Online gambling stories make case for legalizing, regulating and taxing

When the Washington Post and "60 Minutes" teamed up for news stories portraying online poker players as consumers who need protection from cheats, the impact seemed obvious. The odds of passage of U.S. Rep. Barney Frank's bill legalizing and regulating online gambling became stronger.

Don't take my word for it. Bo Bernhard, director of gambling research at UNLV's International Gaming Institute, said so, too.

We agreed the double-whammy of two national news outlets presenting online poker players as fraud victims strengthens the position of those who want to legalize online gambling ... and tax it. The heart of the Washington Post story was that poker players were cheated out of more than $20 million over four years through scams uncovered at AbsolutePoker.com and UltimateBet.com, two online poker sites. The Washington Post's two-part report ran Nov. 30 and Dec. 1 in the Review-Journal, and the "60 Minutes" segment aired Nov. 30.

Frank's bill legalizing certain online betting would also repeal the Republican-backed bill from 2006 that put the burden on banks to restrict payments to online wagering sites. Because of the strong opposition to online sports betting by the NCAA, online sports betting probably would not be legalized.

But with the economy the way it is, taxing online gambling seems like an easy option for a Democratic president and a Democratic House and Senate, all hungry for money to fund programs.

Bernhard has mixed feelings about legalizing online poker, the most likely form of online betting to be legalized first.

"I'm torn. I believe in my Nevada soul that a gaming industry that's regulated properly, licensed, subjected to the rigors, is a good thing," said the son of Nevada Gaming Commission Chairman Pete Bernhard. "But I'm also sensitive to the problem gambler and the underage gambler."

Like many Nevadans, however, his philosophical bent is that people should be allowed to do what they want.

Bernhard headed the first research project to study Internet gambling by Nevadans, a study requested by the state's Gaming Control Board.

With all the access to gambling available to Nevadans, why would anyone here want to play poker online? The same reasons folks in other states without casinos gravitate toward online poker: convenience, lower stakes, and speed. Apparently this is a young man's form of recreation, and a young man with more education and more money, the study showed.

Bernhard found that 3.7 percent of Nevadans in the survey of 1,000 said they played poker online in the last five years, about the same percentage as the rest of the country. Their biggest concern?

"Nevadans aren't sure of getting a square deal with online poker," Bernhard said.

The study showed that online poker players were not concerned with the ability of Web sites to cheat them. They trusted the sites (obviously a mistake on their part in the wake of the two cheating operations uncovered). They didn't trust the other players.

"They were definitely convinced that collusion took place among other gamblers at virtual poker tables," the 2007 study concluded.

The scam at AbsolutePoker showed that an insider at the company was able to infiltrate the software to discover the other players' hole cards.

AbsolutePoker refunded cheated players $1.6 million, the Post reported. UltimateBet has refunded more than $6 million and will refund another $15 million, after concluding former employees were able to break into the software to see other players' cards.

There are legitimate concerns not just about cheating, but about underage gambling, compulsive gambling and the potential for money laundering and organized crime influence if online poker is legalized. However, that certainly seems to be the direction government and the gaming companies are headed. The sympathetic approach of the Washington Post and "60 Minutes" makes it seem like it's practically the government's job to protect poker players.

But in reality, the casino companies are coming around to the belief that if they can make money through online betting without spending billions to build a property, it may be time to drop their opposition.

And if it's taxable, that's bound to get government support.

But the question remains, if the software is so vulnerable that players were cheated of more than $20 million, can government regulation really protect the online bettor?

Jane Ann Morrison's column appears Monday, Thursday and Saturday. E-mail her at Jane@reviewjournal.com or call (702) 383-0275. She also blogs at lvrj.com/blogs/morrison.