Analysis of Barney Frank's online gambling bill

After a long wait, the famous new online gambling bill was finally made public yesterday.

Barney Frank online gambling analysis Initially the bill was described by Rep. Frank as a way to repeal the anti-online gambling law which was passed by Congress last year, attached to the unrelated Port Security Act. And many people were disappointed to see the titled Internet Gambling Regulation and Enforcement Act of 2007 would do nothing to repeal the law, but mostly let the financial system off the hook.

This bill in its current text would doubtfully be passed by any chamber of the country's legislative body as it leaves so many questions unanswered. It also seems to be very poorly written from the industry's point of view (which was clearly shown by the dive some online gambling stocks took yesterday afternoon on the London Stock Exchange).

But what makes this bill so bad? Read on.

Let's start with the licensing of the online casinos. Frank, as the Chairman of the House Financial Services Committee, did a great job in outlining the financial side of the licensing, but unfortunately put the entire licensing process in the hands of only one person - the Director of the Financial Crimes Enforcement Network. When it comes to land based gambling - you usually see the decision made by a board or a committee, not by only one person. Not to mention that according to the bill, the director can make a decision based solely on his opinion - this form of licensing has never worked in any other industry, and for the online gambling, a $13 billion industry in US alone, would not work either.

And the fact that licensing will be done by the Financial Crimes Enforcement Network could be compared to you, applying for a checking account at the local police office, rather at the bank. There should be a specialized Internet Gambling Board or Committee established which would focus solely on the regulation and enforcement of Internet gambling.

Now here is the worst part of this bill, the one that actually makes online gambling illegal automatically, without explicitly saying that:

"(2) LIMITATIONS IMPOSED BY STATES.— No Internet gambling licensee may engage, under any license issued under this subchapter, in the business of conducting any particular types of gambling activities or other contests in any State which prohibits or limits such particular types of gambling activities or other contests if the Governor or other chief executive officer of such State informs the Director of such prohibition or limitation , in a manner which clearly identifies the nature and extent of such prohibition or limitation, before the end of the 90-day period beginning on the date of the enactment of the Internet Gambling Regulation and Enforcement Act of 2007, or in accordance with paragraph (3), until such time as any notice of any amendment or repeal of such specific prohibition or limitation becomes effective under paragraph (3)."

What does this mean? It means that, if a state has a law prohibiting casino gambling at that state, online casinos cannot operate in that particular state, even with a license. And in the United States, there are only 11 states which have private casinos (except Indian tribal gambling, which is treated separately). So in the other 40 states, where casino gambling is illegal - online casinos cannot operate. And when those 11 states already have laws or are working on laws to explicitly prohibit online gambling - there are no states left where a licensee could operate - thus banning online gambling on a state level.

Except for the Indian tribes. According to the Internet gambling bill, Indian casinos hasve the option to opt-in or opt-out for Internet gambling. This means that the Indian tribes which already have casinos in 27 states, could run online casinos in their states, as well.

So what did we learn today from Rep. Barney Frank and his new Internet gambling bill? We learned that online gambling would be given as an option to the Indian tribes, but in its essence would still be illegal operation for anyone else, based on the states' laws.

All Mr. Frank suggests with this bill is to take the burden off the shoulders of the financial institutions, cleverly outlaw online gambling on state level, and let the Indian tribes decide if they want to operate online gambling websites.

This bill does need a lot of work. And answers to many questions, such as advertising boundaries of the online gambling companies and a more clear process of licensing. But then again, other than the Indian tribes, who else would apply for an online gambling license when you cannot use it?

04/27/2007