1. Because the Internet obviously involves communications, it is assumed that gambling on the Internet is controlled by communications law, in particular that is protected in some way by the United States Constitution.                   

2. Because the Internet allows transactions to take place between individuals located on opposite sides of the globe as easily as on opposite sides of the street, it is assumed that Internet gaming is controlled by international law (or by no law at all), and that it is a problem to be dealt with solely by national federal governments.

Gambling is not a form of speech.  When a bettor places a wager by speaking to his illegal bookie by telephone the activity is covered not by communications law, but by gaming law.  If actual human speech is not analyzed under the law of communications, a wager placed through computers communicating with each other has no chance of being protected as an exercise of free speech.

The Internet in general and Internet gaming in particular are not sui generis.  The ability of large numbers of individuals to easily communicate instantly across borders has been around since the invention of the telegraph.  The United States and other federal governments did become involve with regulating the telegraph and similar technological breakthroughs, such as the telephone and short-wave radio.  But the control of gambling has always been a matter left up to the states^[1] under their police powers.  Gambling involves not
only the health, safety and welfare of a state's citizens, but issues of morality.  These are almost always questions for state governments to decide.  Federal governments are governments of limited power.  Their role is to aid their states in implementing state exercises of police power, and not to dictate morality for the entire nation.

 

Advising Clients

More and more clients are asking their lawyers whether Internet gambling is legal.^[2]  To adequately represent clients interested in becoming involved in any way with Internet gambling requires lawyers to not only determine whether current laws, primarily criminal statutes, apply,^[3] but also to predict what the law will look like in the near future.  The nature of the Internet requires that any legal analysis, including predictions of future developments, include multiple levels of government, ranging occasionally from cities and tribes to states, countries and multi-national federations. 

Potential and existing owners and operators of gaming websites are naturally the parties that are most concerned.  But questions from patrons are becoming more common.  Because anti-racketeering and money-laundering statutes sometimes might be involved, any individual who plays any role can be a potential criminal defendant.  Gaming operators and patrons have the most immediate concerns, but inquiries have come from developers of gaming software, financiers, Internet service providers, magazines which would like to advertise online gaming, and operators of non-gaming websites, who would like to link with gaming sites.

The most important sets of laws are those which might impact the gaming website operator directly.  These include jurisdictions where principals of the business reside, including the state of incorporation if a corporate entity is involved.  Courts have also looked to where the actual computers are located and even the site of their server.^[4]  As a practical matter, whether a local law makes it illegal for a player to make a bet is of less concern to operators; although large gaming corporations have to be careful to avoid activities to protect their home licenses.  Legal operators in the United States are also concerned with avoiding prosecution and extradition to another state.^[5]  Everyone involved with online gaming is concerned with the collectability of wagers placed by credit cards.

A prediction of the content of future statutes is at best an educated case, since legislation is shaped much more often by politics than by logic.  Still, patterns are developing in the way governments are responding to the proliferation of online betting.

 

Communications Law v. Gaming Law

Individuals involved with Internet gambling, particularly non-lawyers and attorneys who have never before encountered gaming law, usually discuss betting online as if it were a problem in communications law.  However, governments everywhere in the world are reacting to Internet gambling usually without even considering issues such as free speech.  Law enforcement agencies in particular see gambling on the Internet as a problem in gambling, and nothing more.

First Amendment Issues do arise with the advertising, if not with the actual conduct, of legal gaming.  The doctrines of commercial and non-commercial free speech apply to licensed gaming operations, although the United States Supreme Court is not yet ready to apply the free and open “marketplace of ideas” theory to advertising by legal casinos and lotteries.  In its most recent decisions, the high court appears to have rejected the categorization of some activities as less deserving of protection. 

Fifteen years ago, the Supreme Court issued the extraordinary Posades decision^[6], which warped the First Amendment, when morally suspect industries were involved.  The majority upheld restrictions placed by the government of Puerto Rico on the dissemination of information by its licensed casinos; restrictions not borne by any other form of legal gambling in the Commonwealth.  The majority justified the special prohibitions on advertising in part by declaring, with no factual or even legislative findings, that casinos were more dangerous than other forms of gambling.  But the Court went on to hold that since the government could have outlawed casinos completely, it could do anything short of a complete prohibition.  This is like saying if a state may punish murder with the death penalty it can also punish murder with anything short of the death penalty, such as torture.

Two year ago, the Supreme Court rejected the Posades rationale.  In Greater New Orleans Broadcasting Assoc., Inc. v. United States^[7], the Court held the federal restrictions on broadcasting “lottery” ads were unconstitutional, when applied to privately-owned, licensed casinos in states with legal casino gaming.  The main reason was that the government could not meet its burden of proving this one restriction served the asserted public purpose of reducing gambling when federal law had so many loopholes.  Too many other forms of legal gambling, including tribally-owned casinos, can advertise over television and radio.  Prohibiting one form of gaming from the airwaves based on who owns the operation was irrational.  But the case is important for an additional reason: At least three of the justices explicitly rejected the idea that there was a special category of legal goods or services labeled “vices.”

The Supreme Court was careful not to mention any state restrictions on gaming, nor to hold the federal restrictions unconstitutional per se, which would have required overturning a decision less than seven years old, Edge Broadcasting^[8], involving this same statute.  In 1993, the Court upheld the exact same federal law, 18 U.S.C. §1304, in a case involving a North Carolina radio station located near the state's border with Virginia.  The Court upheld the geographic restrictions in §1304, which prevented the station from broadcasting Virginia State Lottery commercials to listeners in Virginia.  The Court held it was reasonable for Congress to draw lines based on geographic location, restricting the broadcast of State Lottery commercials to radio stations located in states with State Lotteries.  A radio station could be prohibited from broadcasting information about such lotteries, even if more than 90 percent of the radio station's audience were in a neighboring state with a State Lottery.

These cases help highlight the enormous differences between the law of communications and the law of gambling.  With communications law, the emphasis is on individuals' rights and on promoting the free exchange of ideas.  With gambling, commerce is usually completely prohibited.  When commercial gambling is allowed, which is not very often, it is always severely restricted by statute and highly regulated by government.  In true cases involving both, such as the advertising of legal gaming (not the activity of gambling), courts struggle with the conflicting public policies, until very recently siding with the government in upholding draconian restrictions.

The differences are clear when there is no overlap, when the issue is speech not connected to gaming, or the regulation of the actual activity of gambling.  Cases in communications law often revolve around constitutional rights of free speech.  In the United States, this means the powerful First Amendment of the United States Constitution.  Under its own terms, the First Amendment is only a protection against interference by Congress.^[9]  But the right of free speech has been expanded to include protection against intrusion from all branches and levels of government.^[10]  With legal gambling, there is often no such thing as free speech, and other constitutional rights normally taken for granted simply do not exist.  Although Americans fought a revolution for the right to govern themselves, courts have held that the state's need to regulate commercial gaming outweighs even the right to engage in political activity.^[11]

Lawyers who remember law school Constitutional Law can be shocked by the extremes found in gaming law.  For example, in the movie Casino, one of the main characters is based on the real-life Frank “Lefty” Rosenthal.  The movie is a fictionalized account of events that actually happened, as told in the nonfiction book Casino: Love and Honor in Las Vegas.^[12]  Rosenthal ran the Stardust and three other casinos for the Chicago mob.  When the Nevada Gaming Commission found that “Frank Rosenthal is a person whose licensing would reflect or tend to reflect discredit upon the State of Nevada,” Rosenthal appealed.

In ruling against Rosenthal, the Nevada Supreme Court declared that when it comes to legal gambling, there are no federal civil rights!

We view gaming as a matter reserved to the states within the meaning of the Tenth Amendment to the United States Constitution.  Within this context we find no room for federally protected constitutional rights.  This distinctively state problem is to be governed, controlled and regulated by the state legislature and, to the extent the legislature decrees, by the Nevada Constitution.  It is apparent that if we were to recognize federal protections of this wholly privileged state enterprise, necessary state control would be substantially diminished and federal intrusion invited.^[13]

There are few, if any, other areas of human affairs where a state's highest appellate court would make such a statement.  As a declaration of state's rights it matches, or surpasses, any statement coming out of the era of the conflict over racial desegregation.  Taking the Nevada Supreme Court at its word: To control gaming a state may discriminate on the basis of race.  Federal constitutional prohibitions on discrimination would not apply.  Even state constitutional rights do not apply, according to this statement, unless the state legislature gives its blessing.

Other courts have said the Rosenthal opinion goes too far.^[14]  But, the Nevada Supreme Court's basic approach still holds true.  In cases involving communications law, the burden is on government to justify any limitations it attempts to impose on free speech.  With gaming, the burden is on the individual to prove that his or her rights outweigh the important government policies behind restrictions and prohibitions.

 

Police Power

          The reason legal gaming has such few rights is that gambling is subject to state government's “police power.”  The law of nations holds that every state has the right, perhaps even the obligation, to protect the health, safety and welfare of its citizens.  The police power is most commonly connected with governmental action taken in emergency situations, especially where public health is endangered, as in an epidemic.  But gambling, licensed or illegal, even legal lotteries, has always been held to fall within a state's police power.^[15]  For example, the United States Supreme Court declared in Edge Broadcasting:  "While lotteries have existed in this country since its founding, States have long viewed them as a hazard to their citizens and to the public interest ... Gambling implicates no constitutionally protected right; rather, it falls into a category of 'vice' activity that could be, and frequently has been, banned altogether."^[16]

The police power has three interesting, and unusual, attributes:

1) A state's police power is virtually unlimited.  It is the nature of government for the state to exercise power for the good of society as a whole, at the expense of individual rights.  This is obvious in totalitarian and authoritarian regimes.^[17]  But the same is true of democracies.  Ever since Jean-Jacques Rousseau published his Social Contract in 1762, it has been generally accepted that a democratic state derives its sovereign power from the surrender by individuals of their natural liberties. 

Constitutional and other legal safeguards protect citizens from improper use of the state's power.  But, when a state is faced with a threat to the health, safety and welfare of its citizens, particularly in an emergency, the police power prevails.  The police power trumps constitutional and other legal rights; government has the legal right and power to do literally almost anything to anyone.

For example: During an epidemic, government health officials will not wait for a jury trial before quarantining a house.  At its most extreme, government can even take life without due process safeguards -- the police do not conduct evidentiary hearings before shooting a madman firing a rifle.

Because gambling is treated as a police power issue, governments can act in ways that would be unthinkable in other commercial and social settings.  “The police power of the State to suppress gambling is practically unrestrained.”^[18]  “Because we are dealing with authorized gambling, the State may exercise greater control and use the police power in a more arbitrary manner.”^[19]

 

2) A state's police power is often tied to morality.  It used to be a given that government played an important role in upholding the moral standards of a community.  The 1970s led to a pervasive belief in situational ethics, the notion that there are no absolute standards of right and wrong.  By the 1980s, even anti-gambling crusaders rarely argued that gambling should be outlawed because it is immoral; they feared being viewed as right-wing religious fanatics.  However, government's police power is still aimed at morally suspect behavior, even if the justification given is more pragmatic than religious.

          For example, the Florida Supreme Court upheld and rationalized that State Legislature's ban on Sunday racing and betting as follows:

[T]he legislature could reasonably find that the Sunday racing and betting restrictions serve several legitimate state purposes which promote the public health, safety, morals, and general welfare of the citizens of the state of Florida.  The restrictions serve these legitimate purposes:  1) they encourage people to spend their weekend leisure time at non‑gambling, presumably more healthy recreational pursuits and other activities;  2) closing such facilities on what might otherwise be the busiest day of the week could help curb the compulsive gambler syndrome; and 3) racing on less busy days means there is less opportunity for mischief that sometimes attends these events, and therefore a lighter burden on law enforcement authorities is created... The mere fact that the state of Florida has no uniform day of rest for other businesses does not preclude the legislature from having a day of rest and surcease from racing and pari‑mutuel wagering.^[20]

          Governments' response to the development of the Internet is typical of strong moral views driving public policy.  On July 1, 1997, President William J. Clinton and Vice President Albert Gore, Jr. issued “A Framework For Global Electronic Commerce.”  The document is a model of viewing the Internet as a problem in communications law.  Under “Content” it reads, “The U.S. government supports the broadest possible free flow of information across international borders.  This includes most informational material now accessible and transmitted through the Internet...”  The report endorses the view that parents and private industry can take care of potential problems, such as children's access to pornography:

In contrast to traditional broadcast media, the Internet promises users greater opportunity to shield themselves and their children from content they deem offensive or inappropriate.  New technology, for example, may enable parents to block their children's access to sensitive information or confine their children to pre‑approved websites.

 

To the extent, then, that effective filtering technology becomes available, content regulations traditionally imposed on radio and television would not need to be applied to the Internet.  In fact, unnecessary regulation could cripple the growth and diversity of the Internet.

 

The Administration therefore supports industry self-regulation, adoption of competing ratings systems, and development of easy-to-use technical solutions (e.g., filtering technologies and age verification systems) to assist in screening information online.

          This is a wonderful statement of intent, based on viewing the Internet as a theoretical problem in communications law.  But what was the first Internet law supported by the Administration?  A ban on Internet pornography.^[21]  Although the federal government is talking about free enterprise and self-regulation, the reality is that government sees its role as protecting children from being exposed to explicit pictures of bestiality and sadomasochism.  Free speech is all right in theory, but the urge to uphold society's moral norms is so great that the government's first response to the new technology was to assume the role of censor.

          Gambling has always been inextricably linked with the morality of a society, supporting the use of the police power.  There may be few published appellate decisions on the legality of Internet gambling.  But, the question of a government's ability, under its police power, to control the transmission of gambling information and wagers was resolved years ago.^[22]  The explosion of legal gambling in recent years has not weakened government's police power over gambling.

[Plaintiffs] further urge that because of greater acceptance of gambling, the prohibition on the forwarding of money to be wagered on horse racing is an archaic and unreasonable exercise of the police power... It has long been settled that the police power extends to objectives in furtherance of the public peace, safety, morals, health and welfare, and the prohibition or regulation of betting on horse races falls within the power.  Not only does the Legislature have the power to completely prohibit wagering on horse races, but it may also limit such wagering to persons physically present within the enclosure.^[23]

 

3)       A state's police power is a local issue.^[24]  We are, after all, dealing with State police power, however state is defined.^[25]  Larger government organizations like federations almost never become involved,^[26] unless the threat to society is beyond the control of local government.

 

          During the formative stages of modern governments the protection of citizens' health and safety was best left to authorities on the scene.  Given the technology existing then, and perhaps even today, the major threats of fire and disease were not controllable from distant national capitols.^[27]

          Morality also was and still is decided primarily at the state level.  States tend to be small enough to appear homogeneous, or at least dominated by a single religion.  Official state religions were, and are, common throughout the world.  It is well known that many of the colonies in America were established to not separate Church and State, but to fuse the two together: The Puritans were not interested in freedom of religion, except the freedom to practice their own religion, to the exclusion of all others.  There is considerable evidence that the “Establishment” clause of the First Amendment was designed both to prevent the creation of a national religion and to allow states to decide for themselves whether they wanted to establish official state religions.^[28]  For example, South Carolina's constitution of 1778 established Protestantism as the official state religion.^[29]  New Hampshire maintained an official established religion until 1817 and Connecticut until 1818.^[30]  And Massachusetts did not disestablish the Congregationalist Church as the official state religion until 1833.^[31]

          Even “states” as large as Spain, with diverse ethnic groups and languages, have had one official religion for most of their history.

 

The special relation between the Catholic Church and the Spanish state formally began in A.D. 589 when the visigothic King Recaredus proclaimed the religious (Catholic) and political unity of his kingdom at the Council of Toledo...

 

The deep bond between Catholicism and political power persisted into the Constitutionalist Era of the nineteenth century; all nineteenth century Spanish constitutions (1812, 1837, 1869 and 1876)... declare the Catholic Church to be the established religion, a surprising result considering French liberal influence on those constitutions.

 

As a result of the Catholic Church's established status, freedom of worship did not exist during the nineteenth century (except under the constitution of 1869) nor during the twentieth century until 1968 (except under the constitution of 1931).  Only the Catholic Church was allowed to proselyte.  Even among Catholics, religious freedom was limited. Catholics could not contract civil marriages, but were required to marry according to canon law.

 

Following the Civil War, General Franco's political regime (1939‑1975) strongly supported the Catholic Church, restoring it as the official, established church of Spain... ^[32]

          Whether a state's morality is based on a formal government-mandated religion or simply the accepted norms of the ruling majority, attitudes toward gambling are almost always written into a state's laws.  As a dramatic example, feelings against gambling games ran so strong in the Massachusetts Bay Colony that the possession of cards, dice or gaming tables, even in private homes, was outlawed.^[33] 

          In addition, in the American system, states are encouraged to experiment.^[34]  New Jersey's experiment with using large land-based casinos as a tool of urban redevelopment failed, but Iowa's refinement of the idea -- putting the casinos on river boats -- has been copied by half-a-dozen other states.  What to do about gambling has always been viewed as a question for states, not the federal government, to decide.

States Are Reacting, While Federal Governments Are Considering

          The Internet is so new and governments work so slowly that most governments have not passed, or even seriously considered, any special legislation.  Many of these say that they are studying the issue.^[35]  The most interesting potential development here is the United Kingdom.  There are so many opportunities to gamble, including the world's largest lottery and well-established sports books, that regulating the Internet was not a high priority.  In fact, there still is little movement toward placing any restrictions on a British citizens' right to place a bet online.  However, Great Britain taxes legal betting operations very heavily.  Some of the best known operators are moving to other parts of the British Commonwealth.  Ladbrokes, for example, calls itself “the world's biggest bookmaker.”^[36]  Its website is licensed by the government of Gibraltar.  Ladbrokes.com, launched in February 2000, highlights repeatedly that bettors pay no tax.  The loss of not just future tax revenue from online wagers but existing tax revenue from wagers placed by telephone and in person is forcing the British government to reexamine its present position of simply ignoring Internet gambling. 

          The first to react was the Gaming Board for Great Britain.^[37]  The Board conducted a study of Internet gambling, based on its "duty to advise the Home Secretary on developments in gaming."  It circulated a "consultation paper" to interested parties and, in April, 2000, produced a Report.  The Board concluded that Internet gambling should be legalized, under a system of permits and regulations.  The conclusion was not based on the need for tax revenue.  Rather, the Board seemed mostly annoyed that the current legislative system was so messy and irrational.  The Board restated its conclusions in a report to the Gambling Review Body, submitted on July 21, 2000:

 

The Review Body has already had submitted to it a separate paper prepared by the Gaming Board on this issue [Internet Gambling], following a study carried out by the Board during late 1999/early 2000. The key conclusions of that paper are as follows. There is a growing number of sites on the Internet which offer opportunities to gamble and in particular on-line casino gaming, and legislation in this country bears on Internet gambling in unintended and erratic ways. For instance, no on‑line casino gaming site can lawfully be established here, but residents are free to play on overseas sites and those sites can accept bets from here without breaking any British laws. The Board concludes that legislative change is needed to remedy this unsatisfactory situation. It does not believe that measures which attempt to prohibit on‑line gambling in Britain would be either sensible or likely to be successful. Thus, whilst acknowledging that legislative change is unlikely to be simple or straightforward, the Board recommends that a coherent legislative system should be established which permits controlled and regulated Internet gambling sites in Britain. It believes that this is a matter to which the Review Body should give particular attention. . .^[38]

          On March 7, 2001, United Kingdom Chancellor Gordon issued a budget announcement, which included plans for the British Treasury to eliminate the tax bettors now have to pay to make a bet with a licensed British operator.  The U.K. currently places a 6.75 percent tax on every bet placed with a British betting establishment, an amount large enough to make bettors, and therefore companies which take their bets, look to countries without a tax on betting.  Gordon proposed that this tax on betting be eliminated by January 2002.  But, there was more than one catch:  A new tax would be created, 15 percent of bookmakers' companies' gross profits.  The licensed bookmakers would be required to return to the country.  Operators who refused would not be allowed to advertise in the U.K.  "A requirement for changing the betting duty is the repatriation of bookmakers who fled to friendlier locales, like Gibraltar, Malta and Alderney."

 

The "Big Four" operators - William Hill, Stanley Leisure, Coral and Ladbrokes - are said to be ready to make the move... Victor Chandler told The Guardian that he will keep his Victor Chandler International business in Gibraltar and said that the U.K. government's move occurred only after "the stable door has been opened and the horse has bolted."  By remaining offshore VCI will be unable to advertise its site in the U.K., although Chandler remained confident about his company's ability to attract new customers.  The new tax on profit, he said, "equates to a 3 percent betting duty, and that will be passed onto the punter. The punter will always suffer. People are still going to be able to find us, even if the government restricts our advertising."^[39]

Licensed bookmakers will not be allowed to operate online casinos.  However, because it is the government of the United Kingdom that is authorizing its licensees to take sports bets online, this is an important breakthrough:  The first federal government to explicitly legalize betting on the Web, or, as MSNBC put it, “The tax‑code change... makes Britain the first world power to embrace Internet gambling.”^[40]

          Many smaller governmental units can react faster to developments in technology or changes in society than larger, federal governments.  Besides being more compact, political players in states are usually more homogeneous in their outlooks.  The smaller the political unit the more likely it is to be dominated by a single religious group, or at least for the majority of the population to hold the same view of the morality of gambling.

          Federal governments, by definition, have to control diverse political constituents; at the very least the member states of the federation.  When it comes to the handling of morally suspect industries, like gambling, this mean federal governments have more factions which they have to appease.  A dramatic show of these forces at work in the area of Internet gambling developed with the proposed federal ban on Internet gambling introduced by Rep. Bob Goodlatte (R-Va.).^[41]  Like the Kyl bill before it, the Goodlatte bill carved out many exceptions, as the result of lobbying, for many forms of legal gambling.^[42]  The Goodlatte bill actually received a majority vote in the U.S. House of Representatives in 2000, but it still failed to pass. So many groups had so many conflicting interests, that the bill's authors were afraid additional amendments would be overwhelming.  To prevent this, they used a procedural rule which denied members of Congress the right to offer amendments from the floor.  The rule required the bill be approved by two-thirds of the House, a super-majority that it could not achieve.  Some of the many parties interested in this proposed legislature were:  conservative anti-gambling groups, some of whom supported the bill, while others opposed it, fearing that it would actually legalize some forms of now prohibited wagering.  Operators of legal gambling also split on the bill.  Commercial casinos mostly favored the proposed outlawing of Internet betting, but Indian tribes felt they would be denied forms of gambling they now had.^[43]  Racetracks worried they would not be able to continue taking wagers across state lines.  The federal Department of Justice has consistently taken the position that the law should not treat differently activities conducted on the Internet from the same activities conducted by other means, such as regular telephones.  The Clinton administration feared this initial interference, with Internet gambling, would be the first of many proposals which would stifle the development of commerce on the Internet.^[44]  House Rules Committee chairman David Dreier, opposed the Goodlatte bill on grounds that it lacked liability protection for Internet service providers who might not be aware of illegal activity on their networks.

          States, on the other hand, have fewer conflicting forces to appease.  The issue is usually presented, without too much debate, as how best to either prohibit Internet gambling or to hop on the bandwagon.  In most of the world, smaller governments which have looked at the issue of Internet gambling are clearly working under the assumption that Internet gambling either already is legal or that it should be made legal.  In the United States, the overwhelming majority of lawmakers who have considered the question have instantly concluded that betting online must be barred and criminal sanctions imposed on violators. 

          Of course, although a lawmaker may decide an activity, like betting online, should be prohibited, that does not guarantee that the final version of the law will actually be a complete prohibition.

 

States Are Beginning To Rush Through “Prohibitions,” Which Actually Authorize Local Operators To Take Bets Online

          A few smaller jurisdictions, particularly states in the United States, are rushing through acts purporting to prohibit all online wagering.  State anti-Internet gambling laws take one of two forms:  They either prohibit all forms of Internet gambling,^[45] or they only appear to prohibit online gaming, while actually authorizing their local legal gambling operations to take bets online.^[46]

          It is safe to say that all proposed prohibitions start as sweeping bans, broadly written.  But the final draft issued to the public is almost never a complete prohibition.  Rather, the proposal has been amended to include one or more exclusions for existing forms of legal gambling.

          The difference in outcome seems to be the speed with which the proposal is adopted and the presence (or absence) of lobbying by legal gambling operators.  If the original, broadly worded prohibition that is first proposed is adopted quickly, without being subjected to outside scrutiny, public debates and amendments, it retains its shape as a ban on all form of online betting.  Attorney General Opinions, for example, are subjected only to internal review within the A.G.s office.  Their publication often comes as a surprise, because few outsiders even know the question is under consideration.  So, state Attorney General Opinions in the United States are almost universally condemning of all parts of Internet gambling.^[47] 

          The most striking example is the recent Nevada Attorney General Opinion, concluding that Nevada casinos cannot offer free gaming over the Internet, if the player receives a prize based on the outcome of a casino-style game, even if the player did not wager any money.^[48]  The state Gaming Control Board had asked for the opinion, because Nevada licensees, Park Place Entertainment Corp. and Harrah's Entertainment, were offering “for-fun” casino games online, and MGM Mirage, Silicon Gaming and WagerWorks, Inc., announced they were developing a website with similar games.  Of course if there is no consideration, the game cannot, by definition, be gambling, because it is universally recognized that gambling consists of prize, chance and consideration. 

The elements of gambling are consideration, a result determined by chance rather than skill, and a reward or prize; or, in other words, payment of a price for a chance to gain a prize.  In addition, under a statute that prohibits gambling for profit, "for profit" is a necessary element of the offense.  Thus, there is no "gambling" unless a participant is required to risk something of value.^[49]

A small minority of jurisdictions have defined the consideration necessary for gambling as the same consideration required of contracts.  Therefore, it might be thought that the Nevada Attorney General found consideration in the players' having to spend time online or money to get computer access, or in the increased business obtained by the website promotion.  However, the Opinion specifically allows Internet sweepstakes, in which the same players can win valuable prizes for the same activities, so long as the sweepstakes tickets are distributed randomly. 

Unlike [“for-fun” casino games] the “instant incentives,” which entitle the patron to receive a prize or entry into a sweepstakes or drawing, are randomly awarded rather than based upon the uncertain outcome of a gambling game.  Therefore, instant incentives are not the product of a wagering activity.^[50]

The Attorney General justified the rather startling idea that a player can be making a wager without the possibility of losing anything by pointing to an ambiguous Nevada statute, passed in 1997, which the A.G. thinks

adopted a new definition of “wager'‘ to include not only sums of money... but also “representatives of value.”^[51]  A “representative of value” means “any instrumentality used by a patron in a game whether or not the instrumentality may be redeemed for cash.”^[52] 

Nevada thus becomes the only state in the United States, and probably the only jurisdiction in the world, to conclude that a player is making a wager, when he is not making a wager.

          Another very recent development shows both the quick, negative reaction that can be expected of attorneys general, and the inventiveness of operators.  After South Carolina outlawed all video gaming devices on July 1, 2000, entrepreneurs came up with an alternative.  According to the Associate Press, “Players can put money into the ‘Touch Easy Keno' machines to log onto the Internet ‑ or to play a game where a computer picks numbers and winnings are paid back to them.”  The owners claim they are running a sweepstakes.  Wallace Cheves, vice president of First Link Inc. that owns the machines, said, “They are no different than grocery store or fast‑food giveaways.”  Attorney General Charlie Condon disagreed and said on January 8, 2001, that the machines are not exempt from the law that banned video gambling devices.^[53]

          Legislation, unlike Attorney General opinions, usually requires months of public hearings and the possibility of amendments.  Many prohibitory bills are introduced with language so broad that they would outlaw existing legal gaming.  For example, a law which prohibits any wager in which a computer is involved would wipe out well-established, and politically powerful, State Lotteries and race tracks.  Lobbyists for legal gambling operations have no choice but to ask legislatures to carve out exceptions for their clients.  Politicians may call their bills Internet Gambling Prohibition Acts, but the future clearly is prohibition only for those forms of gambling that have little political power or lobbying presence.  For gambling operations with influence, mostly large established businesses, prohibition actually means clarifying the law to create partial legalization.

          The most recent example of this process comes from Australia.^[54]  A proposal to place a moratorium on the ability of states and territories to issue Internet gambling licenses was defeated by a tie vote in the federal Senate in October, 2000.  In early December the Australian moratorium passed the Senate by a 33‑26 vote.^[55]  The difference was an amendment, exempting sports wagering in Victoria and Tasmania.  The federal Interactive Gambling (Moratorium) Bill 2000 retroactively prohibits all new Internet gambling licenses, with the notable exception of “horse racing, harness racing, greyhound racing and sports events, as well as expanding online betting to TABs in Tasmania, Western Australia and Victoria.”  The moratorium also grandfathered-in operating Internet casinos, but because it was retroactive, it forced newcomers out of business.^[56]

          Nevada, as usual, led the way in showing how an established industry can turn an attempt at prohibition into legalization of its business and the raising of barriers against potential competition.  Nevada was the first state not only to outlaw, but also to legalize, Internet gambling.  Making or accepting a wager over the Internet is now, by statute, a crime committed in Nevada, unless the operator is one of the state's licensees.^[57]  This statute was signed into law in 1997.  In 2001, the Nevada Legislature debated whether to actually put Internet gaming into operation.  Assemblywoman Merle Berman,^[58] R‑Las Vegas, drafted a bill, AB 578, which at this writing had just been passed by the Assembly on a vote of 37 to 2.  It appears likely that it will pass the Senate and be signed into law by the Governor.  If enacted, the State Gaming Control Board will have the explicit authority to decide when and how Nevada licensed gaming operators may legally take bets online.

          Even bans that are supposed to be universal will often be so poorly worded that they would result in the accidental legalization of Internet gambling by local legal operators.  Bills pending in a dozen states to outlaw Internet gambling have exemptions for local, legal gambling operators.  California's proposed Assembly Bill No. 2179,^[59] for example, proposed to outlaw, by name, every form of gambling imaginable.  But, the so-far unsuccessful bill defined “A prohibited online gambling game” as including “Lottery games, other than games lawfully conducted by the California State Lottery.”

          One of these partial Prohibitions did become law in February, 2000, when the South Dakota Legislature passed an anti-Internet gambling bill which the Governor signed.  The law, entitled “An Act to Prohibit the Use of the Internet for Certain Gambling Activities”^[60] makes it a felony for a person engaged in a gambling business to use the Internet to make or accept wagers, to conduct an Internet gambling business from South Dakota, if the violation originates or terminates in the state.  However the statute specifically exempts the State Lottery and licensed casinos in Deadwood: 

This Act does not apply to the South Dakota Lottery and its licensees, who are engaged in conduct in furtherance of activity expressly authorized, licensed, and regulated under the provisions of chapter 42-7A or to the South Dakota Commission on Gaming and its licensees, who are engaged in conduct in furtherance of activity expressly authorized, licensed, and regulated under the provisions of chapters 42-7 and 42-7B.

The South Dakota law at least requires that regulators, and perhaps even the legislature, approve an Internet game before it is conducted by the State Lottery or a state-licensed casino.  Michigan is the prime example of how lawmakers can actually accidentally legalize Internet betting while attempting to impose Prohibition.

          The Michigan Legislature passed a bill, signed into law by the Governor,^[61] which was intended to ensure that activities, like bomb threats, that were already illegal if conducted off-line would also be crimes if conducted on the Internet.  On November 3, 1999, the Michigan House of Representatives passed a different bill, HB 4689, with the stated purpose of making it a felony to accept a bet on the Internet.^[62]  This bill attracted considerable attention and debate, because it contained a clause that would have expressly allowed Michigan licensed gaming operations to take bets on the Internet.^[63]  A month later SB 562 sailed quickly through both houses with little discussion and was signed into law by Gov. John Engler.^[64]  SB 562 was broader than HB 4689: it prohibited many crimes from being conducted on the Internet, beyond just gambling.  However, the crimes were not given names as in the House bill; rather, SB 562 prohibited the use of the Internet for a list of specified crimes, defined purely by references to existing statutes.  Gambling on the Internet, for example, was not expressly prohibited; SB 562 only made it a crime to use a computer for communicating with a person with the purpose of “Committing, attempting to commit, conspiring to commit, or soliciting another person to commit conduct proscribed under section 301, 302, 303, 304, 305, 305a, or 311 of this act [1931 PA 328, which created the Michigan criminal code] or section 18 of the Michigan gaming control and revenue act, the Initiated Law of 1996, MCL 432.218.”  Those sections listed are the state's anti-gambling statutes.  But, those sections expressly define gambling as not including all forms of legalized gambling in the state.  This meant that the prohibition on using the Internet for gambling was far from universal: Michigan's State Lottery, racetracks,^[65] bingo and casinos did not even have to seek a second approval from the Legislature, as they would have had to under HB 4689, to play their games online.^[66] 

          The next year, 2000, the State Legislature and Governor amended this new law, possibly as a result of an earlier draft of this paper.  The author's analysis of Michigan's accidental legalization of all Internet wagering for virtually all forms of the state's legal gambling was posted at his website, and published in various papers, including publications of the American Bar Association.^[67]  The author was contacted by representatives of the Governor's office, Michigan gaming agencies and others interested in legal gaming.  Whatever the reason, a new statute was enacted, removing the references to gambling entirely from the list of crimes prohibited on the Internet.^[68]

 

Other States Are Rushing To Get On The Internet Gambling Bandwagon

 

          The best example of how quickly a state, as opposed to a federal government, can decide how to deal with the question of Internet gambling is demonstrated by the two largest casino jurisdictions in the United States: Nevada and New Jersey.  At the time this is written, a proposal to allow Atlantic City casinos to go online, is being defeated, because not a single casino company supports the idea.  Yet, a nearly identical proposal to allow Nevada casinos to go online is sailing through the legislature, facing no opposition.  It is interesting that there are casino companies, like Caesars Palace and Harrahs, which are involved in both jurisdictions.  Nevada is a state born out of the Wild West, whose economy is based on gambling.  There appears to be a general, widespread consensus in the state that Nevada casinos should be able to take bets online, and that the federal government should mind its own business.  New Jersey not only has a different history, it has always had a different view of legal casinos. The consensus in New Jersey is that casino gambling is a necessary evil and should be isolated to one small resort, certainly not allowed to enter residents' homes through the Internet.

          Smaller political bodies are more often swayed by the lure of easy money than large federal governments.  At least one city considered trying to grab a piece of the virtual pie:  The Las Vegas City Council debated licensing the city's name for use on an Australian-based Internet casino, VegasOne.com.  The City Council was told this online casino might have an annual net win of $360 million by the year 2003, giving the city about $90 million a year.  Las Vegas has an annual budget of only $320 million.  Of course, to achieve this goal, this single site would have to grab 10% of the entire world market in just two years.  Because the plan was subjected to public scrutiny, its flaws quickly came to light.  Federal and state political leaders questioned its legality and the ability of this city in Nevada to control the operations of a company operating out of Australia.  Las Vegas casinos opposed the idea, because they did not want to be competing against their own city if they themselves began taking bets via the Internet.^[69]

          A very small number of governments are operating online games themselves and accepting bets from anywhere in the world.  More are going online through their State Lotteries,^[70] but restricting sales to local residents.  The majority of the governments involved with Internet gambling are issuing licenses to private operators. 

          The best example of a small jurisdiction actually owning the gambling website and soliciting players worldwide is the principality of Liechtenstein.  When it started its InterLotto in 1995 it had significant restrictions on patrons located in the two relatively powerful countries that completely surround it: Austria and Switzerland.  The current game site, PLUS Lotto, does not mention any restrictions and is available in many languages, including English.

          The preferred position of almost all other State Lotteries is to restrict sales to residents of that particular state.  One of the first to go online was Finland.  Its Lottery, Oy Veikkaus, has restrictions (instructions in Finnish, local bank account required) which effectively limit play to citizens within that country.  Operational for three years, online sales average approximately three percent of Finland's total Lottery sales.^[71]  Nearly every other Lottery in Europe is either already taking bets on the Internet or preparing to do so.  “‘Main movers,' such as lotteries in Scandinavia and Belgium, Luxembourg, Germany and France, will all realistically be up and running by 2001; others, such as Spain, Portugal, Italy and Greece, are all working on Internet projects and strategic studies.  Following them, is Eastern Europe,” according to Paul Barnes, vice president of operations for Access Gaming Systems, whose customers include lotteries in Austria, Germany and France.  Austria's National Lottery developed eight new games for its site, while Finland's Lottery decided to offer only its traditional games on the Web.  Sports betting via Lottery Internet sites is popular; Iceland's first online Lottery specializes in bets on sports events.^[72] 

          Although State Lotteries, outside of the U.S., are often allowed to take bets online, legal environments vary.  Austria's Lottery decided its traditional payout of about 55 percent was too low for the fast-paced Internet games, so on the Net its payout is 90 percent.  Legislative restrictions prevent Germany's Lotteries doing the same: games must be the same low rate, 50 percent, both traditional and online.^[73]

          States in the U.S. are beginning to follow this trend.  But, directors of State Lotteries in the United States face problems not encountered in other parts of the world.  Here, Lotteries are run as representatives of state government.  For example, State Lotteries, to protect their image, have banned sales in adult bookstores.  In Europe and the rest of the world, government Lotteries are more often seen for what they are -- businesses, selling mass-market consumer items.  Legally, the obstacles for U.S. State Lotteries are state laws, rather than federal prohibitions, because the games would not involve interstate commerce. 

          Of course State Lotteries in the U.S. do already operate across state lines.  The first interstate lottery began in 1985, linking the State Lotteries of Maine, New Hampshire and Vermont.  The Tri-State Lottery was created to compete with the massive Massachusetts Lottery.  Although apparently never challenged, the Tri-State Lottery, which is still in existence, may violate the federal Interstate Wire Act.  The newer, much larger, Powerball interstate lottery takes pains to keep its wagers segregated:  Although a pool is created by sending accounting data among the states participating in Powerball, no actual funds cross state lines.  The Tri-State Lottery, which does send wagers across state lines, apparently takes the position that the Interstate Wire Act does not apply to lotteries and the federal anti-lottery statutes exempt legal state lotteries from the prohibitions on interstate commerce if the lottery is being conducted pursuant to express agreements among the states.  This position received significant support in early 2001 when Judge Duval of the U.S. District Court for the Eastern District of Louisiana specifically held that the Wire Act does not apply to Internet gambling, other than bets on sports events.  Consolidated class actions by players against Visa and MasterCard were dismissed for failing to allege that sports betting was involved.^[74]

          The real problem for State Lotteries is political, not legal.  What would have been the most interesting U.S. experiment never got off the ground.  In 1991, the Minnesota State Lottery announced that it would conduct a market test of at-home lottery games played on Nintendo video sets.  The Nintendo home lottery was legal.  But a leader of the State Legislature expressed concern about whether minors would be playing these lottery games.  The Lottery decided to scrap this test.  So, politics, not the law, killed the Minnesota State Lottery's plan for at-home computer games.

          Other U.S. State Lotteries are looking looked into at-home wagers, and have been considering them for decades.  In the 1980s and ‘90s the California, Massachusetts and Indiana State Lotteries tried telephone entries -- intra-state only.  The schemes were marketed as second-chance games:  Any player in the state with a losing paper lottery ticket could enter by calling an 800- or 900-number.  The games were true lotteries, because players could bet more, by dialing the 900-number, for the chance of winning more. 

          Now, U.S. State Lotteries are offering games on the Internet.  In a press release dated December 4, 2000, eLottery, Inc., announced it was awarded a contract by the Maryland Lottery to allow players to sign up with the Lottery's subscription system via the Internet.  At the moment, payment must be by check or money order, because Maryland state law does not allow the purchase of lottery tickets with credit or debit cards.^[75]  Several other states, including New Jersey, Kentucky and Indiana, are already offering second or third chance games online.

 

The New Jersey Lottery's Internet promotion centers on its Elvis Presley® instant game, featuring a second‑chance sweepstakes available to current players and non‑players via the Internet...  A third‑chance promotion is also available on the state lottery site featuring the sweepstakes contest... Players can also visit an Elvis store where they can use their tickets to purchase Elvis memorabilia and merchandise... [P]layers who visit the Kentucky Lottery's website can also participate in a third chance drawing, again centering on Elvis Presley.  Upon entering the KY lottery site, players click the Elvis icon and register to win prizes, such as a trip to Graceland and other Elvis merchandise and memorabilia...^[76]

          A novel experiment, not directly involving the Internet at all, may provide an incremental step needed to bring public acceptance to the idea of U.S. State Lotteries taking bets from players' home by computers.  Good marketing ideas never die.  Minnesota's at-home Nintendo computer lottery game has been resurrected, although without a modem connection, at least, not at present.  On February 29, 2000, Loto-Québec introduced the first state lottery played on a CD-ROM.^[77]  Although the game falls under the category of instant lottery, players spend 20 to 30 minutes working their way through this role-playing game.  This first game was a success among lottery patrons in the province of Québec.  In October, 2000, the Iowa Lottery introduced this new instant lottery game, labeled "Treasure Tower" in English (“Trésors de la Tour” in the original French).^[78]  The game consists of two parts: players pay $12 and get a CD-ROM and three instant-win scratch tickets.  Players play the game on their own PC using the CD-ROM to determine whether they are winners.  The game is similar to an interactive adventure computer or video game, with players assuming the role of a character who has to solve puzzles to gather tools, go through up to 100 doors and accumulate “lucky stones” to win.  Prizes range from $4 to $10,000.^[79]  The Iowa State Lottery says determining a winner using a home computer and a CD-Rom purchased from a Lottery agent is no different from playing a paper scratch ticket.  But, it also is a very short step from playing a lottery game on a home computer derived from a CD-Rom to playing the exact same game downloaded or online.

          International organizations of State Lotteries are putting tremendous political pressure on government-run games to restrict their marketing to patrons within their own borders.  Unwritten agreements have existed since the 1980s among State Lottery directors, preventing cross-border marketing; that is why there are no billboards for the Washington State Lottery in Oregon, nor for the Oregon State Lottery in Washington.  But in the late 1990s international organizations, such as AELLE, the European Association of State Lotteries and Lottos, began holding conferences in which the issue of State Lotteries marketing internationally on the Internet was of primary concern.^[80]  The World Lottery Association, comprised of more than 140 lotteries, was created in 1999 by the merger of Intertoto and AILE (the International Association of State Lotteries) to “try and get some control on the Internet,” among other goals.^[81] 

          The majority of governments involved in Internet gambling are not operating their own games; rather they are licensing private operators.  Licensing schemes range from merely selling licenses to requiring complete background checks and continuing oversight of operators.  There appear to be approximately 54 jurisdictions issuing licenses.^[82]  These are primarily smaller nations, such as Antigua, and states and territories of larger nations, including those in Australia, although at least one tribe^[83] is also issuing licenses.^[84]

          At the moment it appears likely that expansion of Internet gaming will be from more State Lotteries using the Web to take bets from their own citizens and more smaller nations and states issuing licenses allowing operators to take wagers worldwide.  Few governments will follow the example of Liechtenstein, operating the games themselves and taking wagers from citizens of other governments.  But, we have not yet heard from most Third World countries.  National governments in much of Africa and parts of South America and Asia could decide to ignore the political pressure put on them by the rest of the world and reap the economic benefits of being able to sell tickets to their relatively small State Lotteries to a much wider market.

          A relatively quiet development with potentially great impact has been the acceptance of interstate and international telephone, and now computer, wagers on live horse and dog races.  The racing industry has been able to survive new competition created by state lotteries and casinos because it allows punters to place wagers without being physically present at the track.  In fact, it has been said that every racetrack in the United States now takes bets through simulcasting, transmitting a race by video to an outside location.^[85]  But in at least eight states, Connecticut, Kentucky, Maryland, Nevada, New Jersey, New York, Oregon and Pennsylvania, the law allows what is known as telephone account wagering:  Patrons set up accounts with a track or off-track betting parlor and then make bets by phone.  Although legal by statute in Maryland and by constitutional amendment in New Jersey, account wagering is not yet operating in these states, and may never get off the ground.  But in the other states punters can place their bets by phone from a bar, home or office, sometimes expressly allowed across state lines.  And some tracks are accepting out-of-state wagers placed by computer.

 

Larger Federal Governments Are Struggling To Define Their Roles

          While states are rushing to legalize or prohibit, larger federal governments are having trouble forming coherent policies.  The predominate position of larger governments, including the federal governments of the United States and Australia, are to adopt a go-slow attitude.  This has taken the form of proposed federal laws which would prevent states, territories and tribes within these federations from issuing Internet gambling licenses or operating the games themselves.  Even the reactions of the governments of Great Britain and South Africa fit this model, where the former has studiously avoided taking a position while the latter is moving, slowly toward a federal form of licensing.

          Powerful countries can affect, in part, the laws of foreign states and nations.  The governments of the United States, and the United Kingdom to a lesser extent, have been putting pressure on foreign governments, such as Antigua, which have a major presence on the Internet.  The concern is money laundering, and individuals involved with the development of Antigua's laws on Internet gambling have been visited by the Department of the Treasury's Financial Crimes Enforcement Network, commonly known as "FinCEN."  Antigua has entered into Mutual Legal Assistance Treaties with both the U.S. and the U.K., to aid in criminal prosecutions.  Antigua also adopted strict controls on its formerly unregulated banking.  Its tourist brochures boast that Antigua overseas banks are the only financial institutions of this type in the world which do not accept cash.

          The governments and major businesses of large countries with many players, such as the U.S., can also indirectly affect Internet gaming operations located in other countries.  The clearest example of this is the decision of MasterCard and Visa to put restrictions on the use of credit cards for gambling online.^[86]  Although the restrictions are onerous, including prohibiting cards from being used to pay winnings to customers, the burden is put primarily on the merchants (in this case the operators of online gaming) and not on banks issuing the cards.  Neither Visa nor MasterCard appear to have adopted system-wide prohibitions on online gaming transactions. However, the largest U.S. financial institutions issuing MasterCard and Visa have concluded that it is better to lose some business than to risk the uncertainty of potential criminal penalties, or, more importantly, not being able to collect payment from players.  The Interactive Gaming Council reported that Bank of America, Providian, MBNA, Capital One and Wells Fargo are automatically declining to process transactions from online gaming merchants.^[87]  Other financial institutions have followed the lead of American banks issuing MasterCard and Visa.  HSBC, formerly the Hongkong and Shanghai Banking Corporation, now headquartered in London, is one of the world's largest banks.  In February 2001 HSBC sent the following notice to its credit card holders:

 

The Card shall not be used for payment of any gambling transaction or other transaction which is illegal under applicable laws and the Bank reserves the right to decline processing or paying any Card Transaction which it suspects to be a gambling or illegal transaction.^[88]

Restrictions on the use of credit cards for online wagers began after suits were filed in various courts in the United States against MasterCard and Visa, as well as eventually against American Express.  Players who had lost money gambling with their credit cards online sought injunctions requiring the credit card companies to sever their connections with Internet gambling operations.^[89]  Although no injunction has been issued, settlements^[90] required the credit card companies to place give card-holders warnings and to put into place restrictions on merchants, including giving Internet gambling operations a special merchant number making it easy to identify when a credit card is being used for online gaming.  Visa and MasterCard have placed even greater restrictions on their issuers, and, as has been noted, some banks have decided to completely prohibit their cards from being used in these transactions.

          Proposed federal legislation,^[91] has been reintroduced which, if passed, would make it extremely difficult for Americans to place bets on Internet sites, even if those sites are legal in the country where they are operated.  In fact, a U.S. federal law prohibiting the transfer of funds and the use of credit and debit cards and wire transfers would have a severe negative impact on Internet gambling, even when both the operator and bettor are in foreign countries in which the activity is legal.  Banks and other lenders, particularly issuers of credit cards, are sometimes in favor of legislation that would put them out of the Internet gambling business, because gambling debts are, almost always, not legally collectable.  For example, a bill in Oregon,^[92] which would make it a felony for Internet casinos to accept credit cards, checks or electronic‑funds transfers from Oregonians to pay gambling debts has the support of credit card companies:

Financial institutions, such as banks, credit unions and credit card companies, support the bill because it closes a loophole that allows gamblers to evade their debts.

 

Under current law, it is illegal for such institutions to collect gambling debts.

 

"Without the capability of blocking all gaming Web sites from credit card access and continually tracking the gambling Web site codes for changes and additions, credit unions may be caught holding the debt," said Pam Leavitt, a Credit Union Association of Oregon lobbyist.

 

Leavitt said a California woman who used a dozen credit cards to run up $115,000 in Internet casino losses has become the poster child of the cause. When credit card issuers tried to collect, the woman sued them and won, citing a state law that makes collecting gambling debts illegal.^[93]

          The lawmaking processes of federal governments are also, of course, subject to politics.  In fact, it looks like politics will prevent a bill explicitly prohibiting Internet gambling from passing the United States Congress, at least in the foreseeable future.

          Anyone who doubts that politics shapes legislation should examine the history of the Internet Gambling Prohibition Act, commonly called the Kyl Bill, after its author, Jon Kyl (R-Az) and similar proposals introduced into the House of Representatives.  The Kyl Bill was first proposed as an amendment to the Crime Prevention Act of 1995^[94].  In its early years, the Internet Gambling Prohibition Act proposed placing far more restrictions on gambling than the infamous 18^th Amendment's Prohibition on intoxicating liquors.  It would have outlawed virtually everything, from actual betting online to merely putting information in online gambling magazines.  The proposed restrictions against putting gaming information online were so broad, that it would have been dangerous for a licensed casino to advertise its legal activities on the World Wide Web. 

          The Kyl Bill's major weakness, besides violating the First Amendment's protection of free speech, was that it would also have made it a federal crime to merely place a bet.  The United States Department of Justice, which does not have fond memories of its role trying to enforce Prohibition, made it clear that it did not support a law that would require knocking on bedroom doors to go after $5 bettors. 

          In addition the national horse racing industry, which depends upon off-track betting to survive, found that its computer operations might fall under the prohibitions on computer-assisted gambling.  Similarly, State Lotteries would have been prevented from conducting their successful multi-state drawings, like Powerball.  So the Kyl Bill had to be amended.

          Every form of legal gambling that has a lobbying presence in Washington, D.C., was able to get an exception written into the bill.  As passed by the Senate, the Kyl Bill would outlaw all Internet gambling.  But bettors have been dropped, so only businesses would be committing crimes by conducting gambling online.  Also excluded:

 

1.                 Securities and commodities, as if day-trading was not gambling;