05/31/2006 12:00AM

Feds should embrace taxable online games


While the horse racing industry was congratulating itself last week for obtaining a preferential carve-out in the Internet Gambling Prohibition Act, online poker companies and their patrons were left fuming about a piece of legislation they consider an unenforceable and entirely political attack on their burgeoning business.

The Internet Gambling Prohi-bition Act, which is headed to both houses of Congress after clearing the House Judiciary Committee by a 25-11 vote May 25, is basically the same piece of legislation that Rep. Robert Goodlatte (R-Va.) and his Senate counterpart, Sen. John Kyl (R.-Ariz.), have been unsuccessfully promoting for the last five years. The bill attempts to hamper online betting on three fronts: by criminalizing what had previously been gray areas in the law, by restricting (some would say censoring) advertising of online betting venues, and by prohibiting American financial institutions from facilitating transfers of funds for gambling.

Previous versions of the bill have failed because of a general lack of enthusiasm for the issue outside right-wing anti-gambling circles, and because of specific objections from various special-interest lobbies objecting to the burdens it imposes on their businesses, including the banking industry. The troublesome bill got fresh legs this year, however, because of two unrelated political developments: a fixation by the Justice Department on any activity possibly involving money-laundering to finance terrorism, no matter how far-fetched, and the Jack Abramoff lobbying scandal, which has led even otherwise sensible legislators to believe that the gambling business at large must somehow be punished because of Abramoff's ties to Indian gaming and casino interests.

"The Abramoff scandal proves that gambling corrupts," David Robertson, chairman of the National Coalition Against Legalized Gambling, told the San Francisco Chronicle. "It wasn't anything other than gambling money that funded Abramoff."

Dragging Abramoff into the issue is sadly ironic. His only connection with online gambling was to advocate onlines sales of state lottery tickets several years ago, and he belatedly got his way: Those sales are specifically authorized for the first time in the Internet Gambling Prohibition Act and exempted from the bill's prohibitions.

Poker players need not be concerned that the local constabulary is going to come busting through the front door midway through an online tournament. The bill's targets are offshore site operators, who are out of the government's reach and whose status under international law remains murky.

The strategy of trying to cut off the flow of money to these sites by regulating banking transactions has been tried and thus far has been a complete failure. Pressure from prosecutors such as New York State Attorney General Eliot Spitzer has already made most major banks refuse to fund online poker accounts directly, but there are dozens of other ways to get into action. There are numerous Internet-based money-transfer operations known as "stored value accounts," and site operators have devised other clever workarounds such as selling people telephone credit cards that can be converted to account cash.

Online poker and its advocates have formed an advocacy group (pokerplayersalliance.org) opposed to the legislation, and last month dispatched World Series of Poker champions Chris ("Jesus") Ferguson, Howard Lederer, and Greg Raymer to Capitol Hill to speak to legislators. Some of their arguments were unconvincing and blatantly self-serving - a cultural defense of poker as a grand American tradition is just hot air, and arguing that restricting online play would shrink the field for the World Series of Poker is not going to win any legislative hearts and minds. Their more compelling point was that the states and the federal government are passing up hundred of millions of dollars in free revenue by not legalizing, regulating, and taxing online poker themselves.

"Regulate it and tax it," said Michael Bolcerek, president of the Poker Player's Alliance, "but don't treat poker players like al-Qaida."

There is increasing sentiment for at least considering this sort of approach. In April, Brooklyn District Attorney Charles Hines held a press conference with the leaders of New York's offtrack betting corporations proposing the legalization of sports betting in the state. Poker may be a more attainable first step because there are no powerful sports leagues piously and unconvincingly arguing that legal wagering will somehow corrupt their games in ways that widespread illegal gambling has not.

The carve-out in the IGP Act for horse racing is welcome, as it will prevent any literal-minded prosecutor from going after existing simulcasting and racing account-wagering, but it raises an obvious question: If it's okay with the government to buy parimutuel tickets and now state lottery tickets online, with government receiving a slice of the revenue, what possible moral argument is there to prevent people from playing poker or betting on sports online if it were similarly taxed and regulated?