Do you really want to take a gamble? Try betting online.
Indeed, gambling online could be a bigger risk than you'd ever imagined. The industry operates outside of the U.S., where regulation is scarce. So if you gamble online, you run the risk of playing games from operators who may not pay even if you win.
Online gamblers are basically out of luck in more ways than one," says Anthony Cabot, co-editor of the
Gaming Law Review
, a legal journal covering the industry.
But none of this has stopped the online gambling industry from growing.
According to Christiansen Capital Advisors, a New York consulting firm that tracks the gaming industry, gambling Web sites took in $3.5 billion in revenue during 2001. This year Christiansen expects that number to rise to $4.5 billion and, by 2005, to top $10 billion.
Currently, more than 1,800 gambling Web sites exist -- an increase from just a handful in 1996, says Mark Balestra, vice president of publishing at River City Group, an Internet gaming consultancy and research firm. And the popularity of such Web sites is growing quickly. From November 2001 to April 2002, the number of unique users (the number of total visitors who visit or use a Web site) at online gaming sites increased 40%, according to Internet tracker Jupiter Media Metrix.
It's Not Necessarily Legal
Americans who go online to gamble could be breaking the law because many states have laws against the practice. For example, Utah and Hawaii ban all forms of gambling, including offline and online sources. Other states such as Michigan, Louisiana, South Dakota, Illinois and Oregon have specific bans on Internet gambling. And still others such as Nevada and New Jersey ban forms of gambling not approved by the state, and that could cover Internet gambling.
"I don't know of any state where you can safely say you can legally gamble on the Internet," says Frank Fahrenkopf, president of the American Gaming Association.
Federal law does not make clear whether Internet gambling is legal. The 1961 Wire Act, which makes it illegal to place sports bets using the telephone, covers sports gambling Web sites. In 1998 the U.S. government charged 21 online gambling operators with violating the Wire Act. Thirteen pleaded guilty, but only Jay Cohen, co-founder of the World Sports Exchange, stood trial and was found guilty, setting a legal precedent.
While courts have outlawed online sports betting, a federal law directly addressing all forms of Internet gambling doesn't exist. "This is a huge gray area," says Balestra. "To offer sports betting is illegal. But what about other kinds of gaming, like blackjack? There isn't any clear law."
Rep. Bob Goodlatte (R., Va.) has introduced legislation in Congress that would answer this question, extending the Wire Act to specifically ban Internet gambling. But when a similar version of this bill was introduced last year, groups such as state lotteries, Indian reservations and the horse racing industry received exemptions. "There were tons of
concessions, and once that happens," Balestra says, "people who supported the ban didn't think it had any teeth."
And It's Not Necessarily Honest
As a result, all gambling Web sites are located outside the U.S., where regulation and oversight are scarce.
Sixty-nine jurisdictions outside of the U.S. allow online gambling, including the U.K., Antigua and South Africa, according to River City Group. Each country has its own way of regulating and licensing gambling outfits. But generally, oversight can be extremely lax, says John Cargnello, president of Technical Systems Testing, an independent auditing firm that tests games to ensure they're fair.
European jurisdictions are known for tight regulations, Cargnello says. But he is less certain about the practices in Caribbean locales, such as Costa Rica, which simply requires a business license to operate a gambling site. "Unfortunately, 95% of casino sites are in unregulated or poorly regulated jurisdictions," he says.
Without strict regulations and solid enforcement, online gamblers have little reassurance that games haven't been rigged. Plus, gamblers lack a legal recourse if a company doesn't pay out winnings. "Once you have an atmosphere with no government oversight, you have to rely on the integrity of the person you're dealing with," Cabot says.
Consider the case of Aces Gold, a Curacao-based online gambling site that went bankrupt in February this year, just after the busy Super Bowl betting season. "They couldn't cover all the wagers they took in, and so they packed up shop and left," says Mark Lesnick, owner of StartCasino.com, which provides information about the industry. Lesnick estimates that Aces Gold owed $10 million to gamblers when it went under.
Good Apples in a Bad Bunch
Not all Internet gambling operators, however, are dishonest. To distinguish themselves from lesser operators, some of the larger online gambling sites use major accounting firms to determine whether the games offer fair payouts and to ensure that gamblers receive their winnings.
For example, LuckyNugget.com, the second-most-popular gambling site, according to Jupiter Media Metrix, uses PricewaterhouseCoopers to audit its payouts.
"But there's no requirement for them to be audited," says Keith Furlong, executive director of the Interactive Gaming Council, a nonprofit trade group representing the industry.