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- Gregory A Piccionelli, 1989
 
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Online Gambling In The U.S. May Soon Be Legalized

JUNE 2009

It’s not yet law. It’s not yet even a bill out of congressional committee. And you shouldn’t get your hopes up quite yet. But yes, legal online gambling, a privileged indulgence allowed most of the citizens of the free world, may soon at last be permitted to the people in the land of the free.

On May 6, 2009, the chairman of the House Financial Services Committee, Massachusetts Representative Barney Frank (D), introduced new legislation that would for the first time explicitly permit online gambling in the United States. Rep. Frank’s bill, entitled “The Internet Gambling Regulation, Consumer Protection and Enforcement Act”, if enacted will establish a brand new federal regulatory regime through which Internet gambling operators would be able to obtain online gaming licenses that would allow them to accept bets from U.S. residents.

Representative Frank, a longtime supporter of online gaming, has been an outspoken critic of the current anti-online gaming law enacted during the Bush Administration. The current law, called the Unlawful Internet Gambling Enforcement Act (“UIGEA”), was stealthily passed by the republican-controlled Congress in the middle of the night on the last legislative day before the GOP got its well-deserved drubbing in the 2006 midterm elections.

The UIGEA basically prevents U.S.-based companies from conducting online gambling operations by criminalizing financial institution participation in the processing of transactions associated with Internet wagering in the U.S. Critics of the UIGEA have long claimed that the law is ridiculously vague and ambiguous, failing to even effectively define what kind of Internet gambling comprises "illegal Internet gambling". The republican geniuses who authored the bill left that task to attorneys representing the affected banks and credit card networks who are supposed to somehow to figure that out from among a myriad of complex and often conflicting state laws and Native American tribal rules.

Even more bizarre, many of us who have to work with the law believe that the structure of the UIGEA effectively makes credit card issuers and the banking industry the front line enforcers of the law. Commenting on the current state of affairs created by the UIGEA, Steve Kenneally, vice president of the American Bankers Association, was quoted in CreditCards.com as saying "It's not a good thing for banks". Ya think?

Thus, while the UIGEA was written with only a few exceptions to its broad online gaming prohibitions, such as an exception for purely intra-state Internet gambling, it has, nevertheless abysmally failed to prevent Americans from engaging in online wagering. In fact, other than creating a lot of confusion, the principal effect of the UIGEA so far has been to effectively destroy what was once a thriving multi-billion dollar domestic online gaming industry, and drive American online casino operators, and American gaming dollars, offshore. (Thanks again you oh so business savvy, patriotic repubs. I just don’t know why anyone would think we should trust any other party with our nation’s economy or our foreign policy.) Adding to a list of legacy items already including increased foreign oil dependence, increased Chinese manufacturing and debt purchase dependence, the UIGEA is just one more reason why our country’s global economic competitors should really step up to the plate and chip in to erect a giant “Mission Accomplished” monument to George W. Bush.

Fortunately, Abe Lincoln was right in his observation that all of the people could not be fooled all of the time. Therefore, despite a mighty effort to do so by George W and the religious righteous, something vaguely resembling rationality seems to be returning to our nation’s capital. And thus, at a news conference announcing the introduction of his new bill legalizing online gambling, Rep. Frank stated that "The government should not interfere with people's liberty unless there is a very good reason." Now that’s a combination of words I haven’t heard from the ruling powers in D.C. for quite some time.

Going on to address the current federal law, Rep. Frank added that the UIGEA’s blanket prohibition "is, I believe, the single biggest example of an intrusion into the principle that people should be free to do things on the Internet". Please, just pinch me.

Some details about Rep. Frank’s bill.

If enacted, Chairman Frank’s bill would mandate thorough investigations of potential licensees. It would also require technological barriers to deter underage gambling and gambling in prohibited locations. The law would charge the U.S. Department of the Treasury with the responsibility of promulgating regulations pursuant to the statute. And, in its current form, violators of the law would be subject to fines and/or imprisonment for up to five years.

Also, the bill would effectively repeal the widely criticized and bewilderingly complex 121-page set of regulations promulgated under UIGEA that went into effect on Jan.19, 2009.

Not surprisingly, online gaming interests have hailed Rep. Frank’s bill. For example, Michael Brodsky, chief executive of Youbet.com, commented that "Chairman Frank's bill is a welcome and realistic approach to U.S. Internet gambling".

What would enactment of Rep. Frank’s Internet gambling bill mean for adult webmasters?

Currently, Internet gambling is estimated to generate approximately $10-20 billion per year from U.S. customers according to Congressional testimony and various industry experts. While that is a huge amount, easily dwarfing revenues generated by the U.S. online adult entertainment industry (est. $2 billion), it is a figure that is sharply down from estimates of $40-50 billion per year prior to the passage of the UIGEA.

Consequently, for enterprising adult webmasters struggling to compete in a highly competitive market beset by diminishing profits and plagued by the twin dragons of content glut and rampant content piracy, the opportunities presented by the vast potential of legalized online gambling may prove to be an offer of business salvation that comes not a moment too soon.

Additionally, since the beginning of the web, adult erotic entertainment webmasters have long wanted to lawfully and profitably explore and exploit what appears to be natural demographic synergisms involving the two principal forms of online adult entertainment, erotic content consumption and online gambling. Effective and sustained economic development of opportunities involving online gambling and erotica have been stymied to date by governmental roadblocks erected principally at the behest of the religious right. Legal uncertainties and, in some cases, prosecutions or threats of prosecution for even promoting Internet gambling sites have severely hampered such development. In fact, were it not for such artificial impediments, it is likely that the online gambling industry in the U.S. would have by now developed numerous new types of games and business models to capitalize on the unique opportunities the Internet and e-commerce can provide to the ancient sport, art and science of gambling.

But, now, if Chairman Frank’s bill or something similar to it is enacted, and online gaming becomes presumptively legal everywhere in the U.S., we may see for the first time since the advent of the Web, what Yankee ingenuity applied to online gaming might be able to create. If you pardon the pun, I’ll bet it will take the industry to a whole new level. Such is the history of “ma peoples,” I am proud to say.

At the very least, American adult erotic entertainment webmasters, already the best traffic generators in the world, could, at last, freely promote licensed legal websites without the concern of prosecution.

What are the chances Rep. Frank’s bill will become law?

Many congressional observers believe that Chairman Frank has a fairly good shot at getting his bill passed. But its passage is by no means assured. A similar bill failed last year. And, as expected, Rep. Frank’s latest attempt ran into predictably instant hostile conservative republican opposition.

For example, one of Bill O’Reilly’s culture warriors, Rep. Spencer Bachus, R-Ala. opined in response to the introduction of Rep. Frank’s bill: "Illegal offshore Internet gambling sites are a [sic] criminal enterprise [sic] and allowing them to operate unfettered in the United States would present a clear danger to our youth, who are subject to becoming addicted to gambling at an early age."

 

Not a surprising response considering that it is, after all, from a member of a party that has recently seemingly bent over backwards to demonstrate that its initials should probably be changed from GOP to G”No”P.

 

What is interesting about Spencer’s observation, however, aside from what seems to be either a claim of a single giant monolithic offshore criminal empire of gambling sites or a George W. Bush-quality Texas-size grammatical error, is his apparent misunderstanding that Rep. Frank’s bill would legalize online gambling by licensing the gambling sites, thus making them, eh . . . legal. Something they are, eh . . . currently not.

 

Also, Spencer B. seems to have missed the fact that Committee Chairman Frank’s bill would require federally licensed gambling sites to perform effective age verification or risk the loss their license. No such incentive to check age currently exists to protect our youth from becoming addicted to gambling by those pesky offshore sites that Mr. Bachus loves to hate. (BTW, is it me or do you also find it a bit odd or maybe a bit ironic that this particular representative, who is famous for crusading against “immoral” stuff like porn and gambling has a name suspiciously similar to the Roman god “Bacchus”, the mythological orgiastic god of wine famous for his lasciviousness, drunkenness, and kick- ass god parties?)

 

Regardless, and despite of the predictable outcries and determined opposition to online gaming legalization we can expect from the moralist crusaders like Bachus as Chairman Frank’s bill moves through Congress, unlike previous unsuccessful attempts to pass similar legislation, this time we are in the middle of an economic meltdown. The current crisis has caused the federal government to seek and implement ways to stimulate the economy while cash-strapped governments at all levels are eager to implement new ways of generating revenues. As Michael Brodsky has observed, Chairman Frank’s bill has the potential for “providing much needed revenue in these difficult economic times."

Brodsky is not alone in his observation. Many legislators, such as Rep. Frank, recognize that legalized online gaming might well be a gigantic new source of tax revenues that is quickly realizable without the need, or political risk, of raising income taxes.

Moreover, what one would hope all of our elected officials who have a pulse should realize, as Rep. Frank and his co-sponsors clearly have, is that legalizing online gambling in the U.S. is an intelligent way to stop the hemorrhaging of domestic gaming revenues to foreign countries that has resulting from the bone-headed passage of the UIGEA. This is one of the reasons why one of Chairman Frank’s co-sponsors of the bill is none other than New York Representative Peter King (R). In my opinion, Rep. King should be lauded for his courageous support of Rep. Frank’s bill in light of the unenlightened opposition expected to be mounted against the bill by his republican colleagues. For his political independence and common-sense support of Rep. Frank’s bill, I believe Rep. King should be allowed to use a party abbreviation like “(R-BR)” for “Republican-But Rational” to denote the fact that, while he is a republican, he nevertheless demonstrates the ability to think rationally and put liberty and country above party, all traits that have become increasingly rare among his G-nO-P party colleagues.

In sum, because of the current political environment and the economic circumstances facing the country, it is more likely than ever that Rep. Frank’s bill, or something similar to it, will ultimately be enacted, if not this session, than in a subsequent congressional session during President Obama’s term in office. Events surrounding this story as they unfold, are, therefore, in my opinion, quite worthy of attention by serious participants in the adult entertainment business. Of course, XBIZ will continue to follow, analyze and report developments as they occur both in this column and elsewhere in the XBIZ family of publications. Stay tuned.

1Gregory A. Piccionelli, Esq. is Internet and adult entertainment attorney. He can be reached at Piccionelli & Sarno at (310) 553-3375 or greg@piccionellisarno.com.

 

 

 

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