BUSINESS

Time to wager on private regulators?

TAGs: playnow.com, UltimateBet.com, Underwriters Laboratories

Americans are going to gamble online. The only questions that remain are whether it will be legalized and how it will be regulated. Politicians in the US are finally realizing that the de facto ban on Internet gambling has failed miserably. Many lawmakers are entertaining the idea that legalized gambling could draw in millions of dollars in tax revenue while protecting the citizens who will gamble online, regardless of its legality. Protecting citizens from criminals, making sure taxes are paid, and preventing minors from accessing online casinos have been among the strongest arguments for legalizing and overseeing online gambling activities. Is a vast new regulatory framework required to achieve these goals?

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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