More on Internet Gambling Bill

I've been gathering information on the new internet gambling bill. No one can know for sure just how draconian it will be until the Treasury department writes the regulations to implement it, but here's what I am tentatively concluding at this point: the bill will fail to achieve its purpose. It will make it harder for people to send money to and from the gambling sites, but there will inevitably be workarounds to avoid the law and they will be perfectly legal. The bill requires banks and other money exchange services (Western Union, credit card companies, etc) to stop the transfer of funds to online gambling sites.

But that's already the case for credit card companies, who decided a couple years ago not to fund any transfers to such sites. In the early days of online gaming, you could use a Visa card to deposit money directly in to your account. When they stopped allowing that, intermediaries grew up. The first was Paypal, which was later bought by Ebay, who decided to stop taking transfers to online gaming sites as well. That led to the development of Neteller. You can transfer money to Neteller, either directly from your bank account with an online check or wire transfer, or with a credit card, and they will transfer it to the gaming site. If you want to cash out, they pay it in to your Neteller account and you can then transfer it to your bank.

How this new bill will affect Neteller is still up in the air. Neteller, like Paypal, facilitaties exchanges for a wide range of things, not just online gaming sites. And because Neteller is an offshore company, located on the Isle of Man, there is no way for the banks or credit card companies to know which money sent to them is then sent on to a gambling site and which money is used for other, non-regulated purchases. The best case scenario is that the banks continue to transfer funds to such services for that reason; the worst case scenario is that they cut off all transfers to such services completely (or Neteller decides on its own that it better not accept transfers from American banks, as some online gambling sites have done).

But even if the worst case scenario comes true, will this really stop money from going to and from the gambling sites? Nope. What will happen is that people will have to transfer those funds to offshore banks in Canada, the Cayman Islands, or elsewhere. As long as there are millions of people wanting to transfer such funds, and willing to pay a 3% charge to do so, someone is going to facilitate those transactions. All this bill will do is force players to build one more intermediate step into the process: send money to an offshore account (such transfers are perfectly legal), then from those accounts to the gambling sites or to Neteller and then to the gambling sites.

There are already many offshore banks that allow such transfers to be done electronically, and there will be many more that grow up in response to this new market. The bottom line is that there's no way they will ever put a stop to this. They can make it inconvenient, but they can't stop it, they can only drive it further offshore. And doing so forfeits the possible tax revenue that could be gotten if the industry was legal and regulated. As this article notes:

But Bailey and other online gambling supporters are not 100 percent certain. What is certain is that had Congress attempted to regulate online gambling, instead of ban it, they could have generated additional revenue.

A study commissioned by the Poker Players' Alliance, an advocacy group fighting for the rights of Internet poker players, shows that most of the money wagered on Internet poker comes from the U.S.

"Estimates indicate that, worldwide, amounts wagered in online poker games were nearly $60 billion in 2005 with approximately $3 billion in commission revenues," states the executive summary of the study conducted by Judy Xanthopoulos, Ph.D. Quantria Strategies, LLC. "Further, industry estimates indicate that nearly 90 percent of these wagers are made by American players. In addition to the 23 million online poker players, television broadcast of poker tournaments provides another indicator of the popularity of poker in the US. The presence of poker on US television stations continues to grow and attract larger audiences. Whether the Federal government approves or does not approve of Internet poker, it is clearly a dominant pastime and one that is likely to persist for many years to come. It is important to note that the Federal government, by taking a position opposing all Internet gaming, including Internet poker, has denied itself an important source of potential revenues and the ability to regulate and oversee this industry."

It is estimated that regulating Internet gambling would generate more than $3 billion a year in revenue for the government.

It's one of the basic rules of economics: capital always finds a way. If there is money to be made, the market will find a way to get it from buyer to seller. We can either make that work for us, or futilely try and make it go away. And once again let's note the hypocrisy of those conservatives who laud the free market right up until people spend money on things they don't like.