill does not contain an exemption for these Class II games. Tribes would no longer have the right to take bets from at-home bingo players using proxies. Internet lotteries, bingo games and casinos would be outlawed.

State lotteries, on the other hand, could accept bets by computer on their own or multi-state games, provided the lottery player has to go to a facility open to the public.

Horse and dog racing would be the big winners. Few off-track betting facilities have been willing to accept at-home phone and computer bets from other states for fear of violating the Wire Act. The Kyl Bill would make out-of-state computer wagers legal, at least under federal law, so long as the wager is placed on a closed-loop service and is "initiated from a State in which betting or wagering on that same type of live horse or live dog racing is lawful."

Internet casinos are completely outlawed. But since it may be technologically impossible to completely block the Internet, banning Internet gambling may be like trying to stop the wind.

Recent Articles
Best of I. Nelson Rose
I. Nelson Rose

Professor I. Nelson Rose is an internationally known scholar, public speaker and writer and is recognized as one of the world's leading authorities on gambling law. A 1979 graduate of Harvard Law School, he is a tenured full Professor at Whittier Law School in Costa Mesa, California, where he teaches one of the first law school classes on gaming law.

Professor Rose is the author of more than 300 books, articles, book chapters columns. He is best known for his internationally syndicated column, "Gambling and the Law ®," and his landmark 1986 book by the same name. His most recent book is a collection of columns and analysis, co-authored with Bob Loeb, on Blackjack and the Law.

A consultant to governments and industry, Professor Rose has testified as an expert witness in administrative, civil and criminal cases in the U.S., Australia and New Zealand, and has acted as a consultant to major law firms, international corporations, licensed casinos, players, Indian tribes, and local, state and national governments, including Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas and the federal governments of Canada and the United States.

With the rising interest in gambling throughout the world, Professor Rose has spoken before such diverse groups as the F.B.I., National Conference of State Legislatures, Congress of State Lotteries of Europe, United States Conference of Mayors, and the National Academy of Sciences. He has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.

He is the author of Internet Gaming Law (1st & 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials.

I. Nelson Rose Websites:

www.gamblingandthelaw.com

Books by I. Nelson Rose:

Gambling and the Law

> More Books By I. Nelson Rose

I. Nelson Rose
Professor I. Nelson Rose is an internationally known scholar, public speaker and writer and is recognized as one of the world's leading authorities on gambling law. A 1979 graduate of Harvard Law School, he is a tenured full Professor at Whittier Law School in Costa Mesa, California, where he teaches one of the first law school classes on gaming law.

Professor Rose is the author of more than 300 books, articles, book chapters columns. He is best known for his internationally syndicated column, "Gambling and the Law ®," and his landmark 1986 book by the same name. His most recent book is a collection of columns and analysis, co-authored with Bob Loeb, on Blackjack and the Law.

A consultant to governments and industry, Professor Rose has testified as an expert witness in administrative, civil and criminal cases in the U.S., Australia and New Zealand, and has acted as a consultant to major law firms, international corporations, licensed casinos, players, Indian tribes, and local, state and national governments, including Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas and the federal governments of Canada and the United States.

With the rising interest in gambling throughout the world, Professor Rose has spoken before such diverse groups as the F.B.I., National Conference of State Legislatures, Congress of State Lotteries of Europe, United States Conference of Mayors, and the National Academy of Sciences. He has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.

He is the author of Internet Gaming Law (1st & 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials.

I. Nelson Rose Websites:

www.gamblingandthelaw.com

Books by I. Nelson Rose:

> More Books By I. Nelson Rose