Online Gambling Under Renewed ScrutinyOnline Gambling Under Renewed Scrutiny

Congress has begun to grapple with the thorny issue of online gambling and Congressman Barney Frank (D-Mass.) has indicated he'll push new legislation that will legalize some forms of online gambling while regulating the practices at the same time.

At Frank's House Financial Services Committee hearing Thursday, supporters and opponents of Internet gaming alternately advocated for and condemned online gambling, which is said to add up to $16 billion a year with most of that figure coming from U.S. bettors.

Some speakers at the meeting said technologies already exist that can be used and improved to regulate online gambling in a way to generate new tax revenues while also generating jobs for U.S. companies. Others testified that online gambling would take jobs from traditional legal gaming venues.

Congressman Frank has been an outspoken critic of legislation passed in 2006, the Unlawful Internet Gambling Enforcement Act. That legislation, which sought to prohibit financial institutions from accepting payments for online betting, was never implemented and was criticized by many banks and financial institutions as being too complicated and impossible to implement. The American Bankers Association, for instance, was among the many petitioners seeking to delay implementation of the law.

At the hearing Thursday, Michael Brodsky, executive chairman of online wagering company Youbet.com, argued that technology already exists to regulate online wagering.

"Today's out-of-control Internet gambling situation was made possible by the revolution in technology," he said, "and it will take technology to fix it…The already-existing, totally legal, online pari-mutual horserace wagering industry is a U.S.-based model of how to provide a responsible online wagering experience for adults." Online pari-mutual betting is legal in several U.S. states and Brodsky's company, which is in the process of being acquired by Churchill Downs, provides technological infrastructure for pari-mutual gambling. A voluminous report by Professor Malcolm Sparrow of Harvard University's John F. Kennedy School of Government was presented at the hearing. In favor of regulating an online gambling industry rather than prohibiting it outright, Sparrow said a well-regulated industry under U.S. jurisdiction could offer improved protection against the potential dangers of online gambling.

"Combining a thoughtful regulatory scheme with education, technology tools, and support appears to be the most effective means of handling the realities and risks of online gambling," Sparrow said. "Consumers in the United States would be better protected than they are now."

Speakers with negative opinions of online gambling also testified at the hearing. Robert Martin, tribal chairman of the Morongo Band of Mission Indians in California, said that Frank's proposed HR 2266 legislation would provide safe harbor for people currently engaged in illegal online gaming. Noting that the Indian Gaming Regulatory Act of 1988 was passed to help native American tribes develop reservation-based jobs, Martin said the "legislation will do nothing but legalize off-shore gaming at the expense of American jobs."

Michael Waxman, a spokesman for the Safe and Secure Internet Gambling Institute, said the hearing helps lay the groundwork for a vote on Frank's regulatory bill.

In indicating he will push for passage of the legislation next year, Frank called the ban on Internet gaming "a threat to liberty." He added: "It is unwise for the government to tell people how they can spend their money."