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Gambling in cyberspace

As the Internet and interactive technology continue to wind their way further into the lives of Americans, it is only natural that gaming would make the corresponding leap into cyberspace. Just as proposals for taxing commercial transactions made over the Internet periodically make the news, so has Internet-based gambling and attempts to regulate or ban it.

"The federal courts are split on it," said John Harte, general counsel of the National Indian Gaming Association, referring to the legality of Internet gaming. "Right now, it wouldn't be a good investment for anyone to get into the [U.S.] Internet gaming market."

Harte explained that the federal statute currently applicable to online gaming is called the Wire Act. Passed in 1960, this law specifically prohibits the use of telephone wires to transmit a bet across state lines. The Wire Act was originally passed to prevent sports-book wagering over the phone. Over the last six years, Harte said, Congress has attempted to update the Wire Act so that it specifically applies to bets transmitted over the Internet as well. Such legislation has yet to become law, but U.S. citizens operating offshore gaming web sites can and have been prosecuted under the Wire Act upon their return to the U.S., Harte said.

"The Wire Act applies to tribes just as it does to the states," Harte said.

"There are a lot of tribes, believe me, if they could figure out how to do this without losing their gaming license they'd have done so already," said Cristala Allen, a board member of the Texas Chamber of Commerce. "They're chomping at the bit to figure it out ? It's so dangerous for tribes because you could lose everything."

So while Internet gaming may not be completely or specifically illegal, it remains a potentially dangerous gray area, even for sovereign Indian tribes. It will not be until legislation that specifically addresses the legality of Internet gaming one way or the other passes Congress, allowing of course for the Federal courts to weigh in, that the issue will be decided.

Allen cited the example of the Coeur d'Alene Tribe in Idaho, whose attempts during the late 1990s to establish telephone-based and online lotteries were shot down by a federal judge. Under both IGRA and its gaming compact, the tribe had the right to conduct a lottery. It says that both Federal law and the Supreme Court support its contention that all of the actual functions of gaming take place on the reservation regardless of where the person on the other end of the phone/internet connection is located. The case, which began in tribal court several years ago, remains pending before the 9th Circuit.

Commercial gambling on the Internet, however, continues to grow. According to Christiansen Capital Advisors LLC, a gaming industry analysis firm, "the Internet has created the first global gaming market." Although a vast majority of online gaming sites are located offshore, participation by American gamblers is estimated to comprise some 60 percent.

In its publication "The Gross Annual Wager of the United States 2000," CCA said that Americans spent over $2.2 billion on Internet gaming in 2000, up from almost $1.2 billion in 1999. The company's figures for 2001 are not yet available.

"The Internet and new interactive technologies such as Internet-enabled cell phones and interactive television is a new distribution channel for commercial gambling games," wrote CCA analysts Eugene Martin Christiansen and Sebastian Sinclair in the Gross Annual Wager. "Consumers are enthusiastically embracing this new distribution capability."

A new development, however, could prove to be a stumbling block for Internet gambling; Bank of America recently informed thousands of its credit-card customers in Arizona that their cards cannot be used for online gambling. The Arizona Republic reported on Aug. 1 that Citibank, Chase Manhattan, MBNA, Wells Fargo and Bank One have also blocked their customers' credit cards from accepting Internet gambling transactions. This development caused CCA to revise its 2002 Internet-gaming revenue estimate downward to $3.0 billion from $3.5 billion.

Jason Ader, gaming analyst at Bear Stearns & Co. also revised his revenue estimate for the internet gaming sector to $4.2 billion in 2003, down from his original estimate of $6.2 billion, due largely to the uncertainty generated by the longer-term implications of credit-card blocking.

Even if legislation banning Internet gaming in the U.S. becomes law, the sector will not dissolve any time soon. Online gaming is legal in many other countries, including the United Kingdom, Australia and several of the Caribbean island nations, and gaming web sites are easily accessible from computer terminals in this country. Disabling credit cards may prove a temporary hindrance, but other payment systems, such as wire transfers, money orders and cashier's checks, can fill the void.

In any case, gaming tribes in the United States would probably be well advised to steer clear of Internet gaming until its legal status is clearly defined and until proper regulatory oversight can be established.