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Online bets: Win, place, or show?

With online gaming on the rise, states are scrambling to react. Regulatory waters are muddied because Net gambling crosses state and national boundaries.

New York is becoming a hard place to make a friendly little wager.

Earlier this year, the state's legislature killed a bill to allow casinos to be built outside of Indian reservations. Now the Committee on Racing, Gaming, and Wagering is taking on a bigger beast: online gambling.

The committee's chairman, Sen. Bill Larkin (R-New Windsor), has introduced a handful of bills to tame Net gambling within the state's borders. One bill outlaws online gambling practices that would violate New York's current law, such as taking or placing bets on sports teams. The other two bills prohibit off-track horse race betting, which is legal offline, and distributing "information" about gambling to minors over the Net.

With online gaming on the rise, states are scrambling to react. The regulatory waters are muddied because Net gambling crosses state lines. States, not the federal government, regulate gambling, according the Federal Trade Commission. The growth of online casinos and wagering sites have left states such as New York puzzled as they try to apply their existing gambling laws to the Net.

The creators of the sites and some e-commerce advocates say the local jurisdiction attempts are futile because states can't prosecute people outside their borders. Others claim that states are really trying to protect their purse strings.

"It's not about protecting consumers from fraud; the concern is about a loss of state revenues," Kerry Rogers, creator of Wager Net, said today.

Rogers was a defendant in a closely watched online gambling case. In December, a Minnesota judge ruled that the state could sue Rogers for committing false advertising in 1995. The state claimed that Rogers posted an ad on the Net implying that gambling is legal in Minnesota, in which it is not.

Rogers, who lives in Las Vegas, Nevada, says the ad was legitimate, because he explained that the sports betting site soon would be offered from a server in the Central American country Belize. He is appealing the ruling, and is willing to go all the way to the U.S. Supreme Court to prove he shouldn't be held liable for a Minnesota gambling law from Las Vegas.

One card in antigambling states' favor is the Interstate Wire Act. The federal code allows states to prosecute those who "knowingly use a wire communication facility for the transmission in interstate or foreign commerce of bets, wagers, or information assisting in the placing of bets or wagers."

However, the Interstate Wire Act was written before onset of the Net, making its application to the medium unclear. Last summer, the National Association of Attorneys General released a report titled "Gambling on the Internet," which called for a revision of the code to include "interactive computer service providers" and penalize "casual bettors."

"The availability of gambling on the Internet threatens to disrupt each state's careful balancing of public welfare and fiscal concerns by making gambling available across state and national boundaries, with little or no regulatory control over the conduct of gaming activity by individual jurisdictions," the report states.

The report adds that a revised law should cover Internet service providers.

New York's Larkin takes a different route, clearly stating that ISPs would not be held accountable for illegal gambling that unknowingly passed over their servers. In the wake of the decision in Minnesota, the Committee on Racing, Gaming, and Wagering is holding a hearing next Wednesday to hear testimony about the state's interest in limiting gambling opportunities originating from other states and countries.

"We're not even certain that anything could technically be done," said Heather Bennett, counsel to Larkin and the committee. "But we are concerned about consumer fraud issues, access to gambling sites by minors, and secure transaction issues."

There are already numerous sites on the Web including Virtual Vegas, World Wide Web Casino, and Gamblenet that offer interactive wagering. So far, the FTC says it hasn't brought a case against gambling operations.

Cyber-liberties groups are more alarmed by online gambling bills that make it illegal to pass on information about gambling to minors. Aside from Larkin's bill, in California, Sen. Steve Peace (D-El Cajon) introduced a bill last Monday that would also make the act illegal.

"That is unconstitutional," said Stanton McCandlish, director of the Electronic Frontier Foundation "These legislatures don't have any comprehension of how this medium works. They can't restrict people from running online gambling services in other countries."

Site creators like Rogers are banking on that theory: "We've haven't taken a bet yet, but we will. The downside is a $25,000 fine from Minnesota. The upside is millions," he gloated. "We could pay the fine in three hours after launching."