Casino Industry Seeks Online Gambling Study

Published July 1, 2006

The American Gaming Association (AGA) may be softening its stance against online gambling.

In a statement following an April 26 meeting of the AGA board, President and CEO Frank J. Fahrenkopf, Jr. said, “While it remains neutral on all pending legislation on this issue, including bills advocated by Reps. Jim Leach (R-IA) and Bob Goodlatte (R-VA), and Sen. Jon Kyl (R-AZ), the AGA board now strongly supports the creation of a one-year Congressional study commission that would evaluate the impacts of online gambling.”

Evolving Technology

AGA spokesperson Holly Thomsen said the organization, which represents U.S. brick-and-mortar gambling casinos, has long been opposed to online gambling “in principle” and neutral on industry-related legislation. The AGA last year began discussing whether its opposition in principle to online gambling should be changed. Thomsen said this is largely because new technologies that have been developed since the advent of online gambling may make regulation and oversight more tenable.

“We didn’t believe technology existed to provide for rigorous enforcement and oversight” of online gambling, Thomsen said. “But it’s been more than a decade since online gambling has come on the scene, and there have been a lot of improvements in technology.”

She also said there is no indication online gambling has taken money out of traditional casinos.

On May 23, the AGA released a study of the issue that calls for the Congressional commission advocated by the board. One day later Rep. Jon Porter (R-NV) introduced the Internet Gambling Study Commission Act, to establish a commission to examine the impact of online gambling. The bill has 42 co-sponsors.

“With technology constantly evolving, we need a much better understanding of online gambling before Congress makes any rash decisions about its future,” Porter said in announcing the bill. “By establishing a bipartisan, independent study commission, we’ll make sure we have all of the facts laid out on the table before considering any possible next steps.”

Growing Industry

Online gambling has mushroomed in recent years, growing about 20 percent a year, to an estimated $12 billion of revenues to the online gaming operators in 2005, according to Thomsen. More than $4 billion of that amount is accounted for by online gamblers in the U.S.

The amounts wagered far exceed the revenues. U.S. online gamblers placed about $145 billion in bets in 2005, approximately half the total amount wagered online. The estimated $4 billion of revenue from U.S. online gambling represents the “hold,” the amount kept by the online casinos after gamblers’ gains and losses are totaled up.

The AGA study, “An Analysis of Internet Gambling and its Policy Implications,” notes those billions of U.S. dollars were bet at off-shore, non-U.S. entities. The U.S. Department of Justice and several state governments have held that Internet gambling is illegal in the United States, but offshore purveyors of online gambling apparently have little trouble attracting U.S. citizens.

“By driving all Internet gambling business to foreign entities, the current regime also ensures that no jobs are created for American workers, no returns are earned by American companies, and no tax revenues are paid to American governments,” wrote study author David O. Stewart, an attorney at Ropes and Gray, LLP, in Washington, D.C.

Legal in the U.K.

The United Kingdom recently legalized online gambling in hopes of regulating the industry and boosting tax revenues. Several online gaming companies are now publicly traded on the London Stock Exchange and subject to British securities trading regulations. As a result, characterizations such as the statement by Goodlatte, who described online gambling companies as “offshore, fly-by-night Internet gambling operators,” appear overwrought.

In a May 15 article for Business Week, London bureau reporter Kerry Capell wrote, “Parliament has enacted sweeping new legislation that will open up the online market, starting next year, to traditional casino games such as poker, blackjack, and roulette. Britons already play such games by the millions, but the companies offering them are based in offshore tax havens such as Gibraltar, the Channel Islands, and Costa Rica. The government hopes that by becoming the first country in the developed world to legalize online gambling, it can lure offshore outfits to locate on British soil and pump even more revenues into public coffers.”

U.S. lawmakers continue to be leery. Current laws prevent U.S. credit card companies from processing transactions from online gambling sites. New legislation aims to restrict foreign currency transfers via third parties.

At the state level, the Washington state legislature voted in March to make online gambling a Class C felony–equivalent to sexual assault and armed robbery and punishable by a minimum of five years in jail. Washington permits tribal casinos and has a state lottery.

Steve Stanek ([email protected]) is managing editor of The Heartland Institute’s Budget & Tax News.

For more information …

The full text of “An Analysis of Internet Gambling and its Policy Implications” is available at the American Gaming Association’s Web site at