502 The Future of Gaming: Is it on the Internet? 1000
The Future of Gaming:

Is it on the Internet?
Monroe E. Price
Joseph and Sadie Danciger Professor of Law
Director, Howard M. Squadron Program in Law, Media and Society

    The Internet is the haunting, speculative presence at any discussion of the future of gaming in the United States and the world. Of course there is no reason why gaming should be spared the shattering reformulation that touches all businesses in light of new technologies. The destabilizing and radically reformulating pressure of the Internet is a condition of almost every fixed institution, as more and more enterprises are shaken or energized by the shift to electronic commerce and concourse. What is fascinating, across the Internet, is the way legal institutions begin to change to accommodate the new potential, with little buds of adjustment already visible on what will soon become a fully blossomed transformation.

        Fluid as the night, electronic particles
and the activities they support
               flout and mock traditions of law and regulation.

    Much of the debate over gaming echoes discussions over the last five years concerning other areas of content control on the Internet: pornography, defamation, copyright violations, consumer fraud. In each case, there’s a discussion of the dangers present in an unregulated Internet. In each case there’s a discussion of the value of providing a suitable regulatory environment rather than prohibition. In each case there’s a discussion of the inability of any country to regulate effectively the Internet. There are calls for self-regulation by the Internet industry (or perhaps by elements of the gaming industry). There are special fears for the corruption of children. And there are varying estimates of how extraordinary the dollar amount of traffic already is, and potentially will be.
In each case, too, there is the danger that instant legislative responses might produce ineffective, possibly unconstitutional laws that gain publicity but do not yield meaningful or positive social change. Pornography has seen a series of laws that have collapsed under judicial scrutiny, including the famous decision by the Supreme Court in Reno v. ACLU.

    Gambling on the Internet presents, then, problems that are, in many senses, common. But there are idiosyncrasies and significant differences. While the dollar estimates for many uses of the Internet rise to the apocalyptic, the figures for Internet gaming are particularly impressive. The "t" word (trillion) has been dangled just to make up for overuse of the "b" word (billion). Already legalized gambling institutions—cities like Las Vegas, riverboat gambling in Mississippi, church-sanctioned gambling, and casinos on Indian reservations—elements of a huge existing industry, could be affected, transformed, or rendered obsolete by Internet gambling.  Addiction is a serious problem, with huge problems of policing credit.

    And as in other areas, domain names for web sites are part of a struggle for cuteness and brand identification. There’s youbet.com, www.playersnetwork.com and homegamblingnetwork.com; virtgame.com, thecasinothemepark.com and www.classicbet.com. Probably there’s sucker.com, 1000 addict.com, and www.cashyourchipswhenyourahead.com. There’s also eBet Ltd., which lists on the New Zealand Stock Exchange. Playboy Enterprises has established a make-believe casino at its web site, so it will be ready if and when the time comes for such a US Internet existence that does not transgress any law.

    Just as Internet gaming is a feverish experiment in new software, patents, and marketing, Internet gaming law is a complex work in progress. At least four states—Nevada, Louisiana, Illinois, and Texas—have enacted specific laws barring Internet gambling. Some jurisdictions, including California, New York, and Minnesota, have taken substantial action against Internet gaming enterprises. The National Gambling Impact Study Commission, in a June 1996 report, recommended that Internet gaming be prohibited. Most of the recommendations of the Commission have been included in the Internet Gambling Prohibition bill, sponsored by Senator Jon Kyl (R—Ariz.).

    Minnesota, first under the direction of then-Attorney General Hubert Humphrey III and then his successor, used a deceptive advertising charge to bring one Internet gaming entrepreneur to heel (at least possibly constraining him). A settlement produced a promise that the betting service would not accept wagers from anyone identified as a Minnesotan and required notice on the web site that gambling might be against state law. Minnesota is also leading the state fight against a National Indian Lottery, started by the Coeur d’Alene tribe of Idaho.

    While the US legislates and prosecutes, other countries are spreading the red carpet. There is international competition to become the jurisdiction most hospitable to online gaming. The UK already has taken the position that licensed betting agencies can use the Internet to expand their businesses. A UK-based bookmaker can take bets from overseas clients via the Internet to the extent he can take the same bets over the telephone. On the other hand, there is no present right to a license in Britain for an Internet casino because players have to be physically on the premises when gaming takes place.

    New Zealand is worried that Australia will beat it to the post. South Africa sees the possibility of a source of income, if it plays its cards right, that will assist the economy. A recent report by South Africa’s National Gambling Board has suggested that the country could gain $1 billion by making itself a haven for international Internet gaming operators. South Africa should, one of the staff said, ensure that "the world’s leading Internet gaming providers operate and pay taxes [there] in preference to Europe, the Caribbean, and Australia."

While the US legislates and prosecutes,
                    other countries are spreading the red carpet.

    Adapting, perhaps unconsciously, a line used by the most traditional of sharks, a South African consultant to the study said that "the biggest danger is a lack of time. Other jurisdictions are looking very proactively at the Internet gambling market, and if they get in first, we may have missed the boat."

    There seems, also, to be a rush to off-shore jurisdictions, islands in the Caribbean or off the United Kingdom, to establish Internet gambling businesses conveniently lawful in that place of establishment. In an important New York case, Judge Charles Edward Ramos enjoined the operations of World Interactive Gaming Corp. The judge said that a "computer server cannot be permitted to function as a shield against liability, particularly … where respondents actively targe 1000 ted New York as the location where they conducted many of their allegedly illegal activities."

    True, World Interactive’s online casino required the gambler to submit a permanent address in a state that allowed land-based gambling, and a person who actually gave an address in an unfriendly jurisdiction was thrust from the electronic table. But the New York AG’s office gave a Las Vegas address to demonstrate how easy it was to foil the company’s "rule."

    One unexpected way of taming or regulating the industry is through the policing of Internet gambling sites by the credit companies. There have already been major interesting lawsuits involving the liability of credit card companies whose cards were used to rack up gambling debts. Internet gambling debts are probably unenforceable in many jurisdictions. And the US National Gambling Impact Study Commission recommended that the prospective federal law generalize these restrictions.

    In one case, a California woman sued MasterCard, Visa, Providian, and others for allowing its cards to be used for debts incurred by companies in what were alleged to be illegal transactions. The case was interesting because many of the companies, particularly MasterCard, announced worldwide practices for accepting Internet gambling charges as part of the settlement of the lawsuit. The rules require that Internet casinos post a notice on their web sites warning that gambling may be illegal in certain jurisdictions and that cardholders must ascertain whether their gambling practices are lawful.

    The Internet casinos, to be suitable parties to the use of the card, must ask prospective gamblers to identify the state or foreign country where they are located and keep the responses to these questions. Finally, complex new rules will code exactly what kind of gambling-related transaction has given rise to the charge against the credit card. Similarly, Visa will sign merchants only if the gambling web site has a valid license to offer services under the appropriate laws; it must describe the rules of play and payout and make its best effort to prohibit minors from gambling.

    There are innovative strategies to avoid liability. Many companies eschew the role of casino or gaming site. Some additionally avoid playing the role of bookmaker. For example, youbet.com stakes its claim on its relationship with licensed horse racing betting facilities.  The company states that it does not actually accept the bet. Rather, it is a communications vehicle for information moving between the bettor and the track, for which it charges a monthly fee and a percentage of the wager.

    Home Gambling Network, Inc. hopes to make its money by bringing "live, real-time casino gambling to a customer’s home/office anywhere he or she may be… ." The customer would then be able to place bets with pre-established credit at the casino’s actual site.
For those wondering who needs this service, HGN provides a convenient answer: Gambling may be difficult for those who "a) [are] physically challenged, b) ha[ve] children, c) cannot afford the time or money to travel, d) feel insecure, e) cannot stand to be in a crowded setting, f) do not like to be in an environment with cigarette smokers and/or drinkers… ."

    One of the $64,000 questions is whether gambling and a wager is made at the gambler’s home (or equivalent) or whether it is made at the point where the gambling facility is located. This sounds like one of those interminable first-year hypotheticals concerning long arms, doing business, and the Commerce Clause. Careers are being made on trying to assure one or the other answer to this question, while legislators, particularly state legislators, are choosing "both or either" as the right result. They would assert jurisdiction in a broad category of situations, including where advertising was targeted, where a bettor was located, where a business is located, maybe even where a server is 1000 located.

    There are also major issues of privacy and trust. The identity of gamblers could be in jeopardy in an Internet world. Many of the Internet gaming approaches require the customer to place large sums of money in the proverbial handkerchief and turn it over (electronically) to an entity that he or she may not know.
    And there are technological problems in ensuring that the Internet site is running a proper game. The kinds of technology issues involved were illustrated by a report from a company called Reliable Software Technologies. It asserted that a software flaw existed in the implementation of an Internet game called Texas Hold ’em Poker. The flaw would allow a player to determine the exact ordering of every card in an electronically shuffled deck. According to Reliable Software, it could ascertain the "seed" that determined the basis for a pseudo-random number generator to produce a shuffled deck of cards before each round of play, and the rest would be easy.

One of the most interesting forms of Internet risk-taking
       involves gambling in the market
                           for Internet gaming companies themselves.

    One of the most interesting forms of Internet risk-taking involves gambling in the market for Internet gaming companies themselves. Starnet, for example, a publicly traded company, suffered a big drop in its stock (at least temporarily) when a combined force from the Vancouver Police, the Mounties, IRS, and US Customs barged into the company’s offices. They claimed that Starnet was conspiring to violate laws against accepting or assisting wages on games of chance and sporting events without a proper license.

    Bring the thrill of gambling together with the excitement of gambling on Internet stocks, and the result may be a new era of possibilities for deception. In the fall of 1999, a grand jury in Los Angeles indicted Gecko Holdings, a telemarketer that offered stock in an online gambling business about to go public. With visions of huge profits, Southern Californians lined up to send money. Unfortunately, the owners of Gecko fled with the investments, probably spending a good deal of it at the track.

    Notwithstanding the passage of prohibitory laws and the existence of prosecutions, skepticism about the effectiveness of the legal system fuels the growth of Internet gaming stocks. One consultant company, Frost and Sullivan, reported that "software developers and operators maintain that laws prohibiting online gambling will be effectively unenforceable and that people who wish to gamble online will do so regardless. Consequently, market participants march forward despite legal uncertainties engulfing the market."

    Take Starnet, for example. After its Vancouver offices were subjected to search and seizure, it moved to Antigua, where gambling is supposed to be legal. That’s why a Canadian economist, George Bragues, like many others, thinks that Internet gaming would be better off legalized. Without legalization and regulation, the reality will be "underage gamblers continu[ing] their activity unchecked, the prospect of fly-by-night operators victimizing gamblers, software that unduly rigs the game against players, and casinos that welch on bets."  Bragues thinks that legalization and regulation could ameliorate the possible hazards. With proper controls, "governments could threaten to revoke the licenses of online casinos that defraud c 2a7 ustomers, accept bets from minors, or are insufficiently vigilant about money-laundering and pathological gambling."

    Fluid as the night, electronic particles and the activities they support flout and mock traditions of law and regulation—at least in the short run. But as major institutions develop, with a need for stability, investment, and protection against competitors, this market, like many others before it, will become domesticated and secure. National laws, international co-operation, self-regulation, and technical devices will all be part of some complex solution yet to be fully articulated, full of hazards in implementation. 0