The Federal Government Should Leave Gamblers Alone

Why the Market Can Best Discipline Online Gambling

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In the United States, residents of 48 states can gamble legally, and no major city in the continental U.S. is located more than a short drive from a gambling venue. Yet a number of laws continue to restrict Americans’ ability to gamble on the Internet. The three main laws are:

1) The Wire Act, which limits interstate transmission of sporting results for the purpose of betting;

2) The Professional and Amateur Sports Protection Act, which bars certain states from legalizing gambling; and

3) The Unlawful Internet Gambling Enforcement Act (UIGEA),which does not directly restrict gambling but instead deputizes banks, credit unions, and credit card companies to block illegal online gaming transactions.

These laws have become increasinlgy burdensome and unworkable. This paper looks at four options to deal with them:

Prohibition. A total prohibition would outlaw all Internet gambling. This option fails to take Americans clearly expressed preferences into account, and would result in a loss of individual freedom.

The Status Quo. A status quo regulation would result in leaving matters of settled law as they are in the summer of 2008. In particular, it would involve clarifications that make betting on skilled games (like poker and bridge) legal, leave house-banked games like blackjack and slots in a legal gray area, and enforce UIGEA in relation to sports betting. This would, essentially, decide all outstanding legal questions in favor of more liberal approaches. As a short-term measure this solution makes sense and is consistent with current law. In the long term, however, it does not appear sustainable.

Political Regulation. A political regulatory system would involve setting up a government agency to regulate all online gambling. Proposals currently before Congress leave a great deal to be desired; they threaten to create a burdensome regulatory environment that would do nothing to protect consumers, and lack the flexibility that an evolving market requires.

Market Discipline: A system of market discipline is the preferred option. It would leave much regulation of gambling to market forces. Government would enforce laws against force and fraud and collect taxes from gambling companies the same as from any other businesses. Gambling site operators would, as a practical matter, submit to substantive oversight of non-skilled games but would have some choice of regulatory authority. This system fits in best with the nature of the Internet and the long-term interests of the public.

In short, the federal government should leave gamblers and gambling site operators alone.