Oct. 24 (Bloomberg) -- The odds of winning the grand prize in the Powerball lottery are 1 in 195,249,054. State governments, by and large, encourage participation in this monopolistic enterprise, even though it randomly rewards a very few people with a very large amount of money for doing very little.
Oddly, most states, and the federal government, consider wagering online on a card game -- in a fair fight, against other players of varying skill -- a moral outrage.
A small but growing number of states are considering legalizing online poker within their borders, hoping to increase tax revenue. An intrastate approach may lead to useful innovations, but it would limit competition among gambling operators and restrict the available pool of customers for a given service to in-state players. It would also result in a crazy patchwork of regulation for an online activity that is inherently interstate.
To maximize the benefits of Internet gambling, and reduce its many dangers, federal legalization and regulation is the best option.
Current federal law is poorly conceived. In 2006 Congress ostensibly outlawed most online wagering under the Unlawful Internet Gambling Enforcement Act, an unclear and hurriedly assembled framework that for years left many players under the impression that online gambling was illegal but tolerated. It prevented businesses from knowingly accepting payments for “unlawful” gambling, but didn’t clearly define what was unlawful, or specifically address poker.
Then, in April 2011, the Justice Department indicted the founders of the three biggest poker sites open to U.S. players with money laundering and bank fraud, alleging that they were illegally disguising their gambling profits.
U.S. players have been abandoning Internet gambling ever since. The number of online U.S. poker accounts has declined from 2.03 million to about 490,000, according to a report prepared for Bloomberg View by H2 Gambling Capital. (It’s expected to drop further as accounts expire at the end of the year.) And the U.S. share of the global market has declined from 49 percent in 2006 to a paltry 7 percent today.
Which is a shame: The benefits of regulated online gambling, for American budgets and businesses, are substantial. Senator Jay Rockefeller, a Democrat of West Virginia, has said that regulating and taxing online gambling would yield budget savings of $41.8 billion over 10 years for the federal government, and $30 billion for states.
Not to mention that many of the offshore operators to which U.S. gamblers have turned in recent years are poorly regulated and possibly criminal -- witness the saga of Full Tilt Poker, a popular gambling site that the Justice Department recently alleged was running a $440 million “global Ponzi scheme” in which owners dipped into player accounts to enrich themselves.
Far better for the industry to be legalized in the U.S. and subject to uniform regulations that would prevent cheating, ensure operators are licensed, protect minors, enforce loss limits to mitigate excessive risk-taking, and require that taxes are collected and equitably shared among the states.
This approach would allow a transparent U.S. market in online gambling to grow, subject to strict and predictable regulation. And it would recognize that the future of the gambling industry -- just like the future of retail or entertainment -- will be online. That’s nothing to fear. It offers far better odds for success than a lottery ticket.
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