This summer I am writing an article on the regulation of sales of securities and regulation of gambling, with a particular comparison of online gambling and online securities trading. One issue that has struck me in reading up on the history of gambling in the U.S. is the level and pervasiveness of gambling that is clearly against the law. As every NCAA tournament office pool participant knows, many of us have participated in illegal gambling to a small extent. However, illegal gambling also occurs on a much larger scale every day. In fact, one of the arguments against legalizing casino gambling in a particular states will surely be that legal gambling actually increases the level of illegal gambling in a certain territory, with illegal games benefitting from the interest in gambling generated by legal casinos. Unless illegal gambling rings lead to other crimes, law enforcement generally turns a blind eye to this consensual crime. (See Bridwell & Quinn, From Mad Joy to Misfortune: The Merger of Law and Politics in the World of Gambling, 72 Miss. L. J. 565 (2002) for an interesting case study of illegal video poker in South Carolina.) Internet gambling brings this issue to the forefront as anyone can find "some action" on the Internet in 0.6 seconds. In the U.S., these games are illegal, although most laws do not focus on the gambler. However, other countries have not been as restrictive in this area. Today, Orin Kerr gives a great primer on the federal attempt to regulate Internet gaming via the Wire Act.
The NYT reported on Sunday about the IPO of PartyGaming PLC on the London Stock Exchange. Orin links to the BBC (free access) article. Here is a company whose entire business plan assumes that people in the U.S., who make up 90% of its customer base, will continue to play illegally. And, in the event that a state or federal regulator in the U.S. gets upset about this, PartyGaming relies on the fact that prosecuting this case against an entity not subject to service of process in the U.S. will be complicated and expensive for the regulator to pursue, much less win.
The question that interests me the most is why the U.S. wants to continue to prohibit Internet gambling. In the past 20 years, every state but Hawaii and Utah have legalized some form of gambling, from lotteries to video poker to casino gambling. So why the stumbling block here? One word: money. The legalization of gambling is closely tied to money. States legalize gambling when the coffers are empty. Nevada legalized casino gambling in 1931. Many states created lotteries during the slow economic years of the late 80s and early 90s. The biggest argument for the legalization ofcasino gambling or Indian casino gambling is tax revenue. Where's the revenue in Internet gambling? If the U.S. or a state declares it legal for residents to max out their credit cards on the PartyGaming site, then that money is gone forever. And, as long as owners of these websites can set up their website anywhere on the globe, they won't choose their home jurisdiction that wants to subject them to a higher tax. There's no government revenue in Internet gambling, and moreover, Internet gambling may take dollars away from revenue-generating gambling like casinos.
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