Is Online Gambling Legal?
Volume 1, Issue 18
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Is online gambling legal? Well the answer to that question keeps on changing. Operators now have until June 2020 to get rid of their online casinos and poker rooms or be prosecuted.
Back in 2011 the U.S. Fifth Circuit Court of Appeals ruled that the Wire Act prohibition on the transmission of wagers applied only to sports betting and not other types of online gambling. In 2019 they reversed themselves returning to the previous position that the Wire Act does apply to online casinos and poker rooms.
Even though the Department of Justice (DOJ) changed its long held position on online gambling in 2011, stating that the federal Wire Act of 1961 only applied to sports betting. As far back as the Clinton administration, the DOJ had asserted that all forms of online gambling, especially Internet poker, were illegal.
The 2011 decision paved the way for individual states to more or less choose for themselves whether to legalize online gambling. This is because it is at the state level that online casino operators need to go to purchase licenses to operate. At that time, Delaware, Nevada and New Jersey legalized online gambling.
In Nevada and New Jersey, state regulations have tied online gambling to land-based casinos and the activity can only take place legally within the state’s borders. In 2014, the state of New Jersey had sent cease-and-desist letters to out-of-state online gambling companies that were marketing to New Jersey residents.
David Rebuk, director of the New Jersey Division of Gaming Enforcement, wrote in January 2015 that although Nevada and Delaware started online gambling operations several months before New Jersey, New Jersey's authorized online gambling sites, from January 2014 through October 2014, generated $25 million or 75% of the total online poker revenue in the U.S. They also generated $78 million or 98% of all Internet non-poker casino revenue. He said that according to a University of Las Vegas Center for Gaming Research study, New Jersey online gaming accounts for over 90% of the legal U.S. online gaming revenue.
Like Washington's Bill HB 1114, California's various bills introduced in 2015 were specifically geared towards authorizing and regulating online poker. In 2013, the Associated Press quoted California gambling control commissioner Richard Schuetz as saying that over 1 million people were betting over the Internet in his state, all illegally.
“That industry is between $300 million and $400 million,” he said. “That’s a huge business that operates without any consumer controls or any benefit to the tax base.”
Even though New York didn't put forth a bill to legalize online gambling, it was reported that the state introduced Bills AB 880 and 6007 that would provide legislation for a statewide study done on the extent of legal and illegal gambling done by New York state residents, including online gambling.
It has been over 20 years since Sen. Jon Kyl (R-Ariz) first introduced the bill known as the Internet Gambling Prohibition Act of 1997. At that time National News reporter David Isaacson had written that online gambling had grown into a 300 million dollar industry and there were about 32 online gambling sites.
Not everyone believed that Kyl's legislation would prevent online gambling in the US. Rep. John Conyers D-Mich thought Kyl's legislation would do little to stop online casinos and in March 2003 introduced a bill that competed with the legislation. The bill was to create a five-member federal gaming commission, appointed by Congress, to study online gambling for one year and recommend the best methods of regulating it.
Doug Abrahms of the Reno Gazette-Journal quoted Conyers as saying, '"You might remember a failed experiment the U.S. government tried in the 1920s called Prohibition. Instead of a prohibition that will drive gambling underground and into the hands of unscrupulous merchants, Congress should examine the feasibility of strictly licensing and regulating the online gaming industry."'
Abrahms also quoted Rep. Ron Paul, R-Texas who said '"This whole idea of the invasion of our house (by online gambling) is incorrect. You do have the brains to turn it off. We're trying to regulate behaviour."'
Conyers said in an editorial that, "If you want to prevent money laundering, the last thing you would do is eliminate the financial controls and record-keeping that credit cards and U.S. bank accounts provide. ... Children can be kept off of gambling websites, however, by requiring the use of a credit card, PIN numbers, and other screening devices. ..."
The issues involved in the legalities of online gambling were complicated and every year a different twist was added to the Internet mix and nothing ever stayed the same for very long.
When Sen. Jon Kyl (R-Ariz) first introduced his bill in 1997, everyone was heading down under. Why? Because in Australia Internet gambling was legal.
It was seen as the place to be if you wanted to corner the market on online gambling. Just ask those who invested there how fast the industry can change. It's all a gamble, sometimes you win and sometimes you lose, and no body knows this better than Jay Cohen.
Jay Cohen, who was president of the World Sports Exchange (WSE) in Antigua, was one of the first of 22 defendants charged in March 1998 under the Wire Act.
Reporting for Yahoo Internet Life in 1999, Justin Ware described how the then 27 year old Cohen, who had been a trader on the San Francisco Stock Exchange had started one of the first online sports books in 1997 by working out of a small office suite in Antigua. "After a couple of investors agreed to back him, he persuaded two friends to join him: Steve Schillinger, an options trader with more than 18 years of experience and a head for numbers; and Haden Ware, a student Cohen had met on the trading floor. The World Sports Exchange was born."
According to Ware (no relation to Justin Ware), nearly three years after the launch of their business, Jay Cohen was in Seattle awaiting trial, and Schillinger and Ware were considered fugitives. Cohen chose to go back to the US and fight the charges; Ware and Schillinger chose to stay and run the business. Fortunately for them, and frustratingly for the FBI, as long as they stayed in Antigua, they couldn't be touched. Since extradition requires both countries to agree on the offense, and Antigua considers online gaming to be perfectly legal, Ware and Schillinger couldn't be extradited, Ware reported.
"Haden Ware was a student on his summer break when he went down to help Cohen and Schillinger, '"When I first came down here, I was going to school… Jay called me up and said, 'I'm going to the Caribbean. Are you in?' And I said, 'Yeah, I'll come down, take a summer off, have a good time.' It's turned out to be a little bit longer than that,"' He was reported as saying.
Steve Kanigher quoted Cohen in the Las Vegas Sun in March 2003 as saying that when he decided to go back to the US to fight the charges he had a conversation with Schillinger. "I said that I would come back to fight this. He said that he was staying there in Antigua. I said one of us is making the right decision."
Ware reported that the decision to work from Antigua was intended to keep things legal. He quoted Schillinger as saying, "We were very open about what we did…. If we could have done this in San Francisco, we would have. We came down here because we thought we would be licensed to do what we wanted to do."
Stephen Nover of The Prescription news reported in October 2003 that Cohen didn't believe he was breaking any laws. He was accepting wagers in Antigua, where bookmaking was legal. He came back to America to fight the charges and was the only defendant of those charged who challenged the system.
Nover reported, "After losing his case in a controversial manner when the judge instructed the jury how to vote, Cohen appealed. He lost his appeal two years later, and found out in June 2003 that the Supreme Court would not review his case.
U.S. District Judge Thomas Griesa sentenced Cohen to 21 months in federal prison and a $5,000 fine." Cohen began serving his time on October 15, 2003.
Of the initial group charged in 1998, thirteen pleaded guilty and seven were still fugitives including Steve Schillinger and Justin Ware who were still in Antigua.
In 2003, World Sports Exchange was one of the largest sports books in the world with a customer base estimated to be around 30,000.
Mark Fineman of Business 2.0 wrote an article on the World Sports Exchange and of Schillinger and Ware in October 2000.
"Meanwhile, when they're not holding epic pool parties, they're running WSE and watching the money come in -- and there's a lot of money coming in. In the two and a half hours it took U.S. District Judge Thomas P. Griesa to sentence him, Cohen's website in Antigua took in seven times his $5,000 fine in bets on the New York Yankees-Oakland A's game alone, a fraction of the tens of thousands of dollars' worth of online bets placed with WSE that day," Fineman reported.
He quoted Schillinger as saying, "I was a great citizen of the U.S. I coached my kids in the Little League [and the Catholic Youth Organization basketball league]. My assistant coach was an FBI agent. He knew what I was doing. I gave a lot to my community, and for them to say I'm a criminal? Don't tell me the U.S. government thinks gambling is the worst thing in the world."
"Forty-four states have lotteries, 29 have casinos, and most of these states are to varying degrees dependent on you might say addicted to revenues from wagering."
Cohen, who was interviewed by Kanigher in the visiting room at the Nellis prison, said, '"I would respect Congress more if they said all gaming is bad and that they want to ban all gaming," Cohen said. "I wouldn't agree with it but I would respect it. But their real motivation is nothing more than anti-competition. It's protectionism. They're just trying to protect their home-grown industries."'
In October 2003, Michael Hiestand of USA Today quoted Joe Read, who directed customer service for a Costa Rica-based sports betting site, as saying that Cohen's conviction led "industry people to protect themselves by getting local people to front their businesses. That's the loophole. An American can run the business but no one can find out," he said.
Hiestand also interviewed industry consultant John Musch who said bettors would inevitably find their way around any ban, especially as more countries begin to allow online betting. According to Musch, the U.S. needs to regulate online gambling. '"The legitimate operators would welcome that since they'd then seem more legitimate."'
When the authorities first used the Wire Act as the basis for their charges against online gambling sites there were questions as to how well the act would hold up under the law. The Interstate Wire Act of 1961 prohibits sports wagering between states using telephone lines or through other wired devices. Since the Internet had not been in existence in 1961 there were questions as to how that could possibly apply to the Act.
In June 1999, Tim Ito and Sharisa Staples of the Washingtonpost.com news reported, "despite the Justice Department action, many legal scholars question how well existing laws can be applied to new technologies. The Wire Act, for example, does not explicitly mention the Internet. It is also unclear how well the law would apply to satellite based transmissions, which are not considered wired devices."
Ito and Staples quoted Nelson Rose, professor of law at Whittier Law School who said, "Changes in [gambling] law follow changes in society… But our society has been changing so rapidly . . . sometimes the law cannot keep up."
Kanigher reported that some legal experts believe the Wire Act applies only to sports wagering. Kanigher cited a federal ruling in Louisiana upheld in 2002 by the 5th U.S. Circuit Court of Appeals that had come to the same conclusion. "The courts ruled against two Internet gamblers who sued credit card companies and banks after accumulating gambling debts from casino-style gaming websites. The gamblers argued that the credit card companies and banks, working in conjunction with the websites, created a worldwide gambling enterprise that facilitated illegal gaming, making their debts unenforceable. But as part of their dismissal of the lawsuit, both courts ruled that the wire act applies only to bets on sporting events or contests."
Alex Altam of the Times reported in 2013 that proponents of online gambling hoped to tap into a multi-billion dollar industry, of which U.S. residents account for around 15% of the revenues despite laws that force Americans to patronize offshore companies to participate. A recent study by Morgan Stanley estimated that online gambling could become a $9 billion industry by 2020, roughly on par with the revenue generated in the glittering palaces on the Las Vegas strip and the casinos lining the Atlantic City boardwalk."
Howard Stutz of the Las Vegas Review-Journal reported in 2014 that "state regulators, lawmakers, casino industry insiders and Wall Street analysts have estimated online gambling wagers could generate as much as $1.2 billion in gaming revenues in the first year — roughly 40 percent of what Atlantic City’s 12 casinos collected in 2012."
In 2012 gaming companies like MGM Resorts International and Caesars Entertainment Corp were investing their money in social gaming sites suggesting that the legalizing of online gambling for Americans was just around the corner. Stutz reported in May 2012 that numerous social gaming casinos would open in the coming months, "easily eclipsing all the traditional land-based casinos scheduled to open in U.S. regional gaming markets this year." Although only virtual money was placed and the winnings included virtual prizes, these companies appeared to be setting themselves up for the legalizing of online gambling.
The Unlawful Internet Gambling Enforcement Act (UIGEA) that was passed in 2006 restricted the use of payment systems for Americans who gambled online, throwing a wrench into the online gambling industry back in 2010. The American Bankers Association had warned all banks in November 2009 that they would have to comply with the 2006 (UIGEA) law by June 1, 2010, and institute policies and procedures to block certain prohibited transactions.
On April 15, 2011, 11 individuals associated with PokerStars, Full Tilt Poker, and Absolute Poker/Ultimate Bet were indicted by the DOJ. The charges focused in part on payment processing activities. The criminal and civil charges accused the defendants of engaging in bank fraud and money laundering, as well as violating UIGEA and operating unlawful gambling businesses. A second round of indictments was handed up on May 23, 2011, shutting down ten more online gambling sites.
In response to the implementation of the Act of June 1, 2010, some online casinos came up with their own payment systems.
In the early years, companies like PayPal predominated the online gambling payment market. But this all changed in June 2003 when New York Attorney General Eliot Spitzer subpoenaed PayPal's records relating to the use of the payment service by gamblers. At that time PayPal agreed to stop online gambling companies from using the service to accept money from gamblers who resided in New York State. In August 2003 Beth Cox of InterneNews.com quoted a spokesperson from PayPal as saying, it was "taking the action in 'voluntary cooperation with the attorney general and was not admitting to a violation of law.'"
Cox reported that under the settlement, PayPal agreed not to process payments to online gambling sites from New York customers as of Sept. 1 2003 and would pay $200,000 to New York State to cover costs of the investigation and penalties.
Joanna Glasner of Wired.com news reported in July 2003 that under the terms of its planned purchase of PayPal (PYPL), eBay decided that it would stop offering the payment service for online gambling transactions. It attributed the decision to an "uncertain regulatory environment surrounding online gaming."
Under the USA Patriot Act, it was prohibited to transmit funds known to have come from a criminal offense, or that were intended to promote or support unlawful activities. Attorney for the Eastern District of Missouri told eBay that its online payment service PayPal had violated provisions in the USA Patriot Act between October 2001 and July 2002, Dawn Kawamoto reported for CNET.
It was alleged that PayPal violated laws regarding the processing of online gambling payments, and eBay the parent company of PayPal was asked to hand over nine months of the gambling-related earnings in the settlement.
According to Brian McWilliams of Wired.com, nearly 500 gambling sites signed up to accept PayPal in the first quarter of 2002, almost doubling the company's roster of such merchants, which stood at 1,022 as of March 31, 2002. McWilliams reported in 2002 that "in exchange for taking such a risk, PayPal was expected to derive more than $16 million from online gaming in 2002. Already that year, its revenues from such merchants -- who pay higher fees to offer the PayPal service -- had more than doubled, accounting for 8 percent of its total income."
Kawamoto reported that PayPal received 6 percent of its revenue from online gambling, according to its filing with the Securities and Exchange Commission in 2001.
Glasner interviewed Keith Furlong, of the Interactive Gaming Council, who said that with PayPal out of the picture, gamblers would likely turn to competing online payment services such as Neteller and Firepay. Firepay, which shut down in 2007, was governed under the laws of Bermuda. Neteller is based in the Isle of Man and is publicly traded in the United Kingdom.
By 2005, Neteller was processing over $7.3 billion in financial transactions. According to reports issued by Neteller, 95% of its revenue was derived from money transfers involving online gambling companies. On September 11, 2006, the President and Chief Executive Officer of Neteller described the "online gaming market" as Neteller's "main market," and stated that, in the first half of 2006, Neteller processed $5.1 billion in financial transactions.
On January 16, 2007 one Neteller founder John Lefebvre was arrested in the Virgin Islands and another, Stephen Lawrence, was arrested in Malibu, California. The two Canadians were charged in connection with the creation and operation of an online payment services company that facilitated the transfer of billions of dollars of illegal gambling proceeds from United States citizens to the owners of various online gambling companies located overseas.
As a result of the arrest, Neteller shut down its US online gambling services. Both founders pleaded guilty and Reuters reported in July that Neteller agreed to forfeit $136 million but would not be prosecuted for conspiracy under a deferred prosecution agreement with the U.S. government. Neteller also had to pay back $94 million owed to customers.
Another alternative payment system being used by online gamblers and cited by the Australian Bankers' Association was the use of electronic cash or e-cash.
In 2003 Rod Smith of The Delaware News Journal quoted gaming author Mark Schopper as saying that 'according to the Treasury Department electronic cash was "the biggest money laundering threat ever seen". Schopper said the Kyl legislation banning credit cards for online gambling would likely have "tremendous unintended consequences encouraging money laundering."
"Criminalizing online gaming, as the committee seeks to do, is a practical impossibility because operators are based offshore, beyond the reach of U.S. law, he said... The real fly in the ointment is that the alternative payment systems being developed to get around the ban are the most powerful and untraceable money-laundering tools ever imagined by criminals, he said."
Reporting for the New York Times in July of 2010, Sewell Chan wrote that the recent bill to legalize online gambling sponsored by Senator Robert Menendez, Democrat of New Jersey, would "direct the Treasury Department to license and regulate online gambling operations, while a companion measure, pending before another committee, would allow the Internal Revenue Service to tax such businesses. Winnings by individuals would also be taxed, as regular gambling winnings are now. The taxes could yield as much as $42 billion for the government over 10 years.... The committee vote was 41 to 22, with seven Republicans joining most Democrats on the panel in favor of the measure."
In his article Chan reported that by some estimates, American online gambling exceeds $6 billion a year. Although this sounds like a lot, it is less than what the industry was making back in 2003, before most online casinos were driven off shore as a result of the 2006 Unlawful Internet Gambling Enforcement Act law. In March of 2002, Andy Sullivan of Reuters reported that Christiansen Capitol Advisors estimated gambling sites took in about $2.2 billion in revenues in 2000, and would collect $6.4 billion by 2003. At the time Sullivan wrote his article, there were about 1400 online gambling casinos. In 2003 there were between 1800 and 2000.
According to the American Gaming Association there are approximately 85 countries who have chosen to legalize online gambling. "As of June 30, 2010, one survey found 2,679 online gambling sites worldwide were owned by 665 companies."
The American Gaming Association (AGA), which represents the commercial casino entertainment industry, has also changed its stance on online gambling. When Congress first began considering online gambling, the AGA was strongly opposed to it. This position was taken in an effort to protect land based casinos in the United States. In 2003, Frank Fahrenkopf was quoted as saying that the association "maintains the view that the technology necessary to provide appropriate regulatory and law enforcement does not presently exist with regard to online gambling. Until those concerns can be adequately addressed, the AGA remains opposed to online gambling."
Benjamin Grove of the Las Vegas Sun reported in March 2003 that in 2002 MGM MIRAGE, one of the largest operators of Las Vegas Strip hotels, became the first major U.S. gambling company to open an online casino, based in and regulated by the Isle of Man off the coast of Great Britain. MGM's online casino did not accept bets from the United States. BBC World Clickinternet's Richard Taylor reported in November of that year that to keep Americans out, MGM had built a system that used technology to monitor where players were betting from.
"We are 99.9% confident it catches anybody who's not of age or from places that don't currently allow online gambling for its citizens or operators," said Bill Hornbuckle of MGM Mirage online.
MGM said their geographical verification software could identify where customers were coming from and prevent them from using the site."
Despite their effort, due to the political climate and hostility towards online gambling, the venture shut down in 2003.
At that time, Taylor reported, that attitudes were changing in Vegas by some of the entertainment corporations which ran the Vegas casinos but that there was still apprehension by some companies because of the legalities involved. He interviewed David Strow of Harrah's Entertainment who said, "We've spent the last 65 years building up this company. We now have more than 24 casinos across the country, and billions of dollars invested. But the way it works in the US is that each of these casinos has to be licensed by a state in order to operate. They view it as a privilege not a right. If we're found in violation of federal or state laws regarding Internet gaming they have the right to take our licences. In essence we could lose our ability to operate our properties."
Kanigher reported that Nevada Gov. Kenny Guinn signed into law a bill in 2001 that directed state regulators to develop ways to license and regulate online gaming companies as long as they operated in compliance with federal laws. Kanigher interviewed Nevada Gaming Control Board Chairman Dennis Neilander who said that those regulations never developed because of the Justice Department's position that all online gambling was illegal.
'"The state law requires us to make a finding that it can be done applicable to federal laws," he said. "As long as the Department of Justice takes the position that it can't be done, we won't override that.... It's kind of a gray area right now because you're transmitting across state lines, so the federal law comes into play, and the federal law is unclear," he said.'
Back in 1997 when Sen. Jon Kyl (R-Ariz) first introduced the Internet Gambling Prohibition Act, the American economy was still booming and dot.coms hadn't yet gone bust but by 2003 advertising revenue from offshore gambling sites fueled the Internet economy. Internet businesses had been scrambling to stay afloat and the advertising revenue from online gambling sites had been too irresistible to refuse.
David Schepp of the BBC reported in February 2003 that online gambling had become the fifth largest advertiser online, jumping to 2.5 billion from 910 million ads in 2002. "Online gambling firms are now advertising on more mainstream sites, thus appealing to whole new groups of gambling enthusiasts."
He interviewed Charles Buchwalter, head of media research at Jupiter Media Metrix who said that, "online casinos are now competing for advertising with the most visible industries, including retail, financial services and travel…The fact that online casinos are [moving] their ad-buys from niche sites to mainstream portals is proof that this sector is going mainstream," Buchwalter said. Those "mainstream portals' included sites like Yahoo! and Excite."
Since most of these offshore online gambling sites were out of the reach of US authorities and were legal in the countries where they existed, there was really little US authorities could do to stop them. Roy Mark of JupiterMedia.com reported in March 2003 that 60 percent of all offshore gambling dollars came from Americans.
According to the Justice Department, at that time, online gambling was illegal for Americans. The courts had also ruled that under the 1961 Wire Wager Act, which prohibits the use of phone lines for placing sports bets, Internet sports betting was illegal too.
The Senate Banking Committee expressed strong support for the Kyl bill during a hearing in March 2003. The House Judiciary Committee's subcommittee on crime passed the House version of the bill authored by U.S. Rep. Jim Leach of Iowa in May 2003. It had already won the support of the House Financial Services Committee in March 2003. The legislation had previously passed both the Senate and the House, but never in the same session of Congress.
Many credit card companies had already distanced themselves from online gambling. According to Beth Cox of Ecommerce News, as of July 2003, the list included Bank of America, Fleet, MBNA and Chase Manhattan, as well as Citibank, which controlled about 12 percent of the U.S. credit card market at that time.
Cox further reported that credit card transactions were often coded to indicate what was being bought or sold. By blocking certain codes, banks that issued credit cards could avoid issuing credit for much of the gambling activity that occurred on the Internet.
This sounds logical in theory but according to information made available by the Australian Bankers' Association in late April 2003, this was not always easy to do. The recommendations, which pertained to the Interactive Gambling Act that was passed in Australia in June 2001, reported a number of problems in being able to block credit card transactions.
The Association reported that the blocking of service codes, would likely be effective for credit card purchases occurring directly between the customer and the gambling merchant, provided the merchant had correctly coded the gambling transaction. However there appeared to be a number of means by which the correct identification of illegal interactive gambling transactions might be avoided. One possibility was for gambling merchants to use incorrect credit card transaction service codes in order to avoid identification of gambling transactions.
The Australian government initially promised amendments to the 2001 Interactive Gambling Act that would consider the feasibility of blocking credit card transactions for overseas gambling sites. It later backed away from introducing such rules, warning there were many problems with that level of regulation.
The Australian Bankers' Association also pointed out that gambling sites, which are legal in their own countries, could easily set up player accounts with offshore financial institutions. They also sited the use of online payment providers as a means for individuals to make transactions with online gambling sites.
James Pearce of ZDNet Australia reported in February 2002 that the Interactive Gambling Act passed in Australia in July 2001 had done little to stop online gambling. Although the Act specifically banned online gambling, it still allowed internet sports betting and lotteries to continue legally.
Pearce interviewed Chris Downy, executive director of the Australian Casino Association who reported the results of a survey done by the Association. The year long survey found that 40 percent of online gamblers still visited overseas casinos. Downy also noted that the survey showed the number of online gambling sites visited by Australians had increased by 38 percent between February and December 2001, despite the legislation being introduced in July.
'"The level of interest in online gambling remained relatively consistent throughout the year and actually increased in July 2001, at the same time as the introduction of the Interactive Gambling Act" he said.'
Under the legislation, it is an offence to provide an interactive gaming service to customers in Australia and to advertise such services-including online casino-style services involving games of chance or mixed chance and skill, such as roulette, poker, craps, online poker machines and blackjack. However, betting on horses or greyhound racing, or other sporting events and lottery services are currently exempt under the act.
One of the reasons online casino gambling was banned in Australia was because of increased incidents of problem gambling in areas where land based electronic gambling machines had been installed such as in New South Wales and Victoria. In areas where there was less accessibility to the electronic gambling machines there were fewer gambling problems. Whether these land based machines can be considered equivalent to online gambling sites is difficult to say.
During inquiries to the Interactive Gambling Bill in 2000 the committee also received evidence that despite the availability of Internet racing services to Australian homes there was little evidence of a parallel increase in problem gambling. The Home Racing channel, which had been available on Sky Channel in Australia since Sept 5, 1998, had not resulted in a perceptible surge in problem gambling. It was noted, however, in the report that there were insufficient studies on sports betting in general to determine its impact on problem gambling.
This was different than what was happening in the US where the Wire Wager Act appeared to ban sports betting but not online casino betting. The discomfort with sports betting in the US was attributed to point shaving scandals that have occurred in amateur sports.
In his article, McCory reported that "in congressional testimony, William Saum, the NCAA's director of agent, gambling and amateurism activities, warned that online betting could lead to a resurgence of the point-shaving scandals that tarnished basketball programs at Northwestern University and Arizona State University during the 1990s.
When people place wagers on college games, there is always the potential that the integrity of the contest may be jeopardized and the welfare of student-athletes may be threatened," Saum said.
Point shaving scandals have been going on in amateur sports since as far back as 1947. CNN reported in March 1998 that thirty-two players at seven schools were implicated in a plot to fix 86 games between 1947-50. Included in the scandal were players from City College of New York and Kentucky (big names involved: Ralph Beard, Alex Groza and Sherman White). Other point shaving investigations went on between 1959-61, 1978-79, 1984-85, 1989, 1992, 1994, 1995, 1996 and 1997.
In his article in March 2002, McCory interviewed Steve Schillinger about bets being placed online for college basketball's March Madness. Schillinger told McCory that he expected the World Sports Exchange to have rung up as much as $2 million in bets for each day of the tournament. He quoted Schillinger as saying that even the Super Bowl, another major draw for sports gamblers, "is sort of a non-event in comparison."
Internet sports betting tout Max Sanders believes the point shaving scandals have more to do with the fact that amateur players aren't paid for their participation in college sports. "The NCAA makes billions of dollars off of these amateur sports and yet the athletes never see a penny of that money. It has nothing to do with the Internet," he said. "These kids are easy prey because they are poor and need the money. It is not as if you can hold down a part time job when you're in a major college athletic program because it's a full time commitment. These kids barely have time to attend classes. Shaving scandals were going on long before the Internet."
Jennifer Goldblatt of Delaware online, reported that sports betting is a more specialized form of gambling and attracts a much smaller set of gamblers than activities such as slots. She interviewed William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada-Reno who said, "With sports betting, even though there's a following, it tends to be one of the more technically challenging to do it right, … quite a bit of analysis that is done and marketing, as opposed to a slot machine, which is a pure chance game."
George F. Will, of Newsweek reported in November 2003, "Gambling has been a common feature of American life forever, but for a long time it was broadly considered a sin, or a social disease. Now it is social policy: the most important and aggressive promoter of gambling in America is government.
Although Britain's broadband availability trailed many other European countries, the United Kingdom was expected to lead Europe in Internet consumer revenue by 2005 thanks to its relaxed attitude toward online gambling, Peter Judge reported for CNET news in December 2001.
According to research from Schema Consulting, $38 billion was to be spent on online entertainment in Europe in 2005 and online gambling was to be the largest industry. "The United Kingdom was to take 35 percent of the overall spending, said Schema President David Brown, because it was more accepting of gambling, and other countries were more likely to have laws restricting it," Judge reported.
"British leaders understand the importance and the value of regulating this relatively new means of gaming, I only wish the U.S. government would take such an enlightened approach, instead of futilely attempting to block a form of entertainment that millions of its citizens enjoy," Smith said.
If online gambling was regulated in the US, Cohen believes that online wagering companies would be willing to cooperate with federal regulators by helping to combat money laundering, suspected game-fixing, underage gambling and attempts by individuals to avoid paying taxes on winnings, Kanigher reported.
Countries where Internet gambling is legal have always taken exception with the US governments attempt to outlaw it. In 2003 Antigua and Barbuda brought the United States before the World Trade Organisation (WTO) over its anti-Internet gambling stance and what it saw as interference in its economic development.
Glen Shapiro of Law And Tax-News.com quoted Antiguan Prime Minister, Lester Bird as saying, "'America is the largest gambling country in the world so how can they then be so unctuously self-righteous, to use their power to destroy the niches that we are having, trying to develop some kind of diversification in our economy. It is unfair and therefore we are going to take them before the WTO.'"
In March 2007, the World Trade Organization held that the Unlawful Internet Gambling Enforcement Act (UIGEA) was illegal, rejecting a U.S. appeal from an earlier ruling.
At its height the onling gambling industry was worth over 3.4 billion to the Antigua economy and it employed over 4000 people. Today the industry employs less than 500. As a result of the failture of the United states government to resolve the ten year old dispute with Antigua and Barbuda, in January 2013 the World Trade Organization granted Antigua and Barbuda the right to suspend United States Intellectual and Property rights.
In 2003 Mark Berniker of InternetNews.com reported Antigua had more than 100 licensed Internet casino operators, which generated millions of dollars every year for the Antiguan government. "Antigua, for its part, says that with the downturn in the tourism industry, the country has come to rely on revenues generated from licensing and taxing of Internet casinos on its territory. The Internet betting industry employs 3,000 people in Antigua, and officials say the U.S. would be in violation to its commitments under the WTO's commercial services agreement."
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