Gambling on the Internet: the states risk playing economic roulette as the Internet gambling industry spins onward

I. INTRODUCTION

A question facing many industries is whether they will be able to operate and to ultimately survive within the dynamic Internet business environment. Currently, the Internet gambling industry (1) is confronting this vexing question. Also, the states (2) that have legalized some form of gambling are facing a difficult economic question of whether to implement legalized Internet gambling within their state borders. (3)

Presently, a variety of both federal and state laws would appear to apply to the Internet gambling industry. (4) Under certain laws, it would be considered illegal to operate an Internet gambling business within the United States. (5) Conversely, certain countries have decided to condone and license Internet gambling businesses that operate within their respective borders. (6) On its face, the opposing systems may seem to operate distinctly and devoid of conflict. However, this dichotomy is lessened because many United States citizens can easily access and gamble on the websites of companies operating from within other countries, thereby creating a conflict. (7)

This Note assumes that there are no foreseeable methods available to entirely prohibit Internet gambling. (8) Therefore, if the survival of Internet gambling is dependent on industry factors, rather than federal and state prohibition or regulation, many states risk losing economic benefits derived from gambling, (9) while not actually prohibiting their citizens from gambling on the Internet.

Part I of this Note provides a statistical overview of both traditional, land-based gambling companies and Internet gambling companies. Part II briefly analyzes the opportunities and threats facing the Internet gambling industry under the framework of Michael Porter’s (10) Five Forces Model. (11) Part III discusses the role of the macroenvironment (12) as it relates to the Internet gambling industry. While all macroenvironment factors will be considered, this Note will concentrate on the political and legal environment factor.

II. AN OVERVIEW OF GAMBLING

In the most recent federal study of gambling in the United States, the National Gambling Impact Study Commission (“NGISC”) (13) found that approximately eighty-six percent of Americans have gambled at least once during their lifetime. (14) The NGISC noted that approximately sixty-eight percent of Americans have gambled at least once during 1998. (15) During 1998, gamblers who legally wagered lost approximately $50 billion. (16) There is no indication that gambling in the United States will decline because “[e]very prediction that the gambling market was becoming saturated has proven to be premature.” (17)

The American Gaming Association (“AGA”) (18) reported that the gaming industry’s gross annual revenue has increased throughout the latest ten-year trend. (19) Furthermore, total casino gross gambling revenue (“GGR”) (20) increased from $7.5 billion in 1989 to $22.2 billion in 1999. (21) Total gaming (22) increased from $24 billion in 1989 to $58.2 billion in 1999. (23) In addition to legal wagers, illegal gambling generates billions of dollars of activity per year. (24)

Since Internet gambling appeared on the World Wide Web in 1995, the industry has grown rapidly. (25) In one study, the NGISC stated that from 1997 to 1998, Internet gambling more than doubled in various categories. (26) For example, the number of Internet gamblers increased from 6.9 million to 14.5 million and Internet gambling revenues increased from $300 million to $651 million. (27) Under another study, the Internet gambling industry’s revenues from 1997 to 1998 increased from $445.4 million to $919.1 million. (28)

It is estimated that there are 250 to 1000 existing Internet gambling websites. (29) Projections indicate that Internet gambling revenue will reach $2.4 billion in 2001. (30) Certain forecasters predict a $100 billion market by 2006. (31) Notwithstanding the difficulty in predicting future Internet activity, the NGISC stated that essentially all observers predict the continuance of rapid growth in Internet gambling. (32)

III. INTERNET GAMBLING AND THE FIVE FORCES MODEL

The Five Forces Model will be used to determine the existing opportunities and threats in the Internet gambling industry’s external environment. (33) For the purposes of this discussion, industry refers to a group of companies that offer “services that are close substitutes for each other.” (34) The Internet gambling industry is comprised of companies offering essentially the same services to Internet gamblers. (35) Such services include casino-style games, sports gambling, horse racing, lotteries, and bingo. (36)

An opportunity exists “when a company can take advantage of conditions in its external environment to formulate and implement strategies that enable it to earn higher profits.” (37) Conversely, a threat exists “when conditions in the external environment endanger the integrity and profitability of the company’s business.” (38) Porter’s Five Forces Model will be used as a framework to identify the potential opportunities and threats confronting companies in the Internet gambling industry. (39)

Porter’s Five Forces are: (1) risk of entry by potential competitors, (2) rivalry among existing companies, (3) bargaining power of buyers, (4) bargaining power of suppliers, and (5) threat of substitute products. (40)

The Five Forces Model (41)

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A. Risk of Entry by Potential Competitors

Under the first force, potential competitors are companies that are not currently competing in the industry, but have the capabilities to compete. (42) Companies already operating in the industry would naturally prefer to discourage new competitors because it becomes more difficult on the incumbent companies to hold their market share and to generate profits. (43) Therefore, “a threat to the profitability of established companies” exists when there is “a high risk of entry by potential competitors” into the industry. (44) Conversely, the profitability of established companies is increased when the risk of entry by potential competitors is low. (45)

The modern Internet gambling companies operating within the Internet gambling industry (46) are arguably faced with the threat of potential competition from the brick and mortar casinos. (47) Certain brick and mortar casinos have provided fun-style games, which award players with prizes based on the amount of points accrued from playing games on their own casino websites. (48) Apparently, this was done to develop brand loyalty (49) in the event Internet gambling is legalized in the United States. (50) If legalization is to occur, then these brick and mortar casinos will be better equipped to compete with online casinos because the fun-style games have enabled them “to develop a database of people who gamble on the Internet.” (51) In sum, brick and mortar casinos evidently pose a threat to online casinos. This threat is directly linked to the legal implications affecting the Internet gambling industry. (52)

B. Rivalry Among Existing Companies

Under the second force, companies have an opportunity to earn higher profits when there is weak industry rivalry. (53) However, if the rivalry among existing companies is strong, then companies may engage in price competition, which will result in limited profitability. (54) Therefore, intense rivalry among existing companies in an industry will create a threat to profitability. (55)

Although the burgeoning number of Internet gambling websites (56) may be expected to result in intense rivalry in the industry, the anticipated growth of the Internet gambling industry should enable many companies to sustain profitability. (57) Instead of competing in price competition, it appears that many Internet gambling companies are attempting to differentiate the services they provide with that of their competitors. (58)

C. Bargaining Power of Buyers

Under the third force, a company’s buyers may be defined as the end users who ultimately purchase a company’s products or use its services. (59) Buyers may be considered a competitive threat if they are able to demand lower prices or demand better services. (60) Conversely, an opportunity for increased profits may exist when buyers are weak. (61)

Internet gamblers are the end users in the industry. They ultimately use the services provided by Internet gambling companies. Internet gamblers do not appear to be in a strong position relative to that of Internet gambling companies because the trend indicates both an increase in Internet gamblers and Internet gambling companies. (62) This contrasts the situation in which there are a large amount of suppliers and only a few powerful buyers who can demand lower prices and better quality. (63) Therefore, it does not appear that Internet gamblers currently have the bargaining power to pose an imminent threat to Internet gambling companies.

D. Bargaining Power of Suppliers

Under the fourth force, suppliers may be considered a threat if they are able to increase the price “that a company must pay for its inputs or reduce the quality of the inputs they supply.” (64) However, if suppliers are weak, then a company has an opportunity because it can demand both lower prices for its inputs and better input quality. (65)

Online-gaming software is a vital component to the operation of an Internet gambling business. The online-gaming software provides the “[g]raphics, interactivity, and security [which] are the three most important technological areas for gaming software.” (66) The companies that produce online-gaming software are key suppliers to the Internet gambling industry. One such supplier, CryptoLogic, appears to be the industry leader in online-gaming software because of its superiority in the three important technological areas. (67) A threat may exist if a supplier is able to dominate and control the online-gaming software market. (68) The supplier’s bargaining power over an Internet gambling business may result in the latter’s decreased profitability. (69)

Internet Service Providers (“ISPs”) are another important supplier to the Internet gambling industry. By utilizing an ISP’s routers, Internet gamblers and Internet businesses are able to effortlessly exchange information. (70) The power of ISPs relative to that of Internet gambling businesses may well be determined by the number of ISPs that service the industry. Presently, there are many ISPs that operate within the United States. (71) However, most ISPs that service the industry are physically located outside of the United States. (72)

E. Threat of Substitute Products

Under the final force, substitute products can be defined as “those of industries that serve consumers’ needs in a way that is similar to those being served by the industry being analyzed.” (73) A strong competitive threat exists when close substitutes for a company’s products or services are present in the industry. (74) In contrast, if there are few close substitutes, then there is an opportunity for a company to raise prices and to increase profits. (75)

Based on the documented statistics, consumers have had and continue to have a need for gambling. (76) However, Internet gambling is not the only way to satisfy this need. Some of the close substitutes available outside of the Internet gambling venue include lotteries, casinos, horse racing, greyhound racing, jai alai, (77) and sports wagering. (78) It appears that the lottery provides a close substitute to fulfill the gambling need. As of 1999, there are thirty-seven states and the District of Columbia with operating lotteries. (79) Even though close substitutes are available to consumers, the convenience of certain substitutes is arguably less than that of Internet gambling. (80) For example, sports wagering is considered legal in only two states, Nevada and Oregon. (81) Thus, close substitutes appear to pose both opportunities and threats to an Internet gambling business.

After reviewing the Internet gambling industry under the Five Forces Model, it appears that various opportunities and threats confront companies that currently compete with each other. Also, potential competitors still undecided as to whether to enter the industry will be confronted with similar strategic challenges. Even though the make-up of the companies within the industry may be uncertain, if the projections for the industry are at worst reasonably close, the industry is certain to survive. (82) However, thus far, the Internet gambling industry has been discussed only as a self-contained entity. As mentioned earlier, other factors can affect the future of an industry. (83) These factors will be discussed in the following section.

IV. INTERNET GAMBLING AND THE MACROENVIRONMENT

The Internet gambling industry is confronted with various threats and opportunities. (84) These threats and opportunities are not confined to the Internet gambling industry as a self-contained entity. (85) Rather, the Internet gambling, like any other industry, is embedded in the broader macroenvironment. (86) Any “[c]hanges in the macroenvironment can have a direct impact on any one of the five forces in Porter’s model, thereby altering the relative strength of these forces and, with it, the attractiveness of an industry.” (87) Relevant macroenvironment factors, which will be discussed briefly, include: the technological environment, the macroeconomic environment, the social environment, and the demographic environment. Thereafter, the political and legal environment, which arguably has had the most significant impact on the Internet gambling industry, will be discussed.

The Macroenvironment Model (88)

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A. The Technological Environment

The rate of technological change has accelerated rapidly since World War II. (89) Technological change is both an opportunity and a threat because it “can make established products obsolete overnight, and at the same time it can create a host of new product possibilities.” (90) Indeed, Internet-related technologies have enabled the Internet gambling industry to develop. (91) Furthermore, this development has broadened the overall gambling industry. (92)

B. The Macroeconomic Environment

“The state of the macroeconomic environment determines the general health and well-being of the economy.” (93) The condition of the macroeconomic environment will subsequently affect a company’s ability to achieve a sufficient rate of return. (94) Arguably, the state of the economy affects the amount of money consumers are willing and able to spend on entertainment-related goods and services. Notwithstanding the varying macroeconomic environment, spending in the overall gaming industry has consistently increased through various economic cycles. (95)

C. The Social Environment

Similar to technological change, social change can create both opportunities and threats within an industry. (96) Gambling has clearly impacted the social environment. (97) Depending on the viewpoint, however, the social impact of gambling can have either a positive or negative effect on the social environment. (98) Gambling proponents point to the positive economic benefits produced by the gambling industry. (99) Such benefits include “jobs, investment, economic development, and enhanced tax revenues.” (100) Operating within various states, brick and mortar casinos provide many jobs and generate substantial tax revenues. (101) Therefore, gambling proponents argue that, as a whole, the United States would receive additional economic benefits from a revenue-producing Internet gambling industry. (102)

On the other hand, gambling opponents point to the negative social costs often associated with gambling, such as pathological gambling, crime, and youth gambling. (103) Further, under this view, the Internet will only exacerbate many of the existing social costs. (104) The opponents argue that many underage gamblers would be able to use the Internet for gambling because of the lack of age verification controls. (105) Pathological gamblers would be “susceptible to problems with Internet gambling” because of the Internet’s “accessibility, the high-speed instant gratification of Internet games[,] and the high level of privacy.” (106) Moreover, criminal use may be pervasive because of the high-level of anonymity combined with the lack of accountability, the ability of computer hackers to cheat by altering gambling software, and the potential for money laundering through “anonymity, remote access and encrypted data.” (107)

D. The Demographic Environment

Under this element in the macroenvironment, changes in the make-up of the population can create both opportunities and threats. (108) For example, an industry that targets a specific age group may acquire an opportunity if a demographic shift in age increases product or service demand. (109) Conversely, this same demographic shift may pose a threat to industries that target the opposite age group. (110) However, the Internet gambling industry may be immune to some of the adverse effects of demographic shifts, as there has been a consistent increase in both gambling (111) and certain forms of Internet usage across all major demographic groups. (112)

E. The Political and Legal Environment

Political and legal factors play a major role in the macroenvironment. (113) These factors “have a major effect on the level of opportunities and threats in the environment.” (114) Over the past few years, there has been much dispute over the applicability of current federal law to the Internet gambling industry. (115) The uncertainty spurned by this dispute was undoubtedly the catalyst for proposed federal legislation that specifically addressed Internet gambling. (116) The analysis of the political and legal environment confronting the Internet gambling industry will therefore focus on both current and proposed federal law.

1. Current Federal Law

There are various federal statutes and regulations that would appear to apply to Internet gambling. (117) However, the Interstate Wire Act of 1961 (“Wire Act”) (118) is the statute most widely applied to Internet gambling issues. (119) Arguably, from a strategic perspective, the analysis of the political and legal environment should focus on the proposed legislation because it is the end product of such legislative efforts that will ultimately affect the structure of the industry. (120) Nonetheless, since the Wire Act continues to be the primary means for regulating Internet gambling, (121) it provides the best foundation for an analysis of the political and legal environment.

In part, the Wire Act provides:

Whoever being engaged in the business of betting or wagering knowingly
uses a wire communication facility for the transmission in interstate or
foreign commerce of bets or wagers or information assisting in the placing
of bets or wagers on any sporting event or contest, or for the transmission
of a wire communication which entitles the recipient to receive money or
credit as a result of bets or wagers, or for information assisting in the
placing of bets or wagers, shall be fined under this title or imprisoned
not more than two years, or both. (122)

Under this section, the focus is on the gambling business. It is apparent that this language excludes the average Internet gambler. “The term `wire communication facility’ means any and all instrumentalities, personnel, and services … used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, or other like connection between the points of origin and reception of such transmission.” (123) However, the applicability of the Wire Act to Internet communications is less certain and has created much debate. (124) With respect to access technology, Internet gambling businesses may not require wire facilities to support their communication needs. For example, both cellular and satellite technology could enable a user to access the Internet without the use of a hard-wire connection. (125) With respect to gambling activities, many forms of Internet gambling fall outside the scope of the Wire Act, which focuses on “sporting event[s] or contest[s].” (126) For example, in addition to sports wagering, which would be covered under the Wire Act, many Internet gambling businesses offer additional wagering services. (127) It is not clear whether “contest” would apply to these other forms of wagering services. (128)

The Wire Act provides an exemption for the “transmission in interstate or foreign commerce of information for use in news reporting of sporting events or contests.” (129) It further exempts “the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a State or foreign country where betting on that sporting event or contest is legal into a State or foreign country in which such betting is legal.” (130)

The first exemption allows for “news reporting,” (131) while the second exemption was designed to enable horse race results to be transmitted to licensed Nevada horse racing bookmakers. (132) Furthermore, some members of the horse racing industry have interpreted this exemption to apply to certain interstate off-track betting operations. (133)

In addressing the common carriers, (134) the Wire Act states that “[w]hen any common carrier … is notified in writing by a … law enforcement agency … that any facility … is being used or will be used for the purpose of transmitting or receiving gambling information … it shall discontinue or refuse [service], after reasonable notice to the subscriber.” (135) Moreover, common carriers will not be held liable “for any act done in compliance with any notice received from a law enforcement agency.” (136)

Under the rubric of the political and legal environment, the Wire Act has had a profound effect on the Internet gambling industry. For instance, the Wire Act reduces the risk of market entry by potential competitors into the Internet gambling industry. By making it illegal to operate an Internet gambling business in the United States, potential competitors will need to establish Internet gambling businesses in countries that are amenable to the industry. (137) The Wire Act does not directly impact the individual Internet gamblers (138) because the language specifically targets gambling businesses. (139)

Furthermore, the Wire Act would appear to affect certain suppliers, such as ISPs, which provide the essential link between businesses and buyers. If deemed a common carrier, an ISP operating within the United States has an obligation to discontinue its subscriber’s service once notified by a law enforcement agency. (140) However, most ISPs that host Internet gambling businesses are physically located in other countries. (141)

Another pertinent, current federal statute is the Interstate Horse Racing Act of 1978 (“IHRA”), (142) which addresses interstate parimutuel (143) wagering. In passing the IHRA, Congress found that the states should be responsible for determining what types of gambling occurs within their borders. (144) Federal action under the IHRA covers “the limited area of interstate off-track wagering on Horseraces … to ensure States will continue to cooperate with one another in the acceptance of legal interstate wagers.” (145)

Under the IHRA and the Wire Act, (146) licensed racetracks are permitted to broadcast their races to other licensed racetracks, thereby creating a common wagering pool. (147) The common wagering pool can benefit both horse racing gamblers and licensed racetracks

Currently, Internet gamblers may be able to wager on horse racing both internationally and domestically. (149) Through contractual agreements with licensed racetracks, certain domestic companies provide a variety of services that enable a gambler to watch and wager on horse racing via the Internet. (150) Operating under the pari-mutuel structure, the wagers become part of the common pool wagering at the hosting racetracks. (151) Therefore, it appears that these Internet-based businesses are operating in compliance with the appropriate federal and state laws. (152) However, various Internet businesses operating outside of the United States allow wagering on horse racing, (153) even though they are not part of the common pool wagering system. (154)

2. Proposed Federal Law

The Wire Act may be interpreted to apply to certain forms of current technology

In response to this situation, Senator Kyl introduced the Internet Gambling Prohibition Act of 1997 (“IGPA”). (158) There were various versions of the IGPA. (159) The first version (160) of the bill was introduced in the Senate on March 19, 1997. The second version (“Senate Bill 474”) (161) was reported in the Senate with an amendment on October 23, 1997. Following further modification, the Senate passed the third version (“Senate Bill 2260”) (162) on July 23, 1998 as an amendment to an appropriations bill. (163)

As reported in the Senate, Senate Bill 474 would have amended 18 U.S.C. [section] 1081 and added [section] 1085 to that title. (164) Senate Bill 474 proposed to add a definition to [section] 1081 for the term “bets or wagers.” (165) In part, the definition stated:

Bets or wagers means the staking or risking by any person of something of
value (other than a de minimus amount) upon the outcome of a contest,
sporting event, or game of chance, upon an agreement or understanding that
the person or another person will receive something of value in the event
of a certain outcome. (166)

Furthermore, the definition “include[d] the purchase of a chance or opportunity to win a lottery or other prize … in an amount exceeding a de minimus amount.” (167)

Senate Bill 474 would have added a [section] 1085 entitled “Internet gambling.” (168) Under this section, the term “interactive computer service” was defined as “any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet.” (169) The term “Internet” was defined as “the international computer network of both Federal and non-Federal interoperable packet switched data networks.” (170)

Senate Bill 474 outlined the penalties for gambling businesses. (171) A person engaged in a gambling business would have been fined up to $20,000, or imprisoned up to 4 years, or both. (172) Furthermore, Senate Bill 474 would have made it illegal for an individual gambler to “place, receive, or otherwise make a bet or wager, via the Internet or any other interactive computer service in any State.” (173) An individual gambler who willfully violated this would have been fined up to $2,500, or imprisoned up to 6 months, or both. (174)

Senate Bill 474 addressed the civil remedies available to prohibit Internet gambling. (175) In part, the remedies stated:

The attorney general of a State (or other appropriate State official) in
which a violation of section 1085 of title 18 … is alleged to have
occurred, after providing written notice to the Attorney General of the
United States, may institute proceedings under this section. Upon
application of the attorney general of the affected State, the district
court may enter a temporary restraining order or an injunction, or may take
any other action necessary to prevent a violation of section 1085….”
(176)

By not specifically outlining the obligations and duties of ISPs, Senate Bill 474 most likely would have created an enormous policing burden for the ISPs. (177)

In the House of Representatives, Representative Bob Goodlatte introduced a companion bill named the Internet Gambling Prohibition Act of 1997, (178) which was substantially similar to the first version of Senate Bill 474. (179) Upon completion of the 105th Congress, neither the Senate nor the House was able to enact an IGPA. (180)

In the 106th Congress, Senator Kyl introduced the Internet Gambling Prohibition Act of 1999 (“IGPA”). (181) There were various versions of this IGPA. (182) The first version (183) of the bill was introduced in the Senate on March 23, 1999. The second version (184) was reported with an amendment on June 17, 1999. Following a further amendment, the Senate passed the third version (“Senate Bill 692”) (185) on November 19, 1999.

As passed by the Senate, Senate Bill 692 would have added a [section] 1085 to Title 18 of the United States Code. (186) Senate Bill 692 contained much more substantive text than Senate Bill 474. (187) Moreover, various modifications were made to Senate Bill 692 that are pertinent to this discussion. One such change expanded the definitions section. (188) For example, the term “interactive computer service provider” was defined as “any person that provides an interactive computer service, to the extent that such person offers or provides such service.” (189)

The definition of “bets or wagers” would have been expanded to “include[] any scheme of a type described in section 3702 of Title 28.” (90) Section 3702 (191) provides protection against unlawful sports gambling in the areas of professional and amateur sports. Under Senate Bill 692, a “gambling business” was defined as:

(A) a business that is conducted at a gambling establishment, or that (i)
involves (I) the placing, receiving, or otherwise making of bets or wagers
or (II) the offering to engage in the placing, receiving, or otherwise
making of bets or wagers
finance, manage, supervise, direct, or own all or part of such business
and (iii) has been or remains in substantially continuous operation for a
period in excess of 10 days or has gross revenue of $2,000 or more from
such business during any 24-hour period
business described in subparagraph (A). (192)

The penalties for a person engaged in operating a gambling business remained unchanged from Senate Bill 474. (193) The provision, however, that would have made it illegal for an individual Internet gambler to place a bet or wager via the Internet was removed from Senate Bill 692. (194)

Rather than providing for a flat prohibition on Internet gambling, Senate Bill 692 would have created certain gambling exemptions. (195) One such exemption provided for “any otherwise lawful bet or wager that is … wholly intrastate for a State lottery, or for a multi-State lottery operated jointly between 2 or more States in conjunction with State lotteries.” (196) Another exemption provided for “any otherwise lawful bet or wager … made on an interstate or intrastate basis on a live horse … race … in accordance with the Interstate Horse Racing Act of 1978.” (197) Also, “any otherwise lawful bet or wager … made for a fantasy sports league game or contest” would have been excluded from the IGPA. (198)

Senate Bill 692 specifically addressed the Interactive Computer Service Provider (“ICSP”). (199) As long as an ICSP was deemed eligible, it would not have had an obligation to monitor or disable access to Internet gambling sites, and it would have been immune from various liabilities. (200) To be considered eligible an ICSP would have had to “maintain[] and implement[] a written or electronic policy that requires the provider to terminate the account of a subscriber of its system or network expeditiously following the receipt by the provider of a notice … alleging that such subscriber has violated or is violating this section.” (201)

Regarding an ICSP’s obligations, Senate Bill 692 provided that “[n]othing in this section may be construed to impose or authorize an obligation on an [eligible ICSP] … to monitor material or use of its service[,] or except [after proper notice], to gain access to, to remove, or to disable access to material.” (202)

Essentially, an ICSP would have had immunity from liability for hosting an illegal Internet gambling Web site. (203) In part, Senate Bill 692 provided:

An [eligible ICSP] shall not be liable … for the use of its facilities or services by another person to engage in Internet gambling activity that violates [the applicable] law– (i) arising out of any transmitting, routing, or providing of connections for gambling-related material or activity … by the provider, if– (I) the material of activity was initiated by or at the direction of a person other than the provider

Also, an ICSP would have had immunity from liability for terminating an Internet gambling Web site. (205) In part, Senate Bill 692 provided that “[a]n interactive computer service provider shall not be liable for any damages, penalty, or forfeiture, civil or criminal, under Federal or State law for taking in good faith any action [in accordance with proper notification], or … any [proper] court order.” (206)

Representative Bob Goodlatte also drafted an Internet Gambling Prohibition Act of 1999 (“IGPA”). (207) Unlike his previously proposed IGPA, (208) Rep. Goodlatte presented multiple versions of this IGPA. (209) The first version (210) of the bill was introduced in the House on October 21, 1999. After subsequent amendments, the second version (“House Bill 3125”) (211) was reported in the House on June 7, 2000. The substance of House Bill 3125 was substantially similar to Senate Bill 692. (212) Moreover, the text is consistent, if not identical, in the areas most pertinent to this discussion. (213)

In the latter part of the 106th Congress, Representative Jim Leach introduced the Internet Gambling Funding Prohibition Act (“IGFPA”), (214) which would have prohibited the use of certain types of bank instruments for Internet gambling. Multiple versions of the IGFPA were introduced and reported in the House of Representatives. (215) The first version (216) was introduced in the House on May 10, 2000. Following amendments, the second version was reported in the House as the Unlawful Internet Gambling Funding Prohibition Act (“UIGFPA”). (217) The House Banking Committee had approved this version on June 28, 2000.

As approved by the House Banking Committee, the UIGFPA would have prohibited gambling businesses from accepting bank instruments for the purpose of unlawful Internet gambling. (218) Under the UIGFPA, the definition of a gambling business was almost identical to that presented in Senate Bill 692. (219) Regarding bank instruments, the UIGFPA provided:

No person engaged in a gambling business may knowingly accept, in connection with the participation of another person in unlawful Internet gambling– (1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card)

The term “unlawful Internet gambling” was defined as any bet or wager made via the Internet and deemed “unlawful under any applicable Federal or State law in the State in which the bet or wager [was] initiated, received, or otherwise made.” (221)

Representative John Conyers sponsored the final bill of the 106th Congress that pertained to prohibiting Internet gambling. The Comprehensive Internet Gambling Prohibition Act of 2000 (“CIGPA”) (222) was introduced in the House of Representatives on July 27, 2000. Essentially, the CIGPA would have modified the Wire Act to encompass Internet gambling. (223) The CIGPA would have subjected only gambling businesses to penalties for transmitting “bets or wagers, or information assisting in the placing of bets or wagers.” (224) This provision would not have applied to the individual Interact gambler. (225) Furthermore, the CIGPA would have provided various exceptions, such as:

News reporting of wagering activities, … posting or reporting of any
educational information on how to make a legal bet or wager, …
advertising relating to betting or wagering in a jurisdiction where such
betting or wagering is legal, … and the transmission of information
assisting in the placing of bets or wagers from a State or foreign country
where such bets or wagers are legal into a State or foreign country in
which such betting or wagering is legal. (226)

Generally, under the CIGPA, an ICSP would have had immunity from liability in the event a gambling business used its services or facilities to engage in Internet gambling. (227) Ultimately, at the conclusion of the 106th Congress, none of the aforementioned bills (228) were enacted.

Thus far in the first session of the 107th Congress, three bills have been proposed that specifically address Internet gambling. The first of such bills, the Unlawful Internet Gambling Funding Prohibition Act (“UIGFPA”), (229) was introduced by Representative Jim Leach on February 12, 2001. This UIGFPA is identical to the bill that Representative Leach introduced during the 106th Congress. (230) To date, the UIGFPA has been referred to the House Subcommittee on Financial Institutions and Consumer Credit.

Senator John McCain introduced the second bill, the Amateur Sports Integrity Act (“ASIA”), (231) on April 5, 2001. The first version of this bill did not address Internet gambling. However, the second version, (232) which was reported in the Senate with amendments on May 14, 2001, does include a section that specifically addresses Internet gambling. This bill is similar to the UIGFPA, in that both bills focus on bank instruments used for unlawful Internet gambling purposes. The bills differ, however, as to who should be prohibited from accepting bank instruments for unlawful Internet gambling purposes. While the UIGFPA prohibits a “person [from] engag[ing] in a gambling business”, (233) the ASIA prohibits any “financial institution” from accepting such bank instruments. (234) To date, the ASIA has been placed on the Senate legislative calendar under general orders.

Representative John LaFalce introduced the third bill, the Internet Gambling Payments Prohibition Act (“IGPPA”), (235) on July 20, 2001. The IGPPA is substantially similar to the UIGFPA. However, there is one pertinent distinction between the two bills: the IGPPA prohibits a gambling business from accepting bank instruments in Internet gambling, (236) while the UIGFPA prohibits a gambling business from accepting bank instruments in unlawful Internet gambling. (237) Apparently, the IGPPA would prohibit a gambling business from accepting any bank instrument for Internet gambling purposes, but the UIGFPA would prohibit the same gambling business only where the bet would be considered unlawful under a federal or state law in the state where the bet “is initiated, received, or otherwise made. (238) To date, the IGPPA has been referred to the House Subcommittee on Financial Institutions and Consumer Credit.

After discussing the proposed Internet gambling legislation, it is apparent that the political and legal environment factor will ultimately have a paramount effect on the operational parameters of the Internet gambling industry. (239) The gamut of the bills discussed sought to prohibit Internet gambling businesses from operating in the United States. (240) Apparently, this will reduce the risk of entry by potential competitors. As a result, the profitability of established international Internet gambling businesses may increase, thereby strengthening the industry.

The proposed legislation wavered on the issue of punishing individual Internet gamblers. (241) Initial versions of the IGPA targeted individual Internet gamblers. (242) This would have had a marked impact on the buyers within the industry. However, subsequent versions of the IGPA (243) shifted back towards the design of the Wire Act, which does not target the individual gambler. (244) Also, the UIGFPA and the CIGPA of the 106th Congress focused and the UIGFPA and the IGPPA of the current Congress focus exclusively on gambling businesses. (245) The latest trend regarding Internet gambling legislation ostensibly focuses on prohibiting businesses from using bank instruments for Internet gambling purposes. (246)

The proposed legislation would have affected certain suppliers, namely ICSPs (which would include ISPs). The initial versions of the IGPA left unanswered various questions pertaining to the duties of and liabilities to the ICSPs. (247) Subsequent versions of the IGPA provided answers to these questions by thoroughly defining the role of the ICSP within the Internet gambling industry. (248) As such, ICSPs would have been subjected to duties that appeared to lack a heavy burden. (249) Moreover, ICSPs would not have incurred liability, as long as they adhered to their duties. (250)

V. CONCLUSION

It has long been understood that the states have the primary responsibility for creating and enforcing gambling laws, which are designed essentially to protect the interests of the citizens within their borders. (251) However, when situations arise in which state regulation or prohibition alone is not deemed feasible, the states will often seek the assistance of the federal government. (252) Such a situation exists by way of the expanding Internet gambling industry.

In industries other than that of Internet gambling, state and federal laws may be sufficient to control the industry. However, the Internet gambling industry is confronted with various opportunities and threats of which the political and legal environment is but one factor that will determine its survival. (253) Furthermore, as previously illustrated, the proposed federal legislation is currently focusing on gambling businesses or financial institutions in an effort to prohibit Internet gambling. Therefore, there appears to be no exigency-at least from a federal perspective-for an individual Internet gambler to cease Internet gambling. Also, other factors such as the technological environment, the macroeconomic environment, the social environment, and the demographic environment indicate that the Internet gambling industry has been and will continue to be provided with opportunities, which seemingly outweigh the countervailing threats. (254) Taken as a whole, the macroenvironmental factors tend to indicate that the Internet gambling industry has a high probability of survival.

As a result, notwithstanding the apparent social costs associated with Internet gambling, it appears that the states currently condoning gambling would ultimately benefit by implementing a plan that would utilize both federal and state law in order to adequately regulate Internet gambling. Otherwise, these states — in as much as they will not be able to prevent Internet gambling within their borders — will incur the social costs without reaping the economic benefits.

(1.) Unless otherwise indicated in this Note, the terms “Internet gambling industry” or “industry” should be considered a separate entity, rather than a segment of the overall gaming industry. As a result, Internet gambling companies are to be considered distinct from the traditional, land-based gambling companies, which do not provide gambling operations via the Internet.

(2.) See NATIONAL GAMBLING IMPACT STUDY COMM’N, NATIONAL GAMBLING IMPACT STUDY FINAL REPORT 1-1 n.2 (1999) [hereinafter FINAL REPORT] (explaining that all of the states except Hawaii and Utah have legalized some form of gambling), available at http://www.ngisc.gov/reports/fullrpt.html.

(3.) See id. at 1-1 (stating economic benefits, such as enhanced tax revenues, jobs, economic development, and investment).

(4.) See Discussion infra Part IV.E.1.

(5.) Internet Gambling Prohibition Act of 1997: Hearing on H.R. 2380 Before the Subcomm. on Crime Comm. on the Judiciary, 105th Cong. 77-91 (1998)(statement of Kevin V. Di Gregory, Deputy Assistant Attorney Gen., Criminal Div., U.S. Dep’t of Justice)(explaining that various forms of Internet gambling could be prosecuted under existing federal and state law), available at http://www.usdoj.gov/criminal/cybercrime/kvd0698.htm#Q2.

(6.) FINAL REPORT, supra note 2, at 5-1 n.5. Countries that have established laws to provide Internet gambling licenses include:

five territories within Australia, Antigua and Barbuda, Austria, Belgium, Cook Islands, Costa Rica, Curacao, Dominica, Dominican Republic, Finland, Germany, Grand Turk, Grenada, Honduras, the territory of Kalmykia in Russia, Liechtenstein, Mauritius, St. Kitts and Nevis, St. Vincent, South Africa, Trinidad, Turks and Caicos Islands, four territories in the United Kingdom, Vanatu, and Venezuela.

Id. (citing Licensing Information, INTERACTIVE GAMING NEWS, at http://www.igamingnews.com/articles/licenses/countries.cfm (May 10, 1999)).

(7.) See id. at 5-1.

(8.) E.g., Tom W. Bell, Testimony Before the National Gambling Impact Study Commission (May 21, 1998), available at http://www.ngisc.gov/meetings/may2198/bell.pdf. Bell, who is the Director of the Telecommunications & Technology Studies at the Cato Institute, proposes three factors that will hinder the prohibition of Internet gambling. Id. “First, Internet technology renders prohibition futile…. Second, as an international network, the Internet offers an instant detour around merely domestic prohibitions…. Third, consumer demand for Internet gambling and the states’ demand for tax revenue will create enormous political pressure for legalization.” Id.

(9.) See supra text accompanying note 3.

(10.) Michael Porter, who is the Bishop William Lawrence University Professor at the Harvard Business School, is considered a leading authority on competitive strategy and international competitiveness. HBS Faculty Biography, Michael E. Porter, at http:// dor. hbs. edu/ fi_redirect.jhtml? facInfo=bio&facEmId=mporter (last updated Jan. 19, 2001)(on file with the Rutgers Computer and Technology Law Journal).

(11.) MICHAEL E. PORTER, COMPETITIVE STRATEGY: TECHNIQUES FOR ANALYZING INDUSTRIES AND COMPETITORS ch. 1 (1980).

(12.) CHARLES W. L. HILL & GARETH R. JONES, STRATEGIC MANAGEMENT: AN INTEGRATED APPROACH 84-87 (Jennifer B. Speer et al. eds., 4th ed. 1998) (describing the macroenvironment to consist of the following factors: the political and legal environment, the technological environment, the demographic environment, the social environment, and the macroeconomic environment).

(13.) National Gambling Impact Study Commission Act, Pub. L. No. 104-169, 110 Stat. 1482 (1996). Under this Act, Congress established the NGISC to conduct a two-year comprehensive study focusing on the social and economic implications of gambling in the United States. Id. Prior to this study, a federal study of gambling in the United States had not been conducted since 1976. Id.

(14.) FINAL REPORT, supra note 2, at 1-1.

(15.) Id. (citing the National Opinion Research Center’s Report on Gambling Impact and Behavior as submitted to the NGISC).

(16.) Id.

(17.) Id.

(18.) The AGA is an online resource for the gaming industry. The AGA’s “goal [is to] creat[e] a better understanding of the gaming entertainment industry by bringing facts about the industry to the general public … through education and advocacy.” AGA, AGA Overview, at http:// www. americangaming. org/ about_aga/ mission/sub_mission.cfm (last visited Oct. 16, 2001) (on file with the Rutgers Computer and Technology Law Journal).

(19.) AGA, AGA Fact Sheets, at http://www.americangaming.org/ casino_entertainment/aga_facts/facts.cfm/ID/8 (last visited Oct. 16, 2001) (on file with the Rutgers Computer and Technology Law Journal).

(20.) The AGA explains that the GGR is the amount wagered minus the winnings received by the gamblers and is used to determine the true economic value of gambling. Id.

(21.) Id.

(22.) In addition to casinos, total gaming includes lotteries, charitable gaming, Indian gaming, pari-mutuel wagering and legal bookmaking. Id.

(23.) Id.

(24.) Tom Lundin Jr., The Internet Gambling Prohibition Act of 1999: Congress Stacks the Deck Against Online Wagering but Deals in Traditional Gaming Industry High Rollers, 16 GA. ST. U. L. REV. 845, 848 (2000) (citing CNN television broadcast, which stated that in 1995 illegal gambling in the United States totaled approximately $30 billion).

(25.) AGA, AGA Fact Sheets, at http://www.americangaming.org/ casino_entertainment/aga_facts/facts.cfm/ID/17 (last visited Oct. 16, 2001) (on file with the Rutgers Computer and Technology Law Journal).

(26.) FINAL REPORT, supra note 2, at 5-1 (citing the estimates of Sebastian Sinclair, a research consultant for Christiansen/Cummings Associates, Inc.).

(27.) Id.

(28.) Id. (citing Glenn Barry, Seven Billion Gambling Market Predicted, INTERACTIVE GAMING NEWS, at http://www.igaming news.com (May 11, 1998)).

(29.) Compare Lundin, supra note 24, at 849 (stating that “[e]stimates of the number of gaming websites var[ied] from 250 to 1000”) (alterations in original) (quoting Tom W. Bell, Gambler’s Web: Why Online Betting Can’t Be Stopped-And Why Washington Shouldn’t Bother Trying, REASON, Oct. 1999, at 25, 26), with USA TODAY, Snapshot, at http://www.usatoday.com/snapshot/money/msnap138.htm (last updated July 18, 2000) (citing Christiansen/Cummings Associate’s estimate of 300 Internet gambling websites) (on file with the Rutgers Computer and Technology Law Journal), and FINAL REPORT, supra note 2, at 5-3 (citing the Rolling Good Times Web site which estimates 1,000 Internet gambling websites).

(30.) USA TODAY, supra note 29 (citing Christiansen/Cummings Associate’s revenue estimate)

(31.) Lundin, supra note 24, at 848 (citing Internet Gambling Prohibition Act: Hearings Before the Subcomm. On Technology, Terrorism, and Government Information of the Senate Comm. On the Judiciary, 105th Cong. (1999) (testimony of Sen. Jon Kyl) (quoting Debra Baker, Betting on Cyberspace: When It Comes to the Future of Internet Gambling, All Wagers Are Off, A.B.A.J., Mar. 1999, at 54).

(32.) FINAL REPORT, supra note 2, at 5-1.

(33.) HILL & JONES, supra note 12, at 72.

(34.) Id.

(35.) See id. The service that the companies supply would be considered a close substitute because it satisfies the same basic Interact gambler’s needs. Id.

(36.) FINAL REPORT, supra note 2, at 5-3, 5-4.

(37.) HILL & JONES, supra note 12, at 72.

(38.) Id.

(39.) See id.

(40.) PORTER, supra note 11, at 6.

(41.) PORTER, supra note 11, at 4 fig. 1-1.

(42.) HILL & JONES, supra note 12, at 73.

(43.) Id.

(44.) Id.

(45.) Id. at 74.

(46.) See supra note 1.

(47.) Essentially, the term “brick and mortar casino” refers to a traditional, land-based casino, not an online casino.

(48.) Judy Dehaven, Virtual Casino … Real Debate: Gaming firms, N.J., other locales are taking a long and serious look at pros and cons of Net gambling, STAR-LEDGER, Nov. 15, 2000, at 33 (stating that two brick and mortar casinos, MGM Mirage and Harrah’s Entertainment, offered prizes to people who played games on their websites), available at http://www.vegascomer.com/news/article_listing.cfm/1092.

(49.) “Brand loyalty is buyers’ preference for the products … [and] can [be] create[d] … through continuous advertising of brand and company names….” HILL & JONES, supra note 12, at 74.

(50.) See Another Failure to Ban Net Gambling, CASINO WIRE, at http://www.casinowire.com (Dec. 20, 2000) (explaining that certain corporations have established “play for fun” sites in the event Internet gambling is legalized in the United States) (on file with the Rutgers Computer and Technology Law Journal).

(51.) Dehaven, supra note 48, at 34 (quoting Jim Murren, MGM Mirage’s president and chief financial officer).

(52.) See id. (stating that neither MGM Mirage nor Harrah’s Entertainment would provide cash payouts until Internet gambling is considered lawful).

(53.) HILL & JONES, supra note 12, at 75.

(54.) Id. “Price competition limits profitability by reducing the margins that can be earned….” Id.

(55.) Id.

(56.) See supra note 29 and accompanying text.

(57.) See supra notes 30, 31.

(58.) See Online Casino News.com, at www.onlinecasinonews.com/Level_2_Pages/certified_links.htm (last visited Oct. 5, 2001) (on file with the Rutgers Computer and Technology Law Journal), for an extensive variety of slogans apparently designed to distinguish the individual companies. Such slogans include: “Welcome to Jetset Casino. We are ready for take-off so fasten your seatbelts and prepare for a high-flying adventure”

(59.) HILL & JONES, supra note 12, at 81. In certain industries, there may be major buyers of a company’s products who then may resell to end users. Id. An example of a major buyer is a supermarket chain that buys a company’s product and then resells to the end user. Id.

(60.) Id. A competitive threat may exist when buyers demand better service because of the potential increase in operating costs. Id.

(61.) Id. Companies can raise their prices to earn higher profits when their power is relatively stronger than that of the buyers. Id.

(62.) See supra notes 27, 29.

(63.) HILL & JONES, supra note 12, at 81.

(64.) Id. at 82. This decreases a company’s profitability. Id.

(65.) Id. “As with buyers, the ability of suppliers to make demands on a company depends on their power relative to that of the company.” Id.

(66.) Margaret Popper, CryptoLogic Is Holding Lots of Aces, BUS. WK. ONLINE, at http:// www. businessweek. com/bwdaily/ dnflash /june2000/ sw00627.htm (June 27, 2000) (quoting Brandon Osten, software and Internet analyst for Sprott Securities) (on file with the Rutgers Computer and Technology Law Journal).

(67.) Id.

(68.) For example, CryptoLogic has a licensing agreement with seventeen online casinos in which it receives “30% to 40% of their takings, as well as an additional 10% in e-commerce fees.” Popper, supra note 66. Presumably, if CryptoLogic maintains control of the online-gaming software market, it can increase its percentage of takings and fees, thereby decreasing the profitability of an Internet gambling business.

(69.) See HILL & JONES, supra note 12, at 82.

(70.) FINAL REPORT, supra note 2, at 5-11.

(71.) Id. (stating that there are approximately 6,500 local providers within the United States).

(72.) Id. at 5-5.

(73.) HILL & JONES, supra note 12, at 83.

(74.) Id. at 84. This can affect a company’s profitability by reducing the price that a company can charge for its products or services. Id.

(75.) Id.

(76.) See supra Part II.

(77.) The sport of jai alai is “[a]n extremely fast court game in which players use a long hand-shaped basket strapped to the wrist to propel the ball against a wall.” THE AMERICAN HERITAGE COLLEGE DICTIONARY 725 (Robert B. Costello et al. eds., 3rd ed. 1993).

(78.) See FINAL REPORT, supra note 2, at 2-1 to 2-14, for an informative discussion on the various forms of gambling in the United States.

(79.) Id at 2-1.

(80.) See generally Mark G. Tratos, Gaming on the Internet III: The Politics of Internet Gaming and the Genesis of Legal Bans or Licensing, in 1 FOURTH ANNUAL INTERNET LAW INSTITUTE 2000, 734-40 (PLI Intell. Prop. Practice Course, Handbook Series No. G-610, 2000) (discussing the Australian Internet Gaming Study, which identified six factors that make online gambling more accessible than brick and mortar casinos).

(81.) FINAL REPORT, supra note 2, at 2-14. Oregon’s sports wagering is limited to a lottery that is keyed to the outcome of professional football games. Id.

(82.) See supra note 31.

(83.) See supra note 12 and accompanying text.

(84.) See supra Part III.

(85.) See HILL & JONES, supra note 12, at 84.

(86.) Id.

(87.) Id.

(88.) Id. at 84 fig.3.3.

(89.) Id. at 85.

(90.) Id.

(91.) FINAL REPORT, supra note 2, at 2-16. Certain technological advances enable “Internet gamblers to participate instantaneously through improved software providing real-time audio and visual games and races.” Id. Furthermore, the increased usage of Internet gambling suggests an increasing level of customer confidence. See id. at n.94. This may be attributed to technological advances that have provided greater security to Internet users who conduct online financial transactions.

(92.) See supra Part II.

(93.) HILL & JONES, supra note 12, at 84.

(94.) Id. The authors state that “[t]he four most important factors in the macroeconomy are the growth rate of the economy, interest rates, currency exchange rates, and inflation rates.” Id. at 84-85.

(95.) See supra Part II.

(96.) HILL & JONES, supra note 12, at 86.

(97.) FINAL REPORT, supra note 2, at 1-1.

(98.) See id.

(99.) Id.

(100.) Id.

(101.) See AGA, State Update, at http:// www. americangaming. org/ casino_entertainment /state_update/ stats.cfm/ state id/0 (last visited Nov. 2, 2001) (on file with the Rutgers Computer and Technology Law Journal). Recent brick and mortar casino figures indicate: Colorado employs 7,669 and generates $82.8 million in tax revenue

(102.) See supra notes 30, 31.

(103.) FINAL REPORT, supra note 2, at 1-1, 5-4. Gambling opponents point to the families mined by gambling, prosperous casinos surrounded by depressed communities, and transfer of wealth from the poor to the affluent as a few of the resulting social costs. Id. at 1-2.

(104.) See id. at 5-4 to 5-6.

(105.) Id. at 5-4.

(106.) Id. at 5-5.

(107.) Id. at 5-5 to 5-6.

(108.) HILL & JONES, supra note 12, at 86.

(109.) See id.

(110.) See id. The authors discuss how the 1960’s baby-boom generation affected various industries. Id. In the 1980’s, the baby-boomers got married and subsequently purchased consumer appliances, which created increased demand in the consumer appliance industry. Id. However, industries that targeted the young age group were threatened by a declining customer base. Id.

(111.) See supra Part II.

(112.) See U.S. DEP’T OF COMMERCE, FALLING THROUGH THE NET: DEFINING THE DIGITAL DIVIDE, A REPORT ON AMERICANS’ ACCESS TO TECHNOLOGY TOOLS (2000) (providing an extensive report examining individuals and households that have access to the Internet, and concluding that increased popularity in certain types of Internet use “transcend all demographic and geographic boundries”), available at http://www.ntia.doc.gov/ ntiahome/fttn99/contents.html

(113.) HILL & JONES, supra note 12, at 86.

(114.) Id. (emphasis added).

(115.) FINAL REPORT, supra note 2, at 5-6.

(116.) See discussion infra Part IV.E.2.

(117.) E.g., I. Nelson Rose, Gambling and the Law [R]: Internet Gambling: Statutes and International Law, S.E. 81 A.L.I.-A.B.A. 231 (2000) (discussing the application of criminal federal statutes and regulations to Interact gambling).

(118.) 18 U.S.C. [section] 1084 (1994).

(119.) FINAL REPORT, supra note 2, at 5-6.

(120.) See discussion infra Part IV.E.2.

(121.) See generally Tim Ito & Sharisa Staples, The Odds on Prohibiting Web Bets, WASHINGTONPOST.COM, at http:// washingtonpost. com/ wpsrv/ national/ longterm/intgambling/ overview.htm (June 1999) (discussing a criminal action brought under the Wire Act and questioning the Wire Act’s applicability in the current technological environment) (on file with the Rutgers Computer and Technology Law Journal).

(122.) 18 U.S.C. [section] 1084(a) (emphasis added).

(123.) 18 U.S.C. [section] 1081 (1994) (providing definitions for key terms included in various gambling statutes).

(124.) FINAL REPORT, supra note 2, at 5-6. One side of the debate argues that it does not apply to Internet gambling because Internet technology was not known when the statute was drafted and therefore should only apply to telephone communications

(125.) Id. at 5-7.

(126.) 18 U.S.C. [section] 1084(a).

(127.) See supra note 36.

(128.) 18 U.S.C. [section] 1084(a).

(129.) 18 U.S.C. [section] 1084(b).

(130.) Id.

(131.) Id.

(132.) Rose, supra note 117, at 240.

(133.) Id.

(134.) A common carrier is a telephone company. Id.

(135.) 18 U.S.C. [section] 1084(d).

(136.) Id.

(137.) See countries cited supra note 6.

(138.) The individual Internet gamblers should be considered buyers within the industry. See supra Part III.C.

(139.) See 18 U.S.C. [section] 1084(a).

(140.) 18 U.S.C. [section] 1084(d).

(141.) FINAL REPORT, supra note 2, at 5-5.

(142.) 15 U.S.C. [subsections] 3001-3007 (1994).

(143.) Under the IHRA, pari-mutuel is defined as “any system whereby wagers with respect to the outcome of a horserace are placed with, or in, a wagering pool conducted by a person licensed or otherwise permitted to do so under State law, and in which the participants are wagering with each other and not against the operator.” Id. [section] 3002. Forty-three states have legalized pari-mutuel wagering on horse races. FINAL REPORT, supra note 2, at 2-11.

(144.) 15 U.S.C. [section] 3001(a)(1).

(145.) Id. [section] 3001(a)(3).

(146.) 18 U.S.C. [section] 1084(b)(1994).

(147.) FINAL REPORT, supra note 2, at 3-8.

(148.) Id.

(149.) See id. at 5-4.

(150.) E.g., Youbet.com Inc., at https://www.youbet.com/whatisyoubet/whatisyoubet.html (last visited Oct. 30, 2001) (on file with the Rutgers Computer and Technology Law Journal). Youbet.com is a domestic company, which provides its customers with on-line audio and video horse racing services. Id. However, to wager on the horse races, an Internet gambler must establish an account with Youbet.com’s partner, who conducts and manages the gambler’s wagering account. Id.

(151.) FINAL REPORT, supra note 2, at 5-4.

(152.) But see, Mike Farrell, Internet Wagering Gets the Boot in New Jersey, BERGEN RECORD (New Jersey), Dec. 31, 2000, at S 17. Farrell stated that until recently, New Jersey residents were able to watch and wager on horse racing via the Internet. Id. However, once the New Jersey Attorney General’s office advised the New Jersey Racing Commission (“NJRC”) that these activities violated state law, the NJRC advised Youbet.com and other on-line companies to deny Internet wagers from New Jersey residents. Id.

(153.) See e.g., Online Casino News.com, at www.onlinecasinonews.com/Level_2_Pages/certified_links.htm (last visited Oct. 30, 2001) (listing various international companies that accept wagers on horse racing) (on file with the Rutgers Computer and Technology Law Journal).

(154.) Basically, the money wagered by the Internet gambler does not go into a commingled pool because of the aforementioned state licensing restriction. Nonetheless, these companies will pay their winning customers based on the amount determined by the pari-mutuel wagering result. This enables the companies to provide this service without adhering to the legal requirements.

(155.) See text accompanying supra note 124.

(156.) See FINAL REPORT, supra note 2, at 5-7.

(157.) The Internet Gambling Act of 1997: Hearing on S. 474 Before the Subcomm. On Technology, Terrorism, and Government Information on the Judiciary, 105th Cong. 1 (1997) (opening statement of Hon. Jon Kyl, a U.S. Senator from the state of Arizona).

(158.) S. 474, 105th Cong. (1997).

(159.) See infra notes 160-62 and accompanying text.

(160.) S. 474, 105th Cong. (1997) (introduced in the Senate), available at http://thomas.loc.gov/home/c105query.html.

(161.) S. 474, 105th Cong. (1997) (reported in the Senate), available at http://thomas.loc.gov/home/c 105 query.html.

(162.) S. 2260, 105th Cong. [section] 624 (1998) (as passed by the Senate), reported in 144 CONG. REC. S9302-04 (daily ed. July 29, 1998), available at http://www.access.gpo.gov/su_docs/aces/aaces190.html.

(163.) The Senate substantially modified Senate Bill 474 before they subsequently passed Senate Bill 2260. As such, Senate Bill 2260 resembles the Internet gambling legislation proposed in the following congressional session. Therefore, this Note will discuss Senate Bill 474, rather than Senate Bill 2260, in an attempt to illustrate the progression of proposed Internet gambling legislation.

(164.) S. 474 (reported in the Senate).

(165.) Id. [section] 2.

(166.) Id. [section] 2(6).

(167.) Id.

(168.) Id. [section] 3.

(169.) Id.

(170.) Id.

(171.) Id. [section] 3(c)(2).

(172.) Id.

(173.) Id. [section] 3(b)(1).

(174.) Id. [section] 3(b)(2).

(175.) Id. [section] 4.

(176.) Id. [section] 4(b)(2).

(177.) Sen. Bob Kerrey, who supported Senate Bill 474, cautioned, “[T]here is a high risk that we may inadvertently sap the vitality of the Internet if we start to require [Interact] service providers to serve as an arm of our law enforcement agencies.” 144 CONG. REC. S8821 (daily ed. July 23, 1998) (statement of Sen. Kerrey), available at http://www.access.gpo.gov/su_docs/aces/aac es190.html.

(178.) H.R. 2380, 105th Cong. (1997) (introduced in the House), available at http://thomas.loc.gov/home/c105query.html.

(179.) Compare H.R. 2380, 105th Cong. (1997) (introduced in the House), with S. 474, 105th Cong. (1997) (introduced in the Senate).

(180.) See Lundin, supra note 24, at 851 (citing 145 CONG. REC. S14,863, S14,866 (daily ed. Nov. 19, 1999) (statement of Sen. Kyl)

(181.) S. 692, 106th Cong. (1999).

(182.) See infra notes 183-85 and accompanying text.

(183.) S. 692, 106th Cong. (1999) (introduced in the Senate), available at http://thomas.loc.gov/home/c106query.html.

(184.) S. 692, 106th Cong. (1999) (reported in the Senate), available at http://thomas.loc.gov/home/c106query.html.

(185.) S. 692, 106th Cong. (1999) (engrossed in the Senate), available at http://thomas.loc.gov/home/c106query.html.

(186.) Id.

(187.) Compare S. 692, 106th Cong. (1999) (engrossed in the Senate), with S. 474, 105th Cong. (1997) (reported in the Senate).

(188.) Compare S. 474 [section] 3(a)(2) (reported in the Senate) (defining three terms), with S. 692 [section] 2(a) (engrossed in the Senate) (defining twelve terms).

(189.) Id. [section] 2(a)(7).

(190.) Id. [section] 2(a)(1)(C).

(191.) 28 U.S.C. [section] 3702 (1994). In part, the statute provides:

It shall be unlawful for (1) a governmental entity …, or (2) a person to
sponsor, operate, advertise, or promote, pursuant to the law or compact of
a governmental entity, a lottery, sweepstakes, or other betting, gambling,
or wagering scheme based … on one or more competitive games in which
amateur or professional athletes participate….

Id.

(192.) S. 692 [section] 2(a)(4) (engrossed in the Senate).

(193.) Compare S. 692 [section] 3(c)(2) (engrossed in the Senate), with S. 474 3(c)(2), 105th Cong. (1997) (reported in the Senate).

(194.) Compare S. 474 [section] 3, 105th Cong. (1997) (reported in the Senate), with S 692 [section] 2, 106th Cong. (1999) (engrossed in the Senate).

(195.) S. 692 [section] 2(f) (engrossed in the Senate).

(196.) Id. [section] 2(f)(1)(A).

(197.) Id. [section] 2(f)(1)(B)-(v)(I).

(198.) Id. [section] 2(f)(1)(C).

(199.) See supra note 189.

(200.) See S. 692 (engrossed in the Senate).

(201.) Id. [section] 2(d)(1)(B).

(202.) Id. [section] 2(d)(5)(B)(i).

(203.) See id. [section] 2(d)(1).

(204.) Id. [section] 2(d)(1)(A).

(205.) Id. [section] 2(d)(5)(A).

(206.) Id.

(207.) H.R. 3125, 106th Cong. (1999).

(208.) H.R. 2380, 105th Cong. (1997).

(209.) See infra notes 210-11 and accompanying text.

(210.) H.R. 3125 106th Cong. (1999) (introduced in the House), available at http://thomas.loc.gov/home/c106query.html.

(211.) H.R. 3125 106th Cong. (2000) (reported in the House), available at http://thomas.loc.gov/home/c106query.html.

(212.) Compare H.R. 3125, 106th Cong. (2000) (reported in the House), with S. 692 106th Cong. (1999) (engrossed in the Senate).

(213.) Compare H.R. 3125 [section] 2, 106th Cong. (2000) (reported in the House), with S. 692 [section] 2, 106th Cong. (1999) (engrossed in the Senate).

(214.) H.R. 4419, 106th Cong. (2000).

(215.) See infra notes 216-17 and accompanying text.

(216.) H.R. 4419, 106th Cong. (2000) (introduced in the House), available at http://thomas.loc.gov/home/c106query.html.

(217.) H.R. 4419, 106th Cong. (2000) (reported in the House), available at http://thomas.loc.gov/home/c106query.html.

(218.) H.R. 4419 (reported in the House).

(219.) See supra note 192.

(220.) H.R. 4419 [section] 3(a) (reported in the House).

(221.) Id. [section] 3(b)(4).

(222.) H.R. 5020, 106th Cong. (2000) (introduced in the House), available at http://thomas.loc.gov/home/c106 query.html.

(223.) See id. [section] 3.

(224.) Id. [section] 3(a)(1).

(225.) See id.

(226.) Id. [section] 2(6)(A)-(D).

(227.) Id. [section] 3(f)(2).

(228.) S. 692, 106th Cong. (1999)

(229.) H.R. 556, 107th Cong. (2001) (introduced in the House), available at http://thomas.loc.gov/home/c107query.html.

(230.) Compare H.R. 556, 107th Cong. (2001) (introduced in the House), with H.R. 4419, 106th Cong. (2000) (reported in the House).

(231.) S. 718, 107th Cong. (2001) (introduced in the Senate), available at http://thomas.loc.gov/home/c107query.html.

(232.) S. 718, 107th Cong. (2001) (reported in the Senate), available at http://thomas.loc.gov/home/c107query.html.

(233.) H.R. 556 [section] 3(a).

(234.) S. 718 [section] 303(a). “The term `financial institution’ has the meaning given such term in section 903(8) of the Electronic Fund Transfer Act (15 U.S.C. 1693a(8)).” Id. [section] 303(bX4XC).

(235.) H.R. 2579, 107th Cong. (2001) (introduced in the House), available at http://thomas.loc.gov/home/c107query.html.

(236.) “`Internet gambling’ means to place, receive, or otherwise make a bet or wager by any means which involves the use, at least in part, of the Internet.” Id. 3(b)(4).

(237.) “`[U]nlawful Internet gambling’ means to place, receive, or otherwise make a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State in which the bet or wager is initiated, received, or otherwise made.” H.R. 556 [section] 3(b)(4).

(238.) Id.

(239.) See supra Part IV.E.2.

(240.) S. 474, 105th Cong. (1997)

(241.) Individual Internet gamblers should be considered buyers within the industry. See supra Part III.C.

(242.) S. 474

(243.) S. 692

(244.) See 18 U.S.C. [section] 1084(a).

(245.) H.R. 4419

(246.) H.R. 556

(247.) See S. 474

(248.) S. 692

(249.) See id.

(250.) Id.

(251.) FINAL REPORT, supra note 1, at 1-5.

(252.) Id.

(253.) See supra Part IV.E. 1-2.

(254.) See supra Part IV.A-D.

Edward M. Yures *

* J.D. Candidate 2002, Rutgers Law School — Newark. I would like to thank my family and friends for their encouragement during my law school experience. Special thanks to my wife, Michele, for her unwavering support and patience. I would also like to thank the members — both former and present — of the Rutgers Computer and Technology Law Journal for their editorial assistance. God Bless America.