Internet Casinos

A New Obstacle on the Information Superhighway


The Internet's presence in worldwide culture is becoming as pervasive as television and radio media. The ability to access remote services from the comfort and privacy of one's home is what drives many to sit down, turn on and log in. Recently, the issue of privacy, freedom of speech and interstate wire usage has come under attack from impending U.S. regulations which threaten to control this ", global medium" (Generalis, Greer, et. al. 8)

The legal climate that rages over the Internet's sanctum is as dynamic as the Internet itself. But, no other arena is more electrified, as well as chaotic, than the one surrounding Internet Gaming.

What is Gaming?

Internet Gaming...what is it? Well, to answer this requires a familiarity with the term gambling. According to The Internet Gambling Report, there must be three elements present in order for "gambling" to have taken place. First, there must be a prize offered. Second, there must be consideration or a price to which a participant must pay to win the prize. Third, all outcomes must have some element of chance. If one or more is not present then gambling, in the traditional sense, has not occurred.

To avoid legal action, many online casinos will attempt to circumvent one aspect of the formula. Such as not gambling with money, an absence of consideration or perhaps wagering on a game such as chess, an absence of the chance factor.

Sue Schneider, editor of Rolling Good Times On-line and head of the Interactive Gaming Council, said that there are, as of 1997, 42 confirmed Internet "casinos" online with one of them operating on U.S. territory.

Market Influences

The market for Internet Gaming is explosive. Due to the far-reaching nature of the Internet, many countries, such as those near the Pacific rim, are targeted since gambling is not a stigma in those societies. Demographic information is classified on casino servers but should be reflective of the present demographic which is male dominated.

"Internet gambling is inevitable...fueled by the popularity of both the Internet and gambling as a form of entertainment," said Schneider in a Vanderbilt report.

Convenience, coupled with anonymity, makes the Internet a perfect medium for gambling but still lacks the ambiance of "the real thing." Web masters are currently experimenting with stream lined video, audio and chat to enhance the feel of gambling; however, Adam A. Fine, Editor-in-Chief of Casino Player says that players will "...continue to wet their appetite for gambling, but will end up in Vegas to try the real thing."

What are Internet Casinos?

Internet casinos offer visitors the same games of chance that one would find in a Las Vegas casino. Craps, blackjack, roulette, slots, video poker, bingo and even parimutuel wagering is available. Payment is usually in the form of a check, credit card, money order or ire transfer into an offshore account which is then debited or credited accordingly. Many sites have special encryption to ward off hackers, special programs that save information frequently in the event of a disconnection and random number generators to insure fairness. Since the industry is fairly unregulated, each respective program designer hypes certain aspects of their casino programs. An example of this is MicroGaming Systems in the "sources, links and more info" section.

Wire transfers of information and money help to create a barrage of legal problems. Tracking individual players for tax collection and the ambiguity of several laws, including the Interstate Wire Acts mentioned later, which make regulation and enforcement so difficult.

Climbing Statistics

Figures taken from Computer News Daily, estimated that, in 1997 alone, revenues reached a staggering $200 million with an expectation of $1 billion by 2001. Other estimates were more liberal with one source quoting an $8.6 billion industry by the year 2000.

These numbers are quite impressive compared to Las Vegas casinos' wins amounting to $5.43 billion in 1994, according to the Las Vegas Agenda and author Joyce Wiswell.

Problems Created

With the online gaming industry exploding onto the Internet with such revenues, how are land-based casinos reacting?

Since the legality of Internet gambling has not been solidified, land-based casinos are avoiding the online gambling industry. With revenues in the billions every year, there is no need to jeopardize an already constant flow of income on such a legally precarious industry, said Bob Dowd, director of public relations at Harrah's-Las Vegas. Casinos in Vegas and Missouri, whose state gaming commissions are some of the toughest around, has the right to halt the operations of any casino suspected of illegal activity. Casinos are assumed guilty until proven innocent and must remain inoperable until the case is settled, which often takes years. No land-based casino would risk such an important money-making investment, especially their gambling license, on such a new market.

Internet casinos operate on foreign soil, such as Antigua, to escape the boundaries of U.S. jurisdiction. There are several legal problems which this creates:

1 Taxes paid on large wins by U.S. citizens
2 Regulation and integrity of operations
3 Jurisdiction of Gaming Regulations

Although many are required to pay taxes on large wins, many U.S. citizens don't because the tracking of people on the Internet is a burdensome and unrealistic task. According to Generalis, Greer, et. al., in 1992, Quill v. North Dakota stated that physical presence is required for tax collection; however, the court also held that physical presence was not necessary and allowed states to tax companies or individuals who garnered income from residents of the respective state.

Since it is such a new enterprise, Internet gaming is a largely unregulated entity. An association has been created to help increase the awareness and viability of these casinos called the Interactive Gaming Council. This council has recognized that in order for their industry to move forward that there are four interests which must be addressed:

1 Internet gambling will persist if demand is present
2 Protect the integrity of the Internet
3 Build consumer confidence
4 Protect those who should not have access (children)

In their report for Vanderbilt University, Generalis, Greer et. al., the researchers recommended that self-regulation must follow three areas in which they insure honesty and integrity of games, prevent certain individuals into the servers and paying taxes on income or revenue derived from such games. Currently, the casinos are working with the World Wide Web Consortium to install Platform for Internet Content Selection tags (PICS). These, when finished in browsers, will allow people to avoid certain content-based pages, such as pornography or gaming, by examining the rating.

Jurisdiction is another problem faced by a medium that is boundless. The U.S. seeks to control Internet gaming activity by means of the Interstate Wire Acts of 1956 and 1961. These were specifically designed to deter interstate gambling by way of phone lines. It is a felony to make or receive wagers by phone over state and country borders. Of course this did not take the Internet into account when it was implemented. Vehement opposition to this legislation, mostly from Internet users, maintain that the U.S. does not have the right to try to prohibit nor regulate the Internet, since it is a boundless, worldwide entity.

The issue of Internet Gambling will eventually have to address the issue of U.S. jurisdiction, the ambiguity of several federal statutes and an individuals right to privacy. Self regulation, at this point at least, remains a public relations ploy to increase casino relations while stimulating the market through increased player trust. Billions in revenue drive casino marketeers to guard against impending legislation while the U.S. fights to regulate offshore derived income via Internet circuits. Legality will remain obscure until a clear precedent can be set upon the elusive issue of Internet Gambling.