On-line gambling: Hitting the virtual jackpot

On-line gambling: Hitting the virtual jackpot

by Zia Askari, December 2009

While the legal status of internet gambling is uncertain, the popularity of betting over the net continues to grow. "Michelle" is showing a pair of fours, "Anthony45" appears to be playing for a high straight, and "Stargazer23" is limping along with a pair of twos. Anticipation rises as the betting -- in $5 and $6 increments -- ends. The cards are turned up. Stargazer23 gets another two and a pair of kings. Add them to the pair of twos she already has, and she's gone from lagging to leading with a full house. The dealer pushes Stargazer a pot of $120.50.

The players in this game of seven-card stud aren't sitting around a Las Vegas card table sipping rum and Cokes. They're at computers in Holland, England, and Alabama. The "dealer" is a software program, and the "table" is controlled by ParadisePoker.com based in Costa Rica. The money, however, is very real - it's part of a $3.1 billion global industry that serves more than 6 million internet gamblers worldwide. This is face of gambling in the 21st Century: computerized and anonymous.

The question becomes: Is it legal? And if it is, who's regulating the virtual world of gambling - and profiting from it? Those are just some of the questions that politicians worldwide have been wrestling with. In the U.S. alone, Congress is considering legislation that would ban internet betting and penalize credit card companies that offer their services to cyberspace casinos. Online gambling defenders argue that in the end, decisions from individual governments will be overshadowed by the scope of the internet, which doesn't pay much attention to world geographies.

The U.S. Justice Department asserts that internet gambling is illegal under the Wire Act. This law makes it a felony to accept bets over telephone wires. What isn't clear is if placing a bet is also illegal, especially when those accepting these bets are off US shores. The ambiguities and threats of prosecution have driven most online casino operators out of the US. Countries like Costa Rica and Antigua welcome them as long as they pony up licensing fees of up to $100,000 a year.

Regardless of legal logjams, it's undeniable that internet gambling is growing.

Analysts say the number of internet gambling sites has swelled from just a handful in 1995 to more than 2,000 separate sites in the U.S. and abroad. The internet is a gambler's paradise -everything from blackjack to bingo is available from the comfort of home. Revenues have tripled in the last three years, suggesting the draw of online gaming.

At most cyberspace joints, players open an account with a credit card. If they lose, the debt is charged to their card. Until recently, winners who wanted to cash out usually received their money in the form of a credit to their card. But fearful of legal battles, many card companies are refusing to accept the credits, meaning winners must wait for the casinos to issue them a check. And collecting your winnings is only one chance cyberspace gamblers take. Another is having some assurance they can win.

Many of the 56 nations that play host to online gambling firms lack, or fail to enforce, regulations that ensure companies aren't dealing from the bottom of the electronic deck.

To reduce the players' anxiety, some of the larger sites offer certification from reputable accounting firms that their gambling software is based on normal mathematical odds. Consumers aren't the only ones to get burned occasionally. Credit card companies have found that it's sometimes hard to collect debts run up by cyberspace gamblers.

Despite the threat of anti-cybergambling legislation, the appetite for internet wagering in the US is strong.

Another "legitimate" category of Internet gambling sites revolves around non-casino gambling. Probably the best-known company in this area is YouBet.com, which has offered internet wagering on horse races since early this year. For residents of 40 states, this is perfectly legal. Like most internet companies, YouBet.com is not profitable, and so its future is unclear. But the company is on a pace to surpass $2 million a year in revenue.

Other non-casino gambling websites include Bingohour.com, where users buy virtual bingo cards for $1 apiece. A bingo number is announced on the site every seven seconds. The site claims that jackpots regularly reach as high as $100,000. There haven't yet been any major legal challenges to the site. However, Bingohour claims that it "discourages players from playing bingo on the Internet in any country or state where it is illegal to participate in Internet gaming."

Peer-to-peer gambling is a rapid growth area for online gambling. Peer-to-peer services mean gamblers wager against each other, not the house. The online betting services allow users to set their own terms. Analysts predict this shift in risk from more traditional online casinos to individual users poses a threat to established online gambling sites.

The nation's booming gaming industry has emerged as an influential and divisive force in American politics. Whether gambling is a legitimate business that should be encouraged or a disease that must be controlled is a question that has even split the ranks of Republicans and Democrats. Americans wager more than $600 billion annually in legal gambling operations -- at least $100 billion more than they spend for food. And needless to say, with that much money at stake, the U.S. government undoubtedly wants a bigger slice of the tax pie. Your best defense? Steering clear of online gambling.