Internet Gambling

Various sectors of the so-called gaming industry are excited about the prospects for widespread Internet gambling, and chaffing at the regulatory constraints which are delaying its widespread introduction.

I've seen the volume of legal gambling in the United States estimated as high as $500 billion dollars per year. This works out to almost $2000 per person per year, so even a small fraction of this total is a healthy chunk of change. I hate to think what the amount of illegal gambling is! The Interactive Gaming Council reports that more than $1.2 billion dollars were bet in its member's 700 cyber casino sites in 1999. This is an amazing number, comparable to the $1.6 billion dollars in sales that Amazon.com had in the same year. This gives new perspective on who really runs the Internet. The United States Justice Department and Sen. Jon Kyle estimate that this annual total could grow to $10 billion dollars within a few years.   

Internet gambling differs in many important ways from conventional gambling. Whether these changes are positive or negative depends upon your perspective:

• Loss of Community Control - Today, for better or worse, state, local, or tribal government regulates the opportunities for legal gambling. If the people of a given region believe that casino gambling is harmful, it will be forbidden. If the people of given region believe that casino gambling is good for economic development, they can pass a law and must live with the consequences.

  But Internet gambling has no such geographic limitations. Anyone with a computer is a potential player, even in the most righteous community on earth. The problems of compulsive gambling won't go away, and indeed their effects will stay local. All the benefits, such as potential profits, taxes and jobs won't stay local, but instead get sucked off into cyberspace.

• Lack of Regulation - You are playing virtual roulette in a virtual casino. After ten straight blacks you just know the next ball will be red. You swallow, hard, as you put down a $10,000 wager on red. It is more than you ever dreamed of betting and frankly more than you can afford. It comes up black, again. You lose.

  But how do you know that the game was fair? Perhaps the programmer decided to make the ball fall in the slot which minimizes the amount returned to bettors, instead of fairly picking a random number. The WWW site you have been sending your money to is on an uninhabited island in the Bahamas. If it wasn't fair, who could you complain to, anyway?

• Lack of Infrastructure - Expanding casino gambling from an enclave in Las Vegas into a nationwide ``gaming'' industry required a considerable investment in infrastructure and personnel. Massive hotels and powerful politicians had to be bought, the latter to help steer reluctant legislatures towards legalizing their business.

  Interestingly, it is the established gaming industry that has the most to lose if Internet gambling gains a foothold in the hearts and minds of gamblers. Operating an Internet gambling site does not require a 3000 room hotel in Vegas. Indeed, well-known establishments like Caesar's Palace have no particular edge in building virtual casino. Instead, they face the prospect of their customers sitting home glued to their computer screens. Why lose money in Atlantic City when you can do so from the comfort of your living room?

The Internet Gambling Prohibition Act of 1997 was passed by the Senate on July 23, 1998, by a vote of 90-10. This act amends the Federal criminal code to prohibit and set penalties for: (1) placing, receiving, or otherwise making a bet or wager via the Internet or any other interactive computer service in any State; and (2) engaging in the business of betting or wagering through the Internet or any such service. There are exceptions for state lotteries, horse racing, and (yes) jai-alai.  

As of this writing, the House of Representatives has failed to vote this bill into law. Special interests line up for or against it in interesting ways. Liquor store owners and religious groups are for the legislation, but perhaps from different motives, since only the liquor dealers fear a reduction in their lottery ticket sales due to competition with on-line lotteries. A surprising collection of state governors stand quietly against it, their eyes open to losing revenue from these same lotteries.

Internet gambling is currently legal in 50 countries, including Liechtenstein, Gibraltar, Australia, and certain Caribbean countries - more than enough to cause trouble. A California woman who lost $70,000 to an overseas virtual casino sued her credit card company, asserting that she should get their cut of this action.

The Internet Gambling Prohibition Act is broad enough to potentially threaten full deployment of our jai-alai system to frontons beyond those supported by On the Wire. In particular, we could imagine emailing our picks to a local agent, who would place our bets for us in Newport or Miami. As I read the act, this might be a Federal crime, even though it would be perfectly legal to have our same program spewing out the predictions on the agent's personal computer.

This act works by extending the current prohibitions against using telephones for interstate gambling. There are serious consequences for those who violate it:

Whoever, being engaged in the business of betting or wagering knowingly uses a communication facility for the transmission or receipt in interstate or foreign commerce of bets or wagers, information assisting in the placing of bets or wagers, or a communication that entitles the transmitter or receiver to the opportunity to receive money or credit as a result of bets or wagers, shall be fined not more than $10,000, imprisoned not more than 2 years, or both.

The prohibition against using telephones for interstate gambling has proven to be a powerful legal tool against organized crime. It presumably does not apply to my use of On the Wire, because the statute provides exemptions as regulated by state law. As a prerequisite to opening my account, I had to assert that I lived in one of the states which permit off-track wagering and, fortunately, New York is one of these states. Still, it was disconcerting to learn how close my system came to violating Federal law. If so, I feel pretty sure it would have been me doing the time, not Maven.  

I hope you have enjoyed this excerpt from Calculated Bets: Computers, Gambling, and Mathematical Modeling to Win!, by Steven Skiena, copublished by Cambridge University Press and the Mathematical Association of America. This is a book about a gambling system that works. It tells the story of how the author used computer simulation and mathematical modeling techniques to predict the outcome of jai-alai matches and bet on them successfully -- increasing his initial stake by over 500% in one year! His method can work for anyone: at the end of the book he tells the best way to watch jai-alai, and how to bet on it. With humor and enthusiasm, Skiena details a life-long fascination with the computer prediction of sporting events. Along the way, he discusses other gambling systems, both successful and unsuccessful, for such games as lotto, roulette, blackjack, and the stock market. Indeed, he shows how his jai-alai system functions just like a miniature stock trading system. Do you want to learn about program trading systems, the future of Internet gambling, and the real reason brokerage houses don't offer mutual funds that invest at racetracks and frontons? How mathematical models are used in political polling? The difference between correlation and causation? If you are curious about gambling and mathematics, odds are this is the book for you! This book is available in both hardcover and paperback.