House committee divided in Internet gambling debate

Updated: April 5, 2006, 8:58 PM ET
By Darren Rovell | ESPN.com

Less than two days after the conclusion of the NCAA men's basketball tournament, which saw hundreds of millions of dollars in online bets, the House Judiciary Committee discussed the merits of the latest anti-online gambling bill that is attempting to make its way through the House.

Two things were clear from the committee's day-long examination of the Internet Gambling Prohibition Act on Wednesday:

•  Representatives are divided on issues such as prosecution vs. taxation;

•  Even if prosecution is ultimately chosen, any laws created by the act might not be enforceable.

The federal government currently interprets online gambling as a violation of the Wire Act of 1961, which prohibits betting over state lines by telephone. The new bill -- H.R. 4777 -- seeks to modernize the law by incorporating all the modern methods of communication that bookmakers and bettors use to place Internet wagers.

"Gambling is not a victimless activity," said Bob Goodlatte (R-Va.), the sponsor of the bill, who has taken an anti-online gambling stance since 1998. "In fact, the negative consequences of online gambling activity can be more detrimental to the families of addictive gamblers than if a bricks and mortar casino was built next door."

But Bobby Scott (D-Va.), an opponent of the bill and supporter of regulation, contends that, as written, the legislation would fail to curtail gambling because it focuses only on the bookmaker and not the person placing the bets.

"So long as the individuals can gamble over the Internet with impunity, a market will be provided for them that a regulatory scheme -- this bill -- will not stop," Scott said.

Several panelists cited a 2005 figure that suggested that half of the $12 billion bet online in 2005 was wagered by Americans. Scott, however, noted that the U.S. government's attempts to prosecute overseas bookmakers, whose businesses were operating within the laws of the host country, only proved successful when those individuals stepped back on U.S. soil.

"The Internet has no jurisdiction and I'd suspect that even if we were successful in closing down business sites physically located in the United States or in countries where we could get cooperation, the nature of the Internet and the ingenuity of the people using it will make (this bill) ineffective," Scott said.

"The department does not believe that the difficulties that we face in prosecuting people outside the U.S. who commit crimes within the U.S. should stop us from trying," said Bruce Ohr, chief of the organized crime and racketeering section of the Department of Justice, who testified before the committee.

In 2000, Jay Cohen of online sports book World Sports Exchange was sentenced for violation of the Wire Act to 21 months in prison, but only after he voluntarily returned from Antigua to the United States. His other partners also were charged, but haven't been prosecuted since they haven't returned to this country.

"I haven't gone back and I don't intend to," Cohen's partner, Steve Schillinger, told ESPN.com.

The government has been successful in pressuring financial institutions -- including those sponsoring credit and debit cards -- to cut off funding to sites identified as online gambling establishments. The bill's suggestion that banks further regulate the flow of all transactions -- to discern those that are being sent to online gambling sites -- was criticized by Sam Vallandingham, a bank executive who was testifying on behalf of the Independent Community Bankers of America.

Vallandingham said that regulating where checks go and how they are processed would require a massive overhaul of the banking system and would serve to slow all transactions.

The Department of Justice has been active in pressuring businesses who accept online advertising, despite the vague nature of the current Wire Act.

On March 2, Stan Kroenke, owner of the Denver Nuggets and Colorado Avalanche pulled advertisements of GoldenPalace.com from the Pepsi Center and on team broadcasts after a local television station called attention to the issue. Earlier this year, The Sporting News agreed to pay a $4.2 million fine and spend $3 million in public service announcements to settle charges that it had accepted and ran online gambling ads on its Web site and promoted the organizations on its radio stations.

Attorney Lawrence Walters, co-author of "The U.S. I-Gaming Policy Report: Advertising and the Law," says the U.S. government has no right to put pressure on organizations that are accepting online gambling ads.

"There's certainly no federal law prohibiting people from gambling online and no one has ever been convicted or prosecuted for advertising gambling," Walters said.

Some online sites and media outlets have found a way around directly accepting ads for online gambling. Some companies set up an Internet site with a .net ending where gamblers can play free games. That site potentially leads gamblers to the .com version, which enables them to play for real money.

NASCAR, for example, will accept .net advertising as long as the organization has written assurances that there will be no promotion of a companion for-pay site and no reference to sports gambling, according to spokesperson Ramsey Poston.

There was significant interest in the hearings, perhaps in part because poker players Greg Raymer, Howard Lederer and Chris Ferguson made media appearances on Capitol Hill on Tuesday to help discourage support for the bill.

Hearings like the one that took place on Wednesday make it clear that online gamblers and bookmakers are safe, at least until representatives decide whether they should regulate it, as most of the world has, or firm up its illegality.

"If Internet gambling is legal, (bettors) have confidence if they win, they'll get paid," Scott said. "A consumer would have no similar confidence in fly-by-night-offshore-casino.com. As a result of regulated Internet gambling activity, it would drive business from the less reputable businesses."

Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.rovell@espn3.com

Darren Rovell | email

ESPN.com Sports Business reporter