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Would Barney Frank's Gambling Bill Favor U.S. Companies?

| by Reason Foundation

This month Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, introduced the latest version of his bill aimed at legalizing online gambling. It authorizes the treasury secretary to license websites offering poker, casino games, racetrack betting, bingo, and lotteries. Sports betting, to which the professional and college sports associations vehemently object, would remain illegal. (The last version of the bill would have let each athletic organization decide whether to allow betting on its games.)

Although gambling sites ostensibly would be federally regulated, the bill allows the treasury secretary to pass this authority off to "any State or tribal regulatory body with expertise in regulating gambling." According to gambling law expert I. Nelson Rose (in an analysis that has not been published yet), "the federal government will end up doing nothing, except for a little unnecessary duplication of effort to make it seem like there is federal oversight." Once licensed, a site could serve customers in all 50 states, except those that choose to opt out within 90 days of the law's enactment.

Although the American Gaming Association is staying neutral on Frank's bill (as it did with the prohibitionist Unlawful Internet Gambling Enforcement Act [UIGEA]), Rose argues that the legislation favors domestic gambling businesses because it denies licenses to anyone who "is delinquent in filing any applicable Federal or State tax returns or in the payment of any taxes, penalties, additions to tax, or interest owed to a State or the United States."

Rose warns that "every Internet gaming site that ever took bets from the U.S., whether or not they stopped when the UIGEA was passed," could be considered delinquent if the Treasury Department claims "an operator that had American players was doing business here" and therefore should have paid federal and/or state taxes.

By contrast, "American companies, like Harrah's, which desperately want to get into the Internet gaming business, but have never had online gaming for money, would have no trouble." While a protectionist tilt may be politically inevitable, it would be not only unfortunate but ironic, given that Frank's effort to legalize online gambling is often presented as a way of correcting the protectionist aspects of the current gambling policy, which discriminates against foreign-based websites and has given rise to several trade complaints.

The text of Frank's bill, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, is available here (PDF). More on Frank and online gambling here. My 2008 Reason story about the federal crackdown on Internet gambling here.