03/06/2009 12:00AM

Net-bet ban's repeal could hurt, too


NEW YORK - When Franklin Delano Roosevelt was elected to the Presidency in 1932, he ran on a Democratic platform that opposed Prohibition, and a repeal was overwhelmingly approved before the end of his first year in office. A change of power in Washington and dire economic times facilitated the argument that it was better to tax and regulate a popular activity than to criminalize it and drive it underground.

Seventy-six years later, in the first year of an Obama presidency that has been widely likened to FDR's, something similar could happen: a repeal of the 2006 federal prohibition on Internet wagering.

Rep. Barney Frank (D-Mass.), chairman of the House of Representatives Financial Services Committee, has announced he will introduce legislation this month to repeal the Unlawful Internet Gambling Enforcement Act.

"Why anyone thinks it is any of my business why some adult wants to gamble is absolutely beyond me," Frank said last year in support of a repeal.

The ban, a pet project of a small number of moral zealots and former Justice Department officials, was passed by a 411-2 vote in the House and a unanimous voice vote in the Senate, but only because it was sneakily attached to a homeland-security bill about port safety on the eve of the December 2006 vote.

Polls have shown little support for the measure, and it has created a series of problems for the United States. The World Trade Organization, acting on a complaint from the gambling-haven island nation of Antigua, threatened the United States with trade sanctions. The European Union has also complained that the law is being selectively enforced to the detriment of its member nations.

Also, on their way out the door, some Bush Administration officials at the Justice Department issued last-minute rules requiring banks to enforce the act more aggressively and imposing penalties on those that do not. Those banks that haven't gone under in the current economic meltdown strongly oppose the regulations, which it says are burdensome and punitive, especially in the current climate.

The argument likely to carry the day is that regulation will raise badly needed revenue. A 2008 study by the consulting firm PricewaterhouseCoopers estimated that licensed Internet gambling could raise from $10 billion to $50 billion between 2009 and 2018, the range reflecting a variety of scenarios involving whether individual states and sports leagues would opt out of such a program. The revenue would come from a combination of license fees, wagering taxes, and higher individual and corporate income taxes. The estimates are extremely conservative, contemplating no expansion of the current illegal gambling market even if people can legally bet football games on their cell phones.

Before anyone in racing breaks out the celebratory champagne or bathtub gin, though, a repeal of the Internet gambling act is not necessarily good news for this industry. Racing retained its carve-out for existing Internet wagering under the 2006 legislation, so it would enjoy only a bit more freedom while suddenly competing with online poker, sports, lotteries, and electronic-casino betting.

The last two years have been a missed opportunity for racing that may one day be seen as a historic mistake on the order of rejecting television coverage 50 years ago or underpricing of simulcast signals a generation later. Racing could have been promoting itself as virtually the lone legal form of online betting, and aggressively targeting groups such as the literally millions of disenfranchised online poker players. Instead, the industry has been consumed with infighting over revenue splits, fragmented itself among a variety of imperfect bet-processors, and continued its longstanding reluctance to promote wagering - rather than pony rides and free hats - to the general public.

Positive legislation in Empire State

Closer to home, two eminently sensible bills regarding wagering are making their way through the New York state legislature.

The first is an amendment to last year's takeout-increase bill that would eliminate an ill-conceived raise in takeout on out-of-state bets scheduled to take effect March 15. The increase, opposed by every segment of the industry, would mean that bettors at New York tracks and OTB's would receive lower payouts than everyone else in the country on races run outside New York. This would wreak havoc with existing simulcasting contracts and, more important, quickly drive bettors to out-of-state wagering companies.

Repealing it is a no-brainer, as is the bill calling for an end to New York's ancient and unique ban on Palm Sunday racing and wagering. If it happens quickly enough, Aqueduct and the OTB's could be open instead of dark on Sunday, April 5, which will be the final day of the Kentucky Derby Future Wager betting for the rest of the country.