Insight on the News: Lotto goes electronic - regulating gambling on the Internet and through other f

It was inevitable: On-line gambling has hit the Internet and lawmakers are confused.

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A company in Silver Spring, Md., has opened one of the first Internet game sites to offer cash prizes -- up to $1 million -- and already more than 100,000 users have taken a peek or played an electronic "scratch and win" card. But RealTime Prizes Network Inc. is just one of many companies intent on bringing gambling and promotional gaming into the home through various communication mediums. For instance:

* LottoFone of Alexandria, Va., is seeking contracts from state lotteries and the District of Columbia to allow people to buy tickets over the phone.

* On-Demand Services is testing a system that allows Louisville, Ky., residents to monitor Churchill Downs races on cable TV and place bets from home. The company has signed a deal with the Maryland Jockey Club to test the system in that state.

* Internet Casinos Inc., based on the Caribbean island of St. Martin, takes keno, blackjack and sporting wagers over the computer. The year-old company has taken in more than $100 million through its virtual casino, according to chief executive Warren Eugene.

State and federal officials have been caught short. "The technology is light-years ahead of the law," says Andrea Johnson, Maryland's assistant attorney general in charge of the lottery laws. "Most of the attorneys general are going to start to be more aggressive" on Internet gaming, she says.

Although it isn't clear how gambling laws apply to the Internet, the Maryland attorney general's office is investigating RealTime to see if it breaks any gaming laws. While state laws vary, most gambling games involving pure luck, including bets on sporting events, are banned over telephone lines. Federal laws also bar most wagering over telephone lines.

But most of RealTime's contests are promotional games similar to scratch-and-win cards offered by gas stations or fast-food chains. RealTime's trivia contest, in which players answer questions in various categories, is considered a game of skill, which is legal in most states. "We're convinced that [RealTime] is totally legal," says Martin Cohen, a principal attorney at Cohen & Silver in New York, which has provided legal advice to RealTime.

The Justice Department has authority to prosecute electronic gambling cases but is deferring to states, says John Russell, an agency spokesman. The department has no jurisdiction in cases of overseas gambling operations, such as the one on St. Martin. The Minnesota attorney general's office, however, may pursue Internet Casino because much of the company's revenues come from U.S. residents. Experts say Minnesota would lack jurisdiction. "That's a problem for the [United States] to take up with its residents," says Eugene. "We're not out to challenge U.S. laws."

The case is being watched closely by state attorneys general across the nation, who have formed a task force to study the growth of Internet gambling, says Maryland's Johnson. Congress also is wrestling with the gambling laws; a bill that would create a national gambling commission has passed the House and is pending in the Senate. Electronic gambling "is crossing state and international boundaries," says Rep. Frank Wolf, Virginia Republican and sponsor of the bill. "The last [gambling] commission was in 1976 and since that time everything has changed."

Some say Internet gambling still is very limited. "A lot of these guys are talking a big game, but they're not doing much," says David Herschman, chief executive of Virtual Vegas Inc., a Santa Monica, Calif., company that allows Internet users to play casino games for fun and soon for prizes, mostly as a marketing vehicle to attract computer users. "The real question is: If people are doing it overseas, why should it be illegal in the U.S.?"