Tuesday’s mid-term election appears likely to result in a vast Republican sweep. Many online gamblers worry about the prospects of legalizing online gambling if Barney Frank were to lose his powerful position as Chairman of the House Financial Services Committee. There is also the small possibility that Frank could lose his election and no longer have any influence at all in the discussion of legalized gambling. Are these worries justified?

The most likely outcome of the mid-term elections is that Rep. Frank will win reelection, but lose his position as Chairman of the House Financial Services Committee. Based on recent Boston Globe polling data, Barney Frank has a decent lead (about 13 points) over his Republican opponent, Sean Bielat. Majority party members operate as committee chairmen. Recent Gallup polling indicates that Republicans in general are up by about 15 percentage points and are likely to pick up enough seats to become the majority party in Congress, which would leave Frank in the minority.

After the election:

After the fallout of tomorrow’s elections, there is the possibility that Barney Frank will try to cram legislation through during the House lame duck session, before losing his position as Chairman—or, much less likely, exiting Congress entirely. There has been some discussion about passing the bill in the Senate, which is less likely to find itself under Republican control following the election. There is also the possibility that proponents could get the bill passed by attaching it to a larger bill. According to an article last month in the newspaper The Hill, a Senate Democratic aide indicated there is a small chance that the bill could move once Congress reconvenes as an attachment to the jobs bill.

Even if Barney Frank wins his seat and Congress and the Senate remains under Democratic control, it is possible that the 69-year old veteran lawmaker could simply retire from Congress. In his recently released biography, Frank noted his interest in taking a cabinet post in the Obama administration.

Life after Barney

Were Barney Frank to leave Congress or lose chairmanship, it would not necessarily spell the end for legalized Internet gambling. For one thing, many Republican congressmen have begun to see the positive side of legalization. For instance, during the committee vote that approved Frank’s legalization bill (HR 2267), seven Republican congressmen approved the bill, including Reps. Judy Biggert (R-Ill.), John Campbell (R-Calif.), Jim Gerlach (R-Pa.), Peter king (R-N.Y.), Leonard Lance (R-N.J.), Christopher Lee (R-N.Y.), and Kenny Merchant (R-TX). In addition Ron Paul (R-TX) strongly supports the idea of decriminalizing Internet gambling, though he voted “Present” during the hearing.

More Republicans could swing towards supporting legalized Internet gambling once they realize its possibilities as a monster revenue generator. According to political strategy analyst Chris Krueger in a CNBC interview (video available here):

[T]he trump card for Internet gaming for lack of a better word is that it raises $42 billion over 10 years. That’s a big offset that you can tack onto an expensive tax extenders bill or even some sort of a transportation bill. … So in the lame duck with a Republican sweep the odds would go up that an Internet gaming ban lift could get through. Next year though without Barney Frank in his position of leadership I think it faces some long odds. But again it raises $42 billion over 10 years and you can’t discount that in a congress that’s really going to be starved for revenue raisers.

For many of the incoming Republicans, a poker bill could seem like the perfect way to continue generating funds while fulfilling their campaign promises to lower taxes and extend tax cuts. So, while Barney Frank has been the primary proponent in Congress for legalizing Internet gambling, its greatest advocate might just be the revenue it could raise. For better or worse, money is the argument that seems to transcend party lines these days. As a result, the prospects for an Internet gambling legalization bill look good, with or without Barney Frank.

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As history shows, government oversight does not ensure compliance, quality, or consumer protections. This has been made evident by the scandals and problems that have plagued government-run and government-regulated Internet gambling sites over the years. Examples abound.

Consider the province-owned Internet gambling site PlayNow, launched by the British Columbia Lottery Corporation on July 15, 2010. It was touted as North America’s first legalized Internet gambling platform, but was shut down on the first day of operation due to a software glitch that allowed some players to access the personal information of other players and to use their funds. After a delay of 35 days, the government lost an estimated $5 million Canadian ($4.8 million U.S.).

Two of the most well-known scandals in online poker occurred in 2007 and 2008 at UltimateBet.com and AbsolutePoker.net. Hackers created “super user” accounts, which gave them the ability to see all players’ cards and thus cheat their opponents out of thousands of dollars.

These scandals didn’t occur at unregulated operating in a “wild West” frontier. Both of these privately owned sites were based in an area of Canada that put them under the regulatory authority of the Kahnawake Gaming Commission, a tribal authority in Canada. And it was independent players on the sites who uncovered the cheating scandal, not government regulators. Lawmakers should seek to strengthen such private self-policing, not undermine it.

Private regulatory bodies generally result in stronger consumer protections, greater competition, higher quality products, and lower regulatory costs. Electric appliance manufacturers, for example, consider the approval of Underwriters Laboratories (UL), an independent third party rating agency that holds products to high safety standards, as essential to winning consumers’ trust. (UL is funded by fees companies willingly pay in order to garner its coveted seal of approval.)

Similarly, the certification company eCogra rates Internet gambling sites based on information security and fairness of play. All sites must agree to eCogra’s mediation process if a customer files a dispute in order to receive its “Safe and Fair” seal of approval. Of eCogra’s nearly 150 certified sites, none have been involved in scandal.

Lawmakers are finally moving in the right direction in regard to Internet gambling. It should be legal and perhaps taxed, but there is no evidence that an extensive government regulatory framework is necessary. Private regulators and consumer diligence are more effective and efficient and provide greater competition and consumer security than a government monopoly.

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Malkasian has argued that one such proposal, sponsored by Rep. Barney Frank, “would ship jobs, revenue and taxes beyond our communities.” But that ship sails in both directions. American land-
based casinos that developed online platforms would be able to offer their service to customers around the world as well. Land-based casinos in the United States, which have seen profits decrease over the last decade, could increase their consumer base to anyone in the world with a computer and Internet connection.

According to the market research firm Mintel, the number of adults visiting casinos in 2009 had declined by 14 percent since 2001. While the availability of Internet gambling did account for some of that decline, analysts at the firm determined that casinos were losing customers to other competing forms of entertainment like HDTV, and video games, not just to Internet gambling. Brick-and-mortar casinos should see this as an opportunity rather than a threat.

Online gambling platforms, whether for real money or just for fun, provide low-pressure environments where anyone can learn the rules of particular casino games. Once comfortable with the rules and mechanics of specific games, players are far more likely to consider a trip to a land-based casino. This especially applies to members of the X, Y, and Millennial generations, who are more tech-savvy than any other previous generation.

Land-based casinos are no longer the only game in town for gambling. No amount of legislation or regulation will stop Americans from finding new ways to play online. Keeping online gambling illegal will still not increase the number of visitors to brick-and-mortar casinos. Young adults are far more interested in entertainment options available to them in their own home than they are in playing casino-style games. If land-based operations have any hope of appealing to that generation and surviving into the future they ought to embrace legalized online gambling.

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