The Effects of the Kyl Bill on online gambling
What are the collateral effects of the Kyl prohibition on online gambling?
A broad prohibition on online gambling engenders a number of collateral consequences of which the Commission should be aware. Superficially, the language of the prohibition makes the placement or acceptance of "bets or wagers" a federal felony.
The bill defines the term "bets or wagers" using the traditional paradigm of prize, chance, and consideration. However, this definition also encompasses securities and commodities transactions, life and health insurance binders, fantasy sports leagues, and other similar activities. Thus, any prohibition must be carefully drafted to ensure that non-gaming transactions are not mistakenly defined as internet wagering. More importantly, any type of broad prohibition intended primarily to reduce the exposure of minors and compulsive gamblers to wagering would actually increase minor and compulsive access. As stated earlier, it is nearly impossible to screen out specific types of content on the world wide web.
Nevertheless, a prohibition, as suggested in the Internet Gambling Prohibition Act, would drive out those who comply with legal and regulatory burdens (such as identifying and screening minors and compulsive gamblers), leaving only those who are already predisposed to breaking the law to market online gaming services from off-shore. An example of this dynamic is readily apparent: prohibition of alcohol the 1920's. Given the relative ease in which information is transmitted on the net, unscrupulous operators would have greater access to vulnerable consumers than if the government had attempted to regulate the industry at the beginning.
What is and is not covered by the Kyl bill?
The Kyl bill contains a broad prohibition of bets or wagers placed using the internet or any other form of telecommunications facility. This clearly would cover most online casinos in existence.
As previously discussed, the operation of sports wagering facilities is already illegal under federal law. In addition, the transmission of "gambling information" used to facilitate the placement of a bet or a wager would also be considered a crime under the Internet Gambling Prohibition Act.
The gambling information provision is likely to encounter a First Amendment challenge, if enacted. Despite the breadth of the Kyl bill's general prohibition, it contains a number of exceptions or carve outs designed to make the legislation more politically salable.
For example, the horse racing industry is allowed to continue its in home gaming operations provided that they are conducted using a so-called "closed loop subscriber-based service." Other pari-mutuel wagering activity (jai alai, dog racing) would also be permitted, if conducted using such closed loop services, as well.
The tracks are also allowed to continue operating large interstate betting pools, notwithstanding the prohibition on transmitting betting information. The hotel-casino industry secured a provision that would permit in-room limited gaming. And there is also an exception for state lotteries. However, Indian tribes failed to win relief, and as such, would be precluded from offering either Class II or Class III games via the internet.