New Internet Threat: Casinos
September, 1997
by Sean Hackbarth
If you don't like all the lights, sound, and endless commercials proclaiming how you can get rich quick from casino gambling, beware what is available directly in your home if you own a computer with an Internet connection. Like it or not, virtual blackjack tables, roulette wheels, slot machines, lotteries, and sports bookies are available 24 hours a day to satisfy any gambler's craving. From online lotteries in Europe with gaming proceeds going to the International Red Cross, to the U.S. Lottery's World Wide Web site run by an Indian tribe in Idaho, to fully functional casino games running from computers in the Caribbean, gambling via the Internet is here and ready to expand.
With the Internet's virtual world penetrating into everyday life and the ferocious spread of gambling in the real world, it comes as no surprise that online casinos have appeared. Outfits have set up computers overseas in gambling friendly countries like Antigua, Belize, and Liechtenstein. These companies can then claim that their service is legal since online gambling is allowed there.
Why are online casinos such a tempting financial proposition? One reason is the low startup cost. The costs of setting up an online casino are enormously lower than the costs of their physical cousins. To erect a physical casino game space, hotel rooms and auditoriums for special events must be built at costs ranging from a few million for an Indian casino to over a billion dollars for some of Las Vegas' more spectacular projects. Constructing the actual building is only the first cost. Employees still need to be hired, security systems need to be installed and maintained, and the customers must be kept happy with perks like complementary drinks and cheap buffet meals. To set up an online casino, all that is needed is only a few thousand dollars worth of computer hardware and software and some phone lines connecting their computers to cyberspace. Online operations do not need to worry about cleaning the carpets, stocking the bars, and with computer technology, security is simply a matter of installing adequate software and making sure someone locks the doors to the office.
The low startup costs are not the only motive for building virtual casinos. The vast potential revenue is a powerful incentive to get on the Internet. Scott Smith, director of the digital commerce group at Jupiter Communications roughly estimates that online gambling takes in $300-500 million in annual revenues, and Kevin Mercuri of the Interactive Gaming Council predicts online gambling will grow into a $10 billion annual industry.
In Minnesota, officials are working on preventing home computers from turning into, as Attorney General Hubert "Skip" Humphrey III put it in a New York Times op-ed piece last year, "an unregulated casino."
The Attorney General's office is working on a case involving Las Vegas-based Granite Gate Resorts. Granite operates the WagerNet web site which, when operational, will let gamblers arrange sports bets online.
WagerNet claims on its web site that anyone can legally bet with its service since it is located in Belize. However, Joe Newton, a lawyer in the Attorney General's Gambling Division, disagrees, saying federal law bans gambling over phone wires and state law bans off-track betting, and these laws also apply to gambling on the Internet. Kerry Rogers, president of Granite Gate Resorts, argues that WagerNet does not advertise to Minnesotans. Ramsey County District Judge John S. Connolly disagreed in his opinion last December. Judge Connolly wrote that by advertising on the Internet "that advertisement is available 24 hours a day, seven days a week, 365 days a year to any Internet user until the Defendants take it off the Internet." This includes Minnesota users.
The Attorney General also contends that WagerNet's claims constitute fraud. In a court brief Humphrey writes, that "WagerNet . . . advertising in Minnesota explicitly and implicitly represents that betting is lawful. Therefore, [WagerNet] violate[s] the Minnesota Consumer Protection statutes which forbid false advertising, deceptive trade practices and consumer fraud."
Humphrey charged, "These interstate gambling activities are illegal under state and federal law. We must be able to enforce our laws to prevent homes with computers from being turned into uncontrolled cyber-casinos."
Tom Prichard, executive director of the Minnesota Family Council (MFC) opposes this type of expansion of gambling. "Internet gambling is a cyber vice that should be stopped," Prichard commented.
One concern is the ease people now have to place bets at home, eliminating the need to go out physically to a casino or to buy a lottery ticket. "No longer will people have to leave their house to gamble. Compulsive gamblers can safely feed their addiction in the comfort of their own home," said Prichard.
Another concern is with cyber-casinos being located far away from Minnesotans who must bear the brunt of gambling's many side effects. "Virtual bookies and virtual dealers violate Minnesota from without and take no responsibility for cleaning up the problems they create within. This is totally unacceptable-virtual gambling creates real problems," said Prichard.
Prichard would like to see passage of the Internet Gambling Prohibition Act of 1997. S. 474, sponsored by Senators Kyl (R-AZ), Feinstein (D-CA), Hutchinson (R-AZ), Grassley (R-IA), and Johnston (D-SD), would ban Internet gambling from the United States and make it illegal to run Internet gambling enterprises or to gamble via the Internet. This legislation would strengthen the current laws against gambling over phone lines by applying the law to Internet gambling.
"We're calling on Congress and the President to act swiftly to eliminate this sinkhole from the Information Superhighway," concluded Prichard.
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