Internet gaming, a losing proposition

It won't come as a surprise to you to learn that Nevada casinos usually get what they want from our state lawmakers. Thus, when high-powered casino lobbyist Harvey Whittemore asked the 2001 State Legislature for an Internet gambling bill, our elected representatives gave him and his wealthy clients what they wanted.

It wasn't one of the Legislature's finest moments even though the bill's proponents predicted a $230 million state revenue bonanza by next year.

Following last-minute passage of this flawed piece of legislation, fellow political columnist Jon Ralston accused lawmakers of acting like "a 63-member, rubber-stamping board of trustees for the Nevada Resort Association."

Flawed because Internet gaming is illegal under federal law and since it simply can't be regulated to the high standards required of Nevada gaming licensees, a fact recognized by the Gaming Control Board enforcement agents who would be in charge of regulating Nevada-based Internet gambling sites.

They recognize, as does Reno Congressman Jim Gibbons, that there's no way to prevent minors from placing bets over the Internet or to ensure that winners get paid off. And without effective regulation, the whole thing is a giant scam.

Money talks, however, and Nevada casino owners know that illegal Internet gaming will generate more than $4 billion worth of profits this year and that the shady business is expected to earn more than $10 billion by 2005. According to USA Today, "In less than a decade, the online gambling industry has morphed from an unheralded walk-on (sports terminology) to a multibillion-dollar-a-year powerhouse. Interactive Web sites instantly accommodate gamblers betting on sports teams or playing such casino games as poker and roulette."

And even though online gambling is illegal, that hasn't deterred virtual casinos or their gullible customers, mainly because most of the Web sites are located in the Caribbean out of reach of U.S. regulators.

Christian Capital Advisors, a New York consulting firm that studies the gambling industry, reported that roughly 1,400 Web sites run by about 300 companies have gone into business since 1995, generating gross winnings of about $3 billion last year. By comparison, Nevada and New Jersey casinos grossed nearly $14 billion last year. The difference is that legal, regulated casinos in Nevada and New Jersey pay taxes on their gross winnings while virtual casinos avoid federal and state tax collectors.

When Gov. Kenny Guinn signed the Internet measure last June, some major Nevada gaming licensees were already poised to open cyber-casinos. At least three Nevada companies -- Park Place Entertainment, MGM Mirage and Harrah's Entertainment -- have invested in online gaming technology, and all three companies already operate Web sites offering non-cash payouts. To his credit, Park Place executive Tom Gallagher recognized the downside of Internet gaming. "There are some very important and very real concerns about ... adequate security to assure that minors are restricted from access," he told the Associated Press.

For its part, the powerful American Gaming Association opposes Internet gambling because of potential regulatory problems.

Gaming Control Board Chairman Dennis Neilander hit the nail on the head when he said that Internet gambling must comply with all applicable state laws, rules and regulations.

In that regard, Gaming Commission Regulation 5.010 states that "any activity on the part of a (gaming) licensee ... which would reflect or tend to reflect discredit upon the State of Nevada or the gaming industry is an unsuitable manner of operation." Clearly, unregulated Internet gambling is "unsuitable" because it reflects discredit on anyone and everyone involved with it.

Some U.S. congressmen want to curb Internet gambling by barring credit card companies from making payments to illegal online casinos, which would effectively choke off the money supply.

A bill sponsored by Rep. Robert Goodlatte, R-Va., would outlaw all forms of Internet gambling. It would block virtual casinos from accepting credit or checks, and give law enforcement agencies broad authority to seek injunctions against intermediaries, including banks, who enable online gambling.

A separate bill sponsored by Rep. Jim Leach, R-Iowa, would prevent anyone engaged in "unlawful Internet gambling" from accepting payment by credit card, check or electronic money transfer.

There was some good news in 2000 when Jay Cohen, co-owner of a popular gaming Web site based on the tiny island of Antigua, was convicted in New York federal court of violating the 40-year-old Interstate Wire Act, which bans companies and individuals from using interstate phone lines to take bets. Cohen, who was sentenced to 21 months in prison and fined $5,000, has appealed his conviction to the U.S. Supreme Court on grounds that his customers' wagers took place in Antigua rather than in the U.S.

Our lawmakers, desperate to find new revenue sources without increasing gambling taxes, have also explored the idea of a state lottery, which is currently prohibited by the Nevada Constitution.

During last year's legislative session, Assemblywoman Kathy McClain, D-Las Vegas, proposed putting a lottery referendum on this year's ballot, but her measure failed when casino lobbyists opposed it. Ms. McClain argued that a lottery could generate $65 million per year to fund education and senior citizen programs.

But if there's a worse bet than a state lottery, I don't know what it is, except perhaps sending your credit card number off into cyber-space to the unknown operators of an unregulated virtual casino in the Caribbean.

And that's why I think Internet gaming is a losing proposition for the state of Nevada.

Guy W. Farmer, a semi-retired journalist and former U.S. diplomat, resides in Carson City.