When it comes to gambling, there has never been a shortage of opinion amongst the masses. Either people favor it or they feel strongly that it accompanies some of society's more depraved behaviors, along with attracting crime, and is a negative temptation for our youth.

Regardless of what side of the table you are on, most folks can agree that they would like less government regulation when it comes to indulging in their leisure activities of choice. But such becomes far less clear when the government jumps in.

As hard as we might try to understand the present United States federal laws on the books when it comes to gambling, and especially with the advent of constantly evolving computer technology, legislation has not kept pace.

Additionally, lawmakers are too often wont to ignore a problem, lest it detract from their popularity, and more importantly, when it might interfere with receiving campaign cash from certain lobbying industries.

So they drag their proverbial feet until an issue reaches a fever pitch and it simply must be addressed; even if it is not in a cohesive manner or in the best interests of their constituents.

Also, with respect to gambling, I have previously documented in several previously published 2010 articles that many state governments in the U.S. have already started to craft legislation in hopes of feeding their depleted coffers by further relaxing their laws to allow more access to gambling.

Everything from expanding brick and mortar gambling casinos to advancing racinos and adding slot machines at horse race tracks to allowing intrastate and interstate online gambling are seen collectively as a potential bonanza that will cure all ills for the empty tills lining their budgets. And it is estimated by the federal government that there could be as much as a $42 billion windfall over a 10-year stretch in taxable revenue.

It is quite interesting, but not by virtue of coincidence, that most of this seeming rush to pass such legislation by U.S. states comes at the same time that the U.S. Congress is plotting ways to overturn the only recently implemented the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), through a proposed law by Congressman Barney Frank (D-MA) that he originated in 2009.

It just won its initial approval in the U.S. House of Representatives through its Committee on Financial Services on July 27, 2010, on which Rep. Frank is the Chairman. Known as the House Resolution 2267 (H.R. 2267) Internet Gambling Regulation, Consumer Protection and Enforcement Act the House Financial Services Committee's approval is but the first phase of its passage, required by both houses of the U.S. Congress.

In short, the UIGEA was a nice way for the U.S. government to keep offshore online betting casinos at bay from the American consumer. It was initially enacted in October 2006, but was never implemented until June 1, 2010, after many long delays by the federal government's U.S. Department of the Treasury in compelling U.S. banking institutions to honor its rules.

However, the main problem, which will continue to haunt H.R. 2267 is the actual legal definition of "illegal online gambling," thus creating all kinds of loopholes and wiggle room, from the living room gambler to organized crime, to skirt the law.

And also of concern in the presently active UIGEA is that banks remain the only legally accountable parties subject to penalty and prosecution for furnishing offshore online gambling to U.S. residents, while the U.S. gambler placing the bet remains safe. And to date, banks and payment processors are still unclear as to which transactions are actually required to be blocked.

Due to the difficulty in deciphering a non-finite system for the processing of legal U.S. based online gaming transactions, consumers' credit cards and debit cards cannot only be blocked or frozen, but accounts are often cancelled.

Furthermore, a consumer, ignorant of the UIGEA could innocently go to a gambling site, not even knowing from where it emanates and later find that their credit line or checking account is in peril, simply by clicking on an illicit site.

So for now, that is the best that the U.S. government has served up, as concerns online gaming. But not shy to out-do itself, even if it compounds a dysfunctional process even more so, the federal government has plans to muck it up again through a poorly framed H.R. 2267 almost immediately setting it up to fail.

H.R. 2267 is overly broad and murky, yet will intrinsically involve the U.S. Department of the Treasury and the U.S. Internal Revenue Service (IRS), amongst other U.S. federal agencies, for starters.

It is merely a wish list without the necessary mechanisms in place to not only generate the hoped for tax revenue, but for enforcing the law itself. And it stands to open the floodgates for illicit online gaming, incongruous with what it should be designed to do.

It would leave online gambling sites left to police themselves, merely under the purview of the U.S. federal government.

And like most other large pieces of U.S. legislation that has been conveniently rushed through to final Congressional passage, H.R. 2267 is another boiler plate document of mandates to be fulfilled at a date certain after it is already signed into law.

But due to its ambiguity, which seemingly appears by design, H.R. 2267 calls for provisions and assorted amendments that cover a wide array of issues. And it is worth noting several of them here, in order to show how arduous it will be for its desired compliance.

Firstly, it authorizes the U.S. Secretary of the Treasury to create a licensing program for regulations and enforcement of the law, issuing licenses to online gambling entities, effective for a period of five years.

Thus, it prescribes the licensing requirements for such internet gambling entities and prohibits operation of an Internet gambling entity that knowingly accepts bets or wagers from persons within the U.S. without the necessary license issued from the U.S. Department of the Treasury.

The law would prohibit a person, deemed prohibited from gambling with an online gambling entity, from collecting any winnings. Such a system to screen a gambler's veracity must be created by each gambling entity, and to be overseen by the federal government. And such is pure folly at this juncture.

H.R. 2267 would require that an online gambling entity pay required taxes to the IRS. And most curiously of all, each gambling entity, itself, would need to implement safeguards against fraud, money laundering, and terrorist financing.

In addition, each online license would require that gambling sites have strong protections in place to prevent minors from gambling online, and to prevent inappropriate online advertising targeted to underage gamblers or specifically aimed at compulsive gamblers.

Not only must the gambling site maintain a list of compulsive gamblers, but must block them from site access. And it cannot allow access to its site for those individuals who are delinquent on child support payments. These are just some amongst many other illusory imperatives.

Enforcement of U.S. law for the prevention of and tracking of electronic transactions of funds sent to terrorist organizations abroad has been weak at best through the U.S. Department of the Treasury, nine years since September 11, 2001. And to essentially require online websites to take on such a task is laughable.

Other proposed mandates include that debit cards only be used for transactions, to the exclusion of credit cards. Offshore online gambling operations such as PokerStars.com, FullTiltPoker.com and UltimateBet.com, which allowed U.S. players to access their sites after the UIGEA went into effect, will be banned from acquiring a U.S. license, as well as other entities that intentionally violated this U.S. law.

Each state and Indian tribe may opt-out of the federal legislation during the first year after its enactment, requiring that their residents abide by respective local laws.

And sports betting, with the exception of U.S. based horse racing and para-mutuel betting, would be disallowed, much to the delight of the professional and college sports industries. U.S. state lotteries, should they eventually become accessible online, would also be exempt.

But perhaps falsely anticipated with this new law is the notion that gamblers will be allowed much freedom to do as they wish in the privacy of their own homes. However, given the bevy of requirements for oversight, nothing could be further from the truth. Deadbeat dads need not log on, as previously noted.

But more realistically, beginning with Internet Service Providers or ISPs, one would expect that they would have to be the gatekeeper for gathering initial information as to whether the gambler is even eligible to gamble, based upon their state of residence, if that state has opted out. And the banks would be the second line of defense, cutting off the gambler's funds if need be, should the online gambling site find that it is a documented compulsive gambler placing the bet.

And should a player gain access to a legitimate site, then the process begins as to whether they are of majority age, has been flagged as a delinquent parent, or has a criminal background. Without such due diligence, the individual gambling site is subject to losing its license.

Certainly none of these entities are law enforcement agencies, so for the federal government to expect legitimate oversight to be realized at these levels seems more than silly.

The purpose of this report was to give a glimpse into what lurks ahead for U.S. online gaming and is not intended to disparage the gambling consumer nor the gambling industry. Rather, the intent is to highlight some of the future changes in law which may not best serve the public or the industry.

And contrary to the online gaming industry's millions of lobbying dollars spent in Washington, D.C. in order to help initiate this latest planned legislation, it might be best for it to restrain its glee, at this time.

For one only needs to look at the present economic condition of Las Vegas, NV. It has now been proven, going back to the onset of the current recession in 2008, that the gambling industry is indeed no longer recession proof. Yes, in time Vegas and its hurting East Coast counterpart, Atlantic City, NJ, will both rise again.

However, with a 14.5% unemployment rate that Las Vegas presently owns, it is evidence for when entire economies are dependent upon the gambling industry for the creation of jobs and funding municipal programs, disaster can ensue. Therefore, for entire U.S. state and federal programs' very survival to be based upon discretionary income from gambling has lawmakers living in a fool's paradise.

Hopefully, in the coming weeks and months, prior to the entirety of the U.S. House of Representatives approving H.R. 2267 and before it is sent on to the U.S. Senate, that not only will cooler heads prevail, but that a better proposed outcome will exceed before everyone's chips are cashed in.

Cheers!

Copyright ©2010 Diane M. Grassi

Contact: dgrassi@cox.net

With the melt down of the global economy over the past 2 years, multi-national brokerage firms and trusted financial institutions bore the brunt of accusations of gambling away the financial health and futures of investors, primarily through the sale of toxic mortgages with credit default swaps as the vehicle in doing so.

Yet, it is the mainstreaming of gambling on many levels that has created a culture whereby it has become an acceptable norm for not only corporations but governments in the United States, on both the federal and state levels, to literally invest in the gambling industry, with the recession as the excuse for its necessity.

Yet, for years prior to the current recession, brokerage firms such as Goldman Sachs & Co., Merrill Lynch & Co. and Fidelity Investments were already investing their clients’ stocks and mutual fund portfolios, in financing offshore casinos.

The question remains as to whether they skirted U.S. federal law, which prohibits offshore online gambling for Americans, as well as to whether they made reliable investments on behalf of their clients, many of whom remain unaware that such financial instruments are involved in such volatile industries. So, Wall Street was already in on the game.

Fast forward to 2010, where many U.S. states are on the precipice of bankruptcy and are desperate for that magic bullet to increase tax revenues without continually cutting services for their already over-taxed residents. And to that end, many state governors and state legislators are clamoring to push through laws in anticipation of overturning the federal law in place, prohibiting sports betting on both professional and amateur sports, otherwise known as the Professional and Amateur Sports Protection Act of 1992 (28 U.S.C. §3701) (PASPA).

To wit, the state legislature of New Jersey passed State Resolution No. 19 on January 12, 2010, which authorizes its President of the Senate to “take legal action concerning certain federal legislation prohibiting sports betting.” It would repeal the federal ban on sports betting, in all other U.S. states, with the exception of Nevada, Delaware, Oregon and Montana, already permitted to offer parlay-type sports betting. Nevada, however, exclusively enjoys all types of sports betting, statewide, on any professional or amateur sports games, in any capacity.

Basically, New Jersey, and specifically Senator Raymond Lesniak, who originally launched a lawsuit on his own in March 2009 against the federal government, claims that the 1992 law violates the 10^th and 14^th Amendments to the U.S. Constitution, in that “It establishes a selective prohibition on sports betting in the U.S.” The argument is that it violates the 10th Amendment to the United States Constitution by regulating a matter that is reserved to the States. And that it violates the 14th Amendment to the United States Constitution by being unconstitutionally discriminatory against the Plaintiffs and the people of the State of New Jersey.

Lesniak’s case presently resides in the U.S District Court, District of New Jersey, seeking declaratory relief. But the upshot is that New Jersey believes that it “Would benefit significantly from lifting the federal ban and legalizing sports betting in this state, as increased revenues would be generated and numerous jobs would be created for New Jersey residents as a result of sports betting activities at Atlantic City casinos and New Jersey’s racetracks, further enhancing tourism and economic growth,” according to Resolution No. 19.

Prior to PASPA, the Wire Act was enacted in 1961. It was intended exclusively for prohibiting the placement of bets by telephone to bookmakers for sporting events, and was largely put in place by then U.S. Attorney General, Robert F. Kennedy, in order to discourage organized crime and bookmaking. But gaming and its technology has come light years since 1961, and it would appear that the Wire Act’s shelf life has thus expired.

Meanwhile, in the U.S. Congress, House Representative Barney Frank (D-MA), Chairman of the House Financial Services Committee, has promoted a federal resolution to legalize and regulate the internet gambling industry in the U.S. (H.R. 2667). That proposal falls on the heels of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). It proscribes that offshore internet gambling is a violation of federal law.

Furthermore, legislation was passed by the New Jersey legislature in its state Senate to amend the New Jersey State Constitution, allowing legalized sports betting, which the New Jersey voters would ultimately vote on in a referendum as early November 2010.

But this constant back and forth between drafting new law and upholding existing legislation on a federal level to regulate gaming, runs in direct conflict with those states introducing new laws, geared to open up the flood gates for a variety of legalized gaming platforms, including sports betting. In addition, the National Indian Gaming Association, with respect to state Indian gaming contracts, originally authorized by the U.S. federal government, presents other conflicts on both state and federal levels.

Therefore, with the rights of gamblers continually in flux, the question must be asked what about the rights of non-gamblers and the resources that will be expended towards the downside that accompanies a gambling culture, upon which states will necessarily become dependent?

In the state of Nevada alone, with unemployment approaching 23%, for those presently receiving extended unemployment benefits as well as those no longer receiving such benefits, it is the gaming industry specifically that is responsible for such a jobs freefall which accompanies a nearly $1 billion state budget shortfall. Add to that the highest mortgage foreclosure rates in the entire U.S. and there arises a recipe for disaster.

And as gaming drives all other industry including construction, conventions and tourism, primarily in Las Vegas, it would make one wonder what other state officials are thinking when gaming revenues in Las Vegas went down over 20% between 2008 and 2009, and it has yet to come out of its funk.

Las Vegas Strip properties’ construction is at a virtual standstill with over leveraged multi-national conglomerates also reeling from the worldwide mortgage crisis. It appears that it was not only the little guys at the slot machines who gambled with their fortunes over the past few years.

With respect to sports betting on the National Football League’s (NFL) Super Bowl, Las Vegas betting revenues for the past 2 seasons of 2008 and 2009 were down considerably from years past. Nevada casino sports books in 2008 lost $2.6 million on the Super Bowl and in 2010 a total of $82.7 million was wagered with a net gain of only $179,000.00 more for casino sports books than in 2009. In contrast, $94.6 million was wagered in 2006, prior to the recession.

Yet, New Jersey is convinced and presupposes that sports wagering will generate hundreds of millions of dollars in state revenue over the course of a 5 year period, for its state alone. And it remains dedicated to also expand casino gambling in spite of its own realized massive decline in profits over the past 2 years.

But the state of New Jersey is hardly alone in its desire to gamble on gambling with many states introducing legislation and campaigning for both intrastate and interstate forms of gambling, both online and throughout casinos and racetrack locales throughout the U.S.

Currently, 48 states enjoy some form of legalized gambling and/or state lotteries, with the exception of Hawaii and Utah which do not presently permit any type of gambling, wagering or lotteries. However, Hawaii is presently weighing legislation for a stand-alone casino in Waikiki.

States in addition to New Jersey proposing sports betting and some type of expansion of casino gambling, including online gaming, with some states already preparing such legislation regarding sports betting in the event that PASPA is overturned includes: Iowa, Delaware, Massachusetts, California, Texas, Alabama, Missouri, Georgia, Florida, Pennsylvania, Indiana, Maine, New Hampshire, Connecticut, , Michigan, Kentucky, Illinois, amongst others.

In the case of Delaware it won the right in 2009 to offer 3-game parlay style sports betting at its 3 racetracks or racinos for NFL games only, as states that previously offered lottery style or legalized sports betting from 1976-1990 were exempt from PASPA. Yet, after its well fought challenge in federal court in 2009 for Delaware to be permitted to bet on all professional sports a la Las Vegas style without restrictions, it was defeated. But Delaware has not yet given up its fight and its case has been appealed to the U.S. Supreme Court.

Iowa is also leading the charge in crafting legislation to allow legalized sports betting. However, Iowa State Senator, Jerry Behn (R-Boone), thinks that gambling is a “Tax on the people who can afford it the least.” Yet, his colleague, State Senator, Jack Kibbie (D-Emmetsburg), on betting on professional sports says, “People say I would love to do what they can do in Las Vegas.”

Perhaps those with the same sentiments as those of Senator Kibbie will not be so game, so to speak, when there remains little discretionary income for such sin taxes to generate anticipated windfall profits.

With respect to California’s new plan there comes an additional rub. It plans to introduce an online gaming network. Yet, it potentially could be in violation of Indian Gaming licenses or compact agreements that California entered into in 1999 with Native American tribes in its state. The compacts gave the tribes exclusive rights to any gambling that involved gaming devices including slot machines, roulette tables and video poker machines, etc.

Furthermore, it took 5 years for California to get the tribes to honor the payment of taxes due to the state of California by virtue of the compacts. The tribes withheld tax payments until 2004. However, the state of California still gives such exclusive rights to the Indian tribes through 2030, which remains a binding agreement to date.

Now, the California tribes have threatened to once again withhold paying the government of California its share of taxes due for gaming revenues, should California proceed with its online poker network plans. The state’s position is that the compacts do not include poker and cover only games of chance. Yet, the tribal councils deem gaming devices to include computers used for online gaming, and thus negating California’s plan.

Such a dust-up could resonate through the Native American community, with its 442 tribal casinos operated by 237 tribal governments and Alaska native villages in 28 states. Revenues translate into a nearly $30 billion a year industry for them.

And Congressman Frank’s legislation to regulate internet poker would also be a direct threat to Indian gaming casinos, unless the Indian Gaming Regulatory Act of 1988 is somehow amended.

Ideally, California wants its poker network to go nationwide, raising revenues by ultimately licensing interstate networks and thereby generating additional profits through the ownership of such various licenses between states. The hope is that it could eventually trump PASPA.

Everything is politics, it would seem. But complicated legislative loopholes aside, basing entire economies – and California’s alone is the six largest in the entire world – on games of chance is quite the risky proposition itself.

And how taxpayers can be expected to trust their state governments to invest in struggling enterprises, already in the red, in order to prop up their cash-strapped states, many nearing junk-bond status due to irresponsible governing, remains the $64,000.00 question.

Time was when Vegas thought gambling was recession proof. And there should be little doubt that Las Vegas now serves as the poster child for that which results when gamblers stop gambling and traveling to destination resorts.

And for public officials to abandon all reason and principles, looking for a quick fix, rather than by relying upon ingenuity for the creation of jobs and revenue outside of the gambling sector, could very well come back to bite them, in the end.

Copyright ©2010 Diane M. Grassi

Contact: dgrassi@cox.net