Why Online Gambling Should Be Legal

Every year, Americans wager $380 billion illegally, according to the FBI (Americangaming.org). This promulgation of illicit wagering spells large windfalls for those operating in the shadows. Offshore websites, back room casinos and barroom bookies take in more money in two weeks than Las Vegas will all year.

This problem is unique to the United States; other countries sharing values and legal systems similar to the United States, including Canada and the United Kingdom have embraced online gaming. By legalizing online gambling, the United States will erase illegal wagering and the risks inherent to it allowing for safer, honest play and more revenue for regulatory jurisdiction and ultimately the government.

Countries such as Canada, the United Kingdom and most European Union member states have already successfully regulated online gambling. These jurisdictions have found a winning balance between industry regulation, consumer protection and revenue generation through transparent taxation. England, for example, has a history of bookmaking similar to the United States. A national past-time, bookmaking was made into a public commodity in 1961 when the McMillan government legalized betting shops. Today, this industry thrives both at the storefront and online as a carefully regulated industry, similar to other consumer facing businesses in which money is exchanged for services. What was once a social stigma of pre-war Britain has been modernized through careful collaboration of industry, consumer and regulator. While many would like to see the industry disappear or become marginalized out of existence, this is not a likely outcome.

Legalizing online gambling in the United States, it has brought the industry out of the shadows and into a place where oversight can ensure sunlight. Through this practice, jurisdictions have found online wagering to be a handsome source of taxation in exchange for ensuring the safety of participants. Online gaming first appeared during the internet boom of the 1990s. Canada became the first nation to embrace the industry by creating a framework of regulation to help encourage the industry. A lack of prohibition mentality allowed the industry to thrive in Canada creating a model system for the online gambling industry (Murray).

Canada has shown the evolution of online gambling is a win for players and operators. When online gambling was first introduced to Canada in the 1990s, Canadians were only able to gamble casino table games such as blackjack at offshore casinos, much like Americans do today. Canadian regulators began to notice the large outpouring of money south of the border into the Caribbean and Latin American operators of online gaming establishments. To remedy this, Canadian authorities embraced regulatory methods to ensure integrity of operators of protection of players. Many provinces now offer online versions of their provincial lottery systems. Additionally, many providences, such as Ontario and British Columbia, offer state-run online casinos.

Native reservations with the rights and licenses to provide brick and mortar casino operations regulate and license white label digital gambling products and Canadian authorities oversee operations with the same attitude as they do toward any other onshore, tribal or lottery style gambling operation. Today, online gambling is a $1 billion industry in Canada. With gaming commissions overseeing the integrity of the game, players are ensured an honest gamble. But while the industry is allowed to offer its product in a transparent setting, less scrupulous dealers of the odds have been edged out, and for the better.

With underground gambling comes serious criminal concerns. Hollywood likes to glamorize underground gambling as financial printing press for mobsters such as Tony Soprano or the downtrodden bookie working out of the corner of a smoke filled bar. However, the truth of today's underground gambling in the United States is far more dangerous are less isolated. Today's underground betting operations are often used in tandem to serious crime. Money launderers have found illegal gambling to be an easy method for playing Three Card Monte with illegal funds. Money laundering is the process of taking illegally gotten cash and channeling it back in a way that makes it appear as legitimate income. Criminals turn to unregulated shadow casinos to funnel money. Without the financial oversight to spot crime, these activities assist the plight of money launderers. Bookmakers often use their business as a funnel to launder money. The FBI reports several instances of players and operators relying on backroom casinos and bookmakers to launder drug money from drug sales, prostitution and human smuggling (US Attorney's Office). Casino runners rely on the constant cycling of cash to mask the origins of their funds while players can easily take a large sum of cash made on a drug sale and claim the proceeds as the result of a lucky night playing cards.

Organized crime relies on illegal gambling, among other industries, as a source of revenue. By forcing the gaming industry into the shadows, those providing the service are often using proceeds to fund much more vile crimes. Recent FBI success stories include a case in Boston's Chinatown involving illegal gambling. A ring of organized criminals set up an underground betting operation to fund the purchase, distribution and sale of illegal pain killers throughout the Boston area (US Attorney's Office). The cunning of the criminals was sparked by the cash influx of anonymous dollars wagered and lost to them. As a result, an industry with no oversight was allowed to help fund the narcotic distribution of an intricate syndicate of organized criminals. By ending the government's false prohibition against the industry and instead taking a more serious approach to ensuring the integrity of the flow of money, extreme cases such as these can cease to be a normal component of the gambling trade. Legalization edges out scrupulous actors as removed an important funding mechanism for organized crime.

Opponents often argue online gambling costs people money and family and emotional distress; they advocate prohibition is a means to guard people with problem gambling from themselves. The failure of prohibition is more compelling. Underground gambling, crime, violence and bankruptcy involving individuals underground gambling debt are evidence of that. Instead, jurisdictions have found ways to promote recreational gambling with warnings regarding problem gambling online. For example, British Columbia has websites and outreach campaigns aimed at problem gambling in all forms. Still, it is contended that online gambling may be a safer alternative due to the lack of sometimes violent consequences for gambling related debts and often dangerous venues.

The American Bar Association reports that over 80% of Americans already gamble in one form or another. Even if the United States would be so naive to not legalize gambling, the over 80 percent of Americans who gamble would still find a way to satisfy their hobby.A major misconception of many people is the idea that lotteries and state regulated games are not addictive. In fact according to Citizen Link depending what form of lottery people play, the lottery can be every bit as addictive as casino devices. In fact, research on video lottery terminals found that these machines could lead to addiction in just over a year. Currently 43 states have state regulated lotteries, however only three states have fully legalized gambling.

Online gaming proves to be a valuable tool for taxation. Business leaders estimate the internet could generate over $40 billion in annual tax revenue (Bloomberg Business Week). Bolstering the bottom line for governmental authorities would prove valuable in light of ongoing shortfalls in public revenue and the growing demand for services. Online wagering currently takes place, but in an untaxed and unregulated environment. Offshore casinos based primarily in Costa Rica, Panama and an assortment of Caribbean islands operate without audit or regulation. By moving casinos onshore, they become within the regulatory jurisdiction of American governmental authorities.

Some states have begun experimenting with this. New Jersey and Nevada have both legalized online poker. While limited simply to card games where plays jockey with each other for winnings, Nevada has found this year old experiment already generates over $250,000 in monthly revenue – all from a small state with a large amount of brick and mortar competition. While online poker was squashed by Congress in 2006 and again by the Department of Justice in 2011, the demand remains (Zhou). Players have shown interest in online gaming and have been able to turn to trusted brands; Both New Jersey and Nevada provide licenses only to casinos with proven records of integrity. Most host chains of brick and mortar venues, including Caesars Entertainment and Boyd's Gaming.

Nevada applies the same rate of taxation, 6.5 percent, toward internet gaming as it does to brick and mortar venues. New Jersey similarly applies rules evenly. In the more populated New Jersey, the Christie administration believes online poker alone will bolster state coffers by over $10 million monthly. The upside to gaming is large for taxing jurisdictions seeking unique ways to fill holes in budgets. Consumers prefer the transition to taxed and regulated gaming as well. Gamblers would happily trade a world of shadow industries for a highly regulated one.

Online gambling is an extension of an American past time dating back to the nation's founding. Other nations, and some states, have found success regulating and taxing the activity. However, the United States is sitting out. While consumer demand soars, Americans are turning to offshore unregulated websites and the underworld to satisfy their hobby. By providing a comprehensive legalization and regulation of online gambling, Americans can enjoy a safer and more honest industry with a tremendous upside to public coffers.

References:
http://www.businessweek.com/articles/2013-11-27/bloomberg-view-the-case-for-legalizing-online-gambling
http://www.ncpgambling.org/i4a/pages/Index.cfm?pageID=3314#financialprob
http://www.thecrimson.com/column/homo-economicus/article/2013/12/3/better-for-bettors/