Insight on the News: Cyber gambling proves dicey for bettors, regulators alike

Alarmists fear that the Internet will turn into an electronic hotbed of illegal gambling, racketeering and fraud. Even skeptics agree that the technology raises problems not addressed by existing law.

As one of America's fastest-growing businesses, gambling seems to have penetrated nearly every corner of the country. State governments routinely look to legalized gambling to bolster revenues -- lotteries are ubiquitous. It seemed only a matter of time before gambling moved into cyberspace.

More than 600 sites exist on the World Wide Web in which gamblers can discover the latest spreads on sports contests or learn how to better their winnings at poker. But there's no need to return to the real world to bet on a football team or the ninth race at Belmont. The Web offers sites in which players can try their luck at high-stakes blackjack without ever leaving their computers.

With a couple of clicks of a mouse, online gamblers have the opportunity to place bets with casinos operating offshore in countries such as Ireland and Monaco, even if they live in a state such as Utah where gambling is prohibited. Given the growing popularity of a new and anarchic medium like the Internet, laws that long have regulated gambling rapidly are becoming obsolete. While state and federal regulators are alarmed, they are uncertain about what to do about it.

To get an idea of what the Web offers gambling enthusiasts--the industry prefers the word gaming--one only has to call up the Rolling Good Times home page. RGT, as it's known, is a year old and boasts 25,000 readers who regularly access the 130,000 pages of material available on its site. For the next six months, RGT is offering a blackjack school, advising card players that "virtually all blackjack games can be beaten--and quite a few are really a waste of your time since the possible rewards are outweighed by the risks involved in playing them." RGT also offers features on craps, video poker, sports betting, handicapping ("the ponies"), greyhound racing ("the puppies") and on-line gambling. There even is a site called the "Show Me Pages" devoted to "a collection of Missouri gambling activities."

Gamblers who want to bet can access sites such as Sports International, based in Antigua, West Indies, putting down money from a preestablished account. There also is a national Internet bingo game (operated by 50 American Indian tribes twice a day Monday through Saturday) that relies on a "proxy-play service": An individual ("proxy") in a bingo hall purportedly plays the card on behalf of the player. A nationwide lottery on the Internet is due early next year.

The most sophisticated gambling on the Internet takes the form of on-line casinos (usually located offshore) that use complex mathematical formulas and algorithms to determine the outcome of every "virtual" roll of the dice or spin of the wheel. Internet Gaming Technologies Inc., for example, is promoting a "telephony-based 'virtual casino' entertainment which offers a full line of Las Vegas-style casino games, on-line shopping, chat lounges, member parties and travel incentives." So far, few of these Internet casinos and sports-book operations are up and running, mainly because of technical hitches. A player who takes a hit during a game of blackjack, for example, often has to wait 10 to 20 seconds while the home computer communicates with the host computer. But no one expresses any doubt that these obstacles can be overcome.

In contrast to traditional casinos, where bettors gamble with chips for which they've paid in cash, on-line casinos still are struggling with various forms of payment. (This is a problem that affects many aspects of the Internet where goods are offered for sale.) Many users are reluctant to provide financial information over the Internet for fear of theft or fraud. To meet this challenge, several companies are developing a variety of on-line payment systems, all of which rely on the concept of "digital cash." Digital cash, unlike the real thing, usually takes the form of credit or debit cards which cannot be accessed unless the holder enters the correct access code. These cards also can be encoded to contain relevant information, like the age of the holder, to prevent underage gambling.

Security isn't the only problem for the virtual gaming industry. Players have no way to verify a casino operator's identity, much less to determine if he or she is honest or ethical. According to government sources, individuals who could not otherwise receive licenses from legal gaming jurisdictions are involved in the operation of Internet gambling sites. In the absence of regulation, there also is no guarantee that an operator won't tinker with the algorithms to make the outcomes more favorable to the house. Nor is there anything to prevent an operator from simply taking the money and running.

In June 1995, the National Association of Attorneys General, or NAAG, authorized the creation of the Internet Working Group, charged with "developing a response to various issues involving Internet activities." Until now, gambling has been regulated on a state-by-state basis, with little uniformity and minimal federal oversight. But state laws that extend jurisdiction over an offshore casino operator, for instance, are clumsy and ineffectual. In some states, it is illegal to advertise a gambling operation, but it is questionable whether courts will find jurisdiction over advertisers who take no subscription applications or payments.

Some regulators see phone-fraud laws as a precedent for on-line gambling regulation. They also suggest that cases could be built on the basis of existing consumer-protection laws. (A Minnesota court soon will hear one such case involving an out-of-state resident.) Extradition, too, is held out as a legal recourse, but many countries do not have reciprocal extradition treaties with the United States.

Hoping to call attention to potential abuses, the NAAG issued a report that recommended new state laws and tougher federal regulations to cover gambling on the Internet. Since the report was released, however, little progress has been made to this effect. Alan R. Kesner, Minnesota's attorney general who chairs the NAAG subcommittee on Internet gambling, admits little work will be done until after the elections. And even if new or amended laws are on the books, he points out, that doesn't necessarily mean a solution is in sight. Laws against gambling run into the same problems laws against drugs do. "The difficulty is enforceability."

Not surprisingly many of those associated with the gaming industry aren't convinced there is a problem, at least not on the scale envisioned by NAAG. "The report lacks credibility from almost the opening line," contends Glenn Barry a lottery management consultant who writes a regular column for RGT. He claims states are afraid that they won't get their share of taxes from gambling taking place beyond their jurisdiction.

"The writers of this report are trying to create a `now' threat when it is still a `maybe,"' says Barry, pointing out that a player has to go to great lengths to gamble on-line: First of all, he or she needs a computer. The player has to find a service provider, then he or she has to learn Netscape (a popular Web browser), then the player has to "wade through pages and pages of `Net noise' to find a site to gamble." He says he doubts whether more than a small percentage of the population ever will use the Net for gambling, intimating that it might come down to a few gambling-deprived souls in Utah and and other states in which gambling is illegal.

This is not to suggest that government regulators and the gaming industry necessarily conflict when it comes to the future of gambling on the Internet. Kesner says the NAAG is working closely with representatives of the industry to prevent abuses on-line. And evidence indicates that as companies seek to expand their gaming enterprises to the Internet, they increasingly are anxious to allay legal concerns. When a consortium announced plans recently to set up an online casino called Emerald Riviera (based in Ireland, naturally), it was quick to add that it also was establishing a code of ethics "which mandates such items as background checks, the requirement of local licensing and the commitment not to market where Internet wagering is illegal." It promised that all algorithms used to produce game outcomes would be audited by a Big Six accounting firm.

"We've been working hard to educate legislators about this new form of home entertainment and how to build in safeguards," says Kendall Lang of Casino World Holdings, a company investing in Emerald Riviera. "It's our intent to show regulators how this can be done legally." Says Kesner, "The legitimate gaming industry recognizes that bad blood and bad actors have a taint that they need to avoid."