December 23, 1997

Online Gambling Industry Seeks
Regulation to Save Itself

By JERI CLAUSING

n the online world that has historically shunned anything remotely resembling regulation, the fledging but rapidly growing Internet gambling industry is pushing for rules and oversight in hopes of boosting consumer confidence and warding off attempts to ban the industry.

Regulation has been a key issue at recent Internet gaming meetings, resulting in the development of several voluntary steps that industry leaders hope will lead to an independent international regulatory framework.

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The Interactive Services Association (ISA), a trade association representing a wide range of Internet interests, next month plans to launch the equivalent of the Good Housekeeping seal of approval program for online gaming sites that voluntarily comply with its code of conduct, according to Kevin Mercuri, manager of councils for the association.

That program will offer sites that voluntarily agree to the code a seal of compliance that can be displayed on their Web site. Anyone with a complaint or question can click on that seal to get help from the ISA. The proposed code, which is expected to be approved by the full ISA gaming council next month, includes steps to prevent minors from gambling, to protect consumer privacy, guarantee payouts and accountability.

On a larger scale, the committees of the ISA's gaming council and the International Internet Gaming Association are working on much more detailed plans to create an independent regulatory board to impose the types of tight audits and controls on Internet casinos and betting services as are placed on traditional casinos and parimutuel betting operations.

"There is an absolute vacuum right now of regulation," said Stanley J. Collesano, president and general counsel of a New York software company that provides software to the gaming industry, Cyberspace Casino Technology Ltd.. Collesano and Art Rosenberg are co-chairmen of both the ISA gaming council and the IIGA regulatory committees.

"Right from the get go this has been perceived as a temporary fix," Collesano said. "It is an industry model of how it can work if governments choose to regulate the industry. . . . They can't in a fortnight put together a regulatory body because there are too many governments and too many competing industries. This is industry's attempt to fill the vacuum until such time that we get an international or multinational body in place to regulate what is traditionally a regulated industry."

Collesano and Rosenberg, who is an executive with Venturetech, a Herndon, Va., gaming company, have been working for more than a year to put the model framework together.

Recently, Mary Ann Liebert, who owns a publishing company that publishes Gaming Law Review and who in October sponsored an international conference on Internet gaming in Washington, D.C., has donated staff to help put the voluntary regulatory plan in place.

One country is already in the process of adopting the principles like those Collesano and Rosenberg are pushing. Gaming regulators from Australia have endorsed a framework for regulating and taxing online gaming in that country. One its largest states, Victoria, hopes to have the plan approved by Parliament early next year.

Proponents of online gaming say regulation, not prohibition, is the way to keep the business legitimate and honest.

Opponents, however, say they are just trying to bring current bans on interstate gambling into the digital age. "Interstate gambling is already illegal in this country. The [online gaming operators] are exploiting a loophole in federal law," said an aide to Senator Jon Kyl, Republican of Arizona,, who has won Senate Judiciary Committee approval of a bill being pushed by the National Association of Attorneys General to ban gambling on the Internet.

But the nature of the Internet will make it difficult for any country to enforce a ban on online gambling. So the only answer, gaming proponents say, is regulation to foster the growth of legitimate companies and choke out the companies that aren't playing fair.

Related Article Ban Online Gambling? Australia Would Rather Tax It (October 16, 1997) Internet Gambling Booming in Caribbean (December 17, 1997)

In Australia, for example, Brian Farrell, a gaming regulator in Victoria, has said repeatedly that his casinos will take bets from U.S. customers, even if the Kyl bill passes.

"This is a different ballgame. That's what legislators have to understand," Collesano said. "It's a new world."

Mercuri said Kyl's legislation threatens other areas of Internet commerce.

"This is like the canary at the bottom of the coal mine," he said. "If gambling is prohibited, they will feel justified in prohibiting other businesses that they personally don't think are attractive. Next it could be insurance."

There is no official count of Internet gaming sites, but Sue Schneider, editor of Rolling Good Times, estimates there are about 100 Internet sites now offering live wagering. That is a significant jump from the 15 to 20 that were operating in January, according to her estimates.

The biggest increase has been in companies operating in the Caribbean and Central American countries, she said. There are also companies operating out of Europe and Australia, she said.

Rosenberg said the industry will continue to grow on the Internet, regardless of what Congress does.

"If people want to gamble, they will," Rosenberg said. "Our response is don't prohibit it, regulate it."

Liebert of Gaming Law Review agrees. "Internet gambling is happening anyway," she said. "It's going to take place and a ban is going to be a very difficult thing to enforce. People who are going to gamble on the Internet are going to gamble on the Internet anyway. If anything, by barring it in this country it will become more attractive. Everyone loves a forbidden fruit."

“In order for this industry to flourish, it has to have integrity and honesty.”
Mary Ann Liebert, Gaming Law Review

The biggest problem with regulation is that which most Internet industries face, how to place rules on global networks that span a variety of countries with conflicting legal systems.

"We recognize that self-regulation is not going to be the final answer," Rosenberg said "But what we are trying to do is catalyze some action."

"We are looking to have a screening process that will let people know that this is a legitimate enterprise and conforms to certain standards," Rosenberg said. "It is funded to pay off. Its odds are audited. It doesn't accept underage gamblers."

Although opponents, like Kyl, argue that children will still find ways to access such sites and "gamble away the family savings while mom is at the grocery store," Rosenberg argues that technology really will allow for greater control of online gaming than there currently is in casinos in places like Las Vegas.,

"You can control who is playing, how much they are playing. We are proposing cooling off periods. So if you lose too much, you have to stop playing for a certain period of time," he said.

"I've spent a lot of time in casinos, and I've never had anyone question whether I was putting too many coins in a machine or playing too many hands of blackjack."

The ISA gaming council meets again in January, where the regulatory framework is expected to be discussed.

One of the difficulties in putting an oversight board in place is financing. Internet gaming meetings and conferences are attracting a growing audience of suppliers, gaming operators and lawyers interested in the still very immature industry. But few have the money or have so far been willing to donate the funds needed to establish a board with the resources and power Rosenberg and Collesano envision.

A first step is Liebert's donation of staff to help get the framework formalized and moving forward. Liebert said she committed the staff after the Washington conference that drew an overflow crowd of gaming interests from all over the world.

"I was convinced by this meeting of the dedication to integrity by the participants," Liebert said. "In order for this industry to flourish, it has to have integrity and honesty, and I was very impressed by the dedication to that that I heard."

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• Interactive Services Association

• Cyberspace Casino Technology

• VentureTech

• Mary Ann Liebert Publishers Inc.

• Senator Jon Kyl

• Internet Gambling Prohibition Act of 1997 from Thomas

• Rolling Good Times

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