Internet Gambling Legalization Bid Seen as Long Shot

Aug. 2, 2010— -- A movement to legalize online poker and other forms of non-sports betting cleared a major hurdle when a key bill passed the House Financial Services Committee July 28.

But final passage of the measure is still being viewed on Capitol Hill as a crap shoot at best. "This is, by no means, a sure thing," said a senior staffer on the financial services committee. "In fact, I'd call it a long shot."

That's because the window to get anything passed is quickly closing. Congress is set to take a seven-week recess, leaving a two-week window in late September before the session breaks again prior to mid-term elections. And then there is the looming possibility of a lame duck session which, which according to the Financial Services Committee staffer, does not bode well for passage of anything.

Pairs Bet

Additionally, Rep. Barney Frank, D-Massachusetts, the committee's chairman and chief sponsor of the measure, H.R. 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act of 2009, has stressed he wants that bill to go forward paired with a separate piece of legislation, H.R. 4976, the Internet Gambling Regulation and Tax Enforcement Act of 2010. Sponsored by Rep. Jim McDermott, D-Washington, this bill would establish a framework for taxing Internet gambling, including industry profits and individual's winnings. Proponents say legalizing online gambling might raise $10 billion to $42 billion in new government revenue over 10 years, according to the Joint Committee on Taxation. The House Ways and Means Committee has yet to mark up McDermott's bill.

Getting McDermott's companion bill through Ways and Means, and then having both that bill and Rep. Frank's bill pass in the House, and then the Senate, all in that brief September window, while not impossible clearly looms as a tall order, conceded John Pappas, executive director of the Poker Players Alliance, a Washington, D.C.-based lobbying organization. "We are not talking about an easy task," Pappas said.

The Menendez Card

Pappas did, however, point to yet another bill, to legalize online poker, coming together in the Senate. It could sneak through in a lame duck session, Pappas said. The bill, sponsored by Sen. Robert Menendez, D-N.J., has not yet had a hearing.

Meanwhile, as the debate rages on full tilt, opponents of online gambling continue to point to a host of negative societal ramifications that to them appear to be a sure thing should legalization come to pass.

"Internet gambling's characteristics are vastly different than those of other forms of gambling," said Rep. Spencer Bachus, R-Ala., during a hearing held July 21. Bachus is the ranking GOP member on the Financial Services Committee and perhaps the country's most vociferous opponent of Internet gambling.

"Online players can gamble 24 hours a day from home," he said. "Children may play without sufficient age verification. Betting with a credit card can undercut a player's perception of the value of cash, leading to addiction, bankruptcy and crime."

'Click the Mouse, Lose Your House'

Youth are particularly at risk, Bachus said, because "when you put a computer in the bedroom or dorm room of a young person, the temptation is too great for many of them to resist."

Quoting John Kindt, a professor of business administration at the University of Illinois, Bachus went on to label Internet gambling "the crack cocaine" of betting. "It's 'click the mouse, lose your house,'" he said.

By some estimates, as many as 15 million Americans play poker online for money. Online gambling is thought to generating at least a $6 billion in profits annually.

According to a May 2009 Gallup poll, 58 percent of Americans called gambling "morally acceptable," while 36 percent called it "morally wrong." But there are concerns. In a Pew poll in 2006, 70 percent said they think legalized gambling encourages people to gamble more than they can afford. Six percent said gambling has been a source of problems within their family.

Compulsive Betting on Rise

A spokesman for Gamblers Anonymous (who in keeping with the organization's hallmark asked that only his first name, Chuck, be used for this article) said GA has no formal opinion on the effort to legalize Internet gambling, and that they do not comment on public policy issues. But asked whether the proliferation of online gambling sites has swelled the ranks of compulsive gamblers seeking help, Chuck said, "the answer is, unequivocally, yes."

Chuck had no hard data to support this assertion, only anecdotal evidence. "More and more people are coming into the program and telling us they became addicted online."

Shawn Jordon, a former compulsive gambler, cofounded a gambling addiction self-help website in 2006. He says around 1,000 people visit the site every day. Jordon said he has gathered data from all over the world suggesting that gambling addiction is soaring.

What Happens in Vegas is Now Everywhere

Historically, Jordon said, looking at any given community, whether a town with 100,000 citizens or a city of one million, various data has suggested that around 5 percent of a population would be considered "problematic" gamblers, that is, they gamble beyond what would be considered recreational. Of those, Jordon said, an estimated 10 percent would be considered "compulsive" gamblers who can't stop and in many cases rack up enormous debts. In recent years, according to Jordon, that smaller subset of clinically compulsive gamblers has been exploding.

"So in the example of a small town with 100,000 people – instead of there being just 500 compulsive gamblers the number is now closer to 5,000," Jordon said. "That includes people who play lottery tickets, use Indian casino poker machines, go to the race track, you name it," Jordon said. "Once upon a time what happened in Vegas stayed in Vegas. Gambling has proliferated to the point where sadly that is no longer the case."

Litany of Loopholes

Jordon, who resides in Calgary, says he is not opposed to the legalization of Internet gambling. "There's no way to stop it," he said. "The genie is out of the bottle. All we can do is help people."

In the mid-1990s, Congress created the National Gambling Impact Study Commission which in 1999 issued a final report calling for a ban on Internet Gambling. While the federal Wire Act of 1961 expressly prohibits sports betting and other forms of gambling, peer to peer gambling, such as online poker, fell into a gray area. In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act, a law aimed at discouraging financial institutions from transacting with online gambling operations. The law, subject to numerous delays and postponements, officially took effect June 1.

However, because of the various means of getting around the measure – offshore credit card accounts, prepaid credit cards, to name two examples – the Internet poker industry continues to thrive, said PPA's Pappas.

The law doesn't specifically ban banks from transacting with online poker sites; rather, it merely requires that banks take proper steps to make sure that they do not facilitate any illegal gambling transactions. Embedded in the law is what amounts to a safe harbor, so that banks that wish to transact with an online poker business simply needs a reasoned legal opinion that their client is not involved in restricted transactions, Pappas explained. Sports betting activity, expressly prohibited by the Wire Act, would not fall into this category. Online poker, which is not expressly prohibited, would not.