Despite the Justice Department's crackdown on cybercasinos, federal legislation that would ban Net gambling is being overhauled to include major allowances for online horse betting and state lotteries and possibly to permit wager sites based on Indian reservations.
Sen. Jon Kyl's (R-Arizona) Internet Gambling Prohibition Act is expected to be significantly altered before it goes for a full Senate vote later this year, according to a draft of the proposed overhaul.
The National Association for Attorneys General pushed the original proposal, which would include the Internet under the existing law prohibiting the use of any wire communication for accepting interstate or foreign wagers. The Kyl bill also would slap new criminal penalties on Net users who place bets.
Law enforcement agents say the updated 1961 wire act could help them go after Net wager houses that misrepresent odds, take bets from territories where the practice is illegal, or fail to pay winners.
But the substitute legislation could carve out exceptions for horse racing and state lotteries, as well as lower the fines and jail time for casual bettors.
Under the draft, legally operated racetracks could set up Net terminals to allow patrons to place wagers with remote, licensed facilities. In addition, racetracks could take bets from home PC users in their state via a private or subscription-based network, utilizing a customer verification system.
State-operated lotteries on the Net also would be allowed by the substitute bill under the same conditions set forth for racetracks.
And if Sen. Larry Craig (R-Idaho) gets his way, Net casinos based on Indian reservations also will still be able to operate. Craig's state is home to the Coeur d'Alene Indian reservation, which hosts the U.S. Lottery site. The lottery has been under fire by states such as Missouri, which is trying to ban the tribe from taking bets from its residents.
Some argue that Missouri, for instance, only opposes online wagers because the businesses pose a threat to state-regulated gambling operations such as riverboat casinos. Kyl's overhauled bill appears to be a compromise with states because it makes room for states to get into the Net gambling game.
However, the hundreds of online fantasy sports leagues could still be banned under the substitute draft and current version of the Internet Gambling Prohibition Act.
"The current version of the bill would cover professionally run fantasy sports leagues run by ESPN, CBS, etc.--even though in fantasy leagues there is no real sporting event, just the use of real statistics," said a lobbyist who is negotiating with Kyl's office on behalf of groups such as the Interactive Services Association's 35-member Interactive Gaming Council.
Observers say Kyl also doesn't plan to throw out a provision that makes it illegal for Net users to place bets. If people place wagers online from states where the practice is illegal, they could face up to a $500 fine and three months in prison under the substitute bill. As introduced, the fine for bettors was $2,500 and six months in prison.
Although Kyl is expected to make some concessions, his bill would still prohibit operation of most independent Net casinos.
Those who oppose a federal ban on Net wagers, such as the Internet Consumers Choice Coalition, would rather see online gambling licensed and regulated. Proponents of Net gambling hope the United States follows the State of Queensland in Australia, which passed a law last month to license cybercasinos and sports betting operations.
"Whenever you have legitimate, thoughtful entities, such as Australia, choosing to regulate and tax this sort of activity, it is bound to be somewhat infectious," said Phil McGuigan, an attorney with Gordon & Glickson who represents some offshore gaming companies.
"The Kyl bill has put a chill on the [U.S.] industry," he added. "But there will be some countries that decide this is an appropriate way to get tax dollars. If they run honest games, they will do well."
Even without a new law, however, prosecutors still are going after Net casino operators. Last month, the U.S. Attorney filed complaints in Manhattan federal court against 21 individuals who allegedly worked for online sports betting operations headquartered in the Caribbean and the United States.
"In our case, they were charged with conspiracy to violate [United States Code] section 1084, which applies to using [wire communication] to take interstate bets," Daniel Becker, a spokesman for the U.S. Attorney's Office for the Southern District of New York, said today.