Ever since the puritans established their Massachusetts Bay colony in the early 1600’s, gambling has been one of the biggest controversies that this country has had to deal with. As time passed and land based gambling became more and more regulated and legalized, the demand for gaming increased along with it.
With the relatively recent creation and advancement of the Internet, this demand was soon transferred to Americas quickest growing craze… Online gambling. Online gambling and its legality have caused a great deal of controversy in the recent past. The industry is so profitable and the demand is so high, that despite government acts to make it illegal, people still find their way around it. There are those that argue that online gambling should be government regulated and taxed in the U.S., while there are also those who believe that legalizing it will only lead to an increase in addiction rates and be detrimental to our society. By legalizing online gambling in the United States, not only would the government amass a massive profit margin from the regulation and taxing of the industry, but also thousands of new jobs and businesses will be created, and it would make for a more safer and social gaming experience. As there are different forms of land based gambling, there is almost the exact same amount of games when it comes to online gambling. These games can be classified in two different categories, games of chance and games of skill. Any type of casino based game such as slot machines, blackjack, or sports wagering are considered games of chance, while many have recently considered online poker a game of skill. Because games of skill are not considered gambling, this makes it an important factor in its potential legality. It’s not just the United States that has a love affair with online gambling; “worldwide, online gambling is increasingly a legal and regulated activity that generates almost $30 billion of revenue a year” (Stewart 2011). These are staggering profits when compared to the amount of debt states are routinely reporting. The majority of these profits come solely from online poker. Online poker takes up the largest percentage of online gambling. Because of its quick rise in popularity, due to increased media coverage, the amount of people who play online has increased simultaneously. Despite the fact that it is illegal for Americans to play online for actual money, “More than 1.8 million users play each month, according to the independent tracking service PokerPulse.com”
(Habib 2005). As offshore websites continue to find ways around U.S. laws making it easier to transfer money, the number of users grows exponentially. To show how much Americans contribute to the total revenue of online poker, “In 2005, (total) revenues reached approximately $10 billion. Americans generated almost $5 billion of those revenues” (Raj 2007 p 779) and with more people signing up, the profits grow as well. These sites are able to make these enormous profits due to advertising costs that companies pay as well as the “rake” of each game. The rake is essentially a percentage of each wager that comes through the site. So if a poker site has a pot of $100 dollars and a rake of 5%, then the site makes 5$ dollars for that hand. The same concept can be applied to sports betting and other games. The legality of the issue is the only thing stopping these enormous profits from being shipped overseas and not kept in the U.S. If a judge were to be asked if online gambling in the United States was legal, he or she would have a hard time answering the question. This is because the “statutes are not clear and the U.S. Supreme Court has not interpreted the specific question” (Rose, 2011). This judge would have to start with the Department of Justice’s view on the issue. They believe that, with a few exceptions, anything related to online gambling is illegal. This is based off of the Wire Act passed in 1961 “which prohibits gambling businesses from using interstate or international telecommunication wires to knowingly transmit or receive bets” (Rose, 2011). However, it should be noted that this act was passed well before the Internet was established and the business of online gambling began to flourish. The confusion surrounding this issue regarding weather or not the Wire act should apply to online gambling led to the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006. This act was the first official piece of federal legislation to address online gambling and the increased popularity of online poker was a major deciding factor that influenced its passage. The “UIGEA prohibits gambling-related businesses from accepting checks, credit card charges, electronic transfers, and similar payments in connection with unlawful Internet gambling” (Rose, 2011). Simply stating, any form of payment over the Internet involving gambling is illegal. Even with the passage of this act, the laws were still very vague. In 2000, the online wagering of horse racing was legalized and has been regulated by the U.S. government. The industry “now generates revenues of almost $300 million a year from bettors in 37 states” (Stewart 2011). After the passage of the UIGEA, online wagering of horse racing was not affected and is still government regulated to this day.
When it comes to the United States government regulation of the online gambling industry, many things must be considered. The potential benefits of such an act would include ensuring “the integrity of the games by preventing cheating by operators… exclude underage gamblers… give customers tools to control their own gambling… (and) to prevent the use of online gambling sites for money laundering and other illegal purposes” (Stewart 2011). Due to the aforementioned laws, many of the major online gambling sites have steered clear of American customers, leaving Americans to fend from smaller unregulated sites. This has resulted in some reported cases of fraud and cheating from the sites operators themselves. Other than social issues being resolved by the government regulation of online gambling, there would be a plethora of economic benefits as well. These include government taxable revenue, thousands of new jobs opened up, and a decrease in U.S income sent overseas. The proposal that the U.S government should consider is to legalize online gambling as a national policy. However, if there is an outcry of distaste from the majority of one particular state, the state may choose to make it illegal, but it would be up to them to regulate and enforce that. The popularity of online gambling in the United States is unmatched to most other illicit activities; so much so that “any attempted prohibition of such a leisure activity would only benefit a black market and be politically suicidal” (Stewart-Jones, H 2006 p 6). This black market comes in the form of unregulated websites operating in offshore countries where online gambling has already been legalized. These are not just assumptions and what if scenarios. By outlawing online gambling, the United States government is aiding in the rise of one of the largest black market industries in the world. Other countries have begun to take notice to its effects as well and some have reacted on much different sides of the scale. In 2005, the government in Great Britain passed the Gambling Act, which officially “came into force on 1 September 2007” (Chambers 2009 p 210). The act was passed because the British government realized that with the increasing ease of access along with how high the demand was, legalizing and regulating the industry would be easier than making it illegal. A study was done 5 years after the law was passed that examined 15 of the most popular sites ran in the UK. As compared to the unregulated sites that U.S citizens are using now, “all 15 companies require proof of age before entering and using the site… you need to provide proof of identity and age through your driving license or passport” (Chambers 2009 p 210). This alone will keep underage players out of these gambling circles and reduce the ever-rising addiction rates seen in the past few years. If the U.S were to legalize online gambling as a national policy, it should look to Great Britain for help and advice in the early stages of the change. One of the main reasons that the government would employ this policy is to increase revenues through the taxation of these wagers. For example if Americans spent 200 billion dollars gambling in one year, which has occurred in the past, and the government were to put a 10 percent tax on these wagers, they would take in 20 billion dollars of revenue in one year! As of right now gambling in the United States is done “by means of offshore accounts that escape the reach of tax and other authorities” (Starobin,P 2010). U.S citizens will always spend money online gambling; it seems illogical to not capitalize on it. Next comes the question of where to spend this money. Most states have traditionally used the profits they have attained from the lottery to fund their education system. However, recently there has been a large public outcry for more funding and government interaction to failing school systems. This is because “on average lotteries account for approximately 3.8% of a states education budget even though the general public is lead to believe that schools receive more money and that the lottery provides a large portion of these funds” (Stanley 2003 p 329). Legalizing online gambling is an easy solution to this. The profits generated would be more than enough to adequately fund an education system that would put this country back into the national spotlight. In fact, doing so for only one specific type of online gambling would make large strides for society. Online Poker, as was mentioned earlier in this paper, accounts for the highest percentage of online wagers. But what makes online poker so interesting with relation to the proposed policy is that “the rise of online poker means that statisticians now have vast amounts of data to analyze, and it increasingly appears that skill holds the aces” (New Scientist 2009). Traditionally, a game of skill is not considered gambling and therefore anyone who was to wager on poker would not have to adhere to any of the online gambling laws. This makes for a very easy transitional policy to be implemented. Start by creating a government ran and regulated website strictly for online poker. Use that as a trial period to assess any negative societal or economic effects before completely legalizing all types of games. By using a transitional strategy, it will mediate some of the backlash from certain special interest groups as well as any negative media attention. It also gives the government a platform from which to test out one of the most important features of the new regulated sites, limit setting features and addiction aid. What most people do not understand is that “pathological gambling is currently classified as an impulse control disorder” (Ashley, 2012, pg 29). It is a disease that can and has affected and destroyed millions of people’s lives. The easy access of online gambling has made this issue much more prevalent in todays society. More specifically, college kids are one of the greatest demographics affected. Free time is abundant in college, and it can sometime lead to stories similar to that of “Alex, a University of Indiana Junior, who lost $55,000 gambling, mostly playing online poker”(Habib 2005 p 67). Needless to say, stories like these scare U.S lawmakers away from regulating the gambling industry. But they shouldn’t. Stories like these should push U.S lawmakers into taking action against this problem. A recent study was done by the Harm Reduction Journal, which attempted to analyze any associated effects of imposing limits on the amount of money a user of the website would be able to deposit. In a two-year time period, only 160 out of 47,000 people that participated in the study actually exceeded their deposit limits. This study was done based on one website, Bwin Interactive Entertainment. Relatively that seems like a pretty low percentage of people, however say out of those 160 people that exceeded their limits, 40 of them run into extreme financial problems and go bankrupt. This would have a massive ripple effect across anyone and everyone that is in relation to those people and frankly brings up a very strong case against legalizing online gambling. The good thing about this opposition is that there is a solution. (Broda 2008 p 5) During the government’s transitional period into implementing this policy, the initial revenue will be used to fund and develop programs to aid in the reduction of online gambling addiction. These can range from implementing time restrictions, limit restrictions, a 24-7 live help hotline (that could easily be reached from within the website), or a number of other available options. The limits on this would be endless and also comprises a whole other sector for businesses to expand upon. These services will undoubtedly be free of charge to users and will be highly advertised on the site. A program that limits a user from the time he or she creates their account based on their confirmed yearly income is something that will be tested during the transitional period. Knowing how much income someone is taking in is very important to setting limits and correctly wagering amounts that will not be detrimental to ones total bankroll. Making these changes will also provide a better gaming experience to the user. Economic benefits and reducing addiction rates are not the only positives that would arise from legalizing online gambling. The entire business sector would change. Thousands of new jobs would be created from the rise of major gambling websites and anything that they affiliate themselves with. A major sector that this would affect is the advertising business. It was predicted that if online gambling were to be legalized “somewhere between $3.5 billion and $4 billion could be spent by the internet-gaming sector on marketing over the next five years” (Bruell 2012). Comparatively, that was well over the amount that General Motors spent in the last year and if all goes to plan, “by 2017 the online-gambling industry will be spending nearly as much as the entire insurance category did last year” (Bruell 2012). This is because the industry is very unique in a way that getting players to make an account on one site specifically is the single goal of these companies. Just imagine, instead of the lizard (Geico) and constant threats of mayhem (Allstate), television ads will start to become consumed with catchy online gambling jingles and flashy casino advertisements. However, these benefits are being delayed by constant preventative action by the U.S government. Just recently, 11 high officials including three of the founders of the largest offshore poker sites were charged with “bank fraud, money laundering, and online gambling offenses” (Berzon 2011 p A4). Federal prosecutors claim that these sites “tried to sidestep U.S. laws prohibiting banks and credit-card issuers from processing gambling payments by disguising billions of dollars from U.S. gamblers”(Berzon 2011 p A4). The event, now know in the gambling world as Black Friday, caused a huge change in the industry. The 11 charged were hit with fees of upwards of hundreds of millions of dollars essentially causing them to go bankrupt. If the government were actually concerned with money laundering problems, keeping the industry illegalized will do nothing but give them some time. It’s only a matter of months before another loophole or externality that will allow these people to do what they want is discovered. Simply put, “The views of the US Department of Justice plainly do not represent the views of US citizens, who still account for the majority of the market” (Stewart-Jones 2006). In an illegal and unregulated industry, anything is possible. Keep in mind that these three aforementioned sites are three of the largest companies in the world. If given a chance to be run by a proper legalized business structure, with the power to advertise to the U.S’s 300 million plus citizens, the companies at the top of the fortune 500 may not want to look over their shoulder. Reforms to previous laws concerning online gambling are continuing to arise more and more each year throughout the globe. The U.S. governmental policy at the time is all but stone aged and there is no reason to not change it. The economic benefits are immense; unemployment will drop well below what it’s at right now; and the detrimental effects of gambling addiction will be ramified. Start by implementing a transitional policy using just online poker to test the system, and slowly move to legalizing it completely. If done so correctly, it could lead to the demise of one of America’s most profitable black markets since prohibition.

Bibliography
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