06/21/2007 11:00PM

Threatening storm growing offshore

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NEW YORK - Leaders of the American racing industry cheered and congratulated themselves last October when Congress passed the Unlawful Internet Gambling Act of 2006. Never mind that the Act, called "the stupidest law ever passed" by Rep. Barney Frank (D-Mass.), chair of the House Financial Services Committee, was never debated or even read by most legislators after being sneakily and cynically tacked on to an unrelated port-security bill. Racing's official position was that the Act would end the flow of American dollars into offshore and foreign Internet gambling sites while giving the parimutuels a virtual exclusive on legal online betting.

Not so fast. Efforts are now underway in the House to repeal the Act, not only because it is an inane and unenforceable piece of legislation but because it has turned a minor trade-treaty dispute into a serious international incident - one with stakes so high that racing's lifeblood of interstate simulcasting could now be in real jeopardy.

The trade dispute stems from a 2005 ruling by the World Trade Organization, responding to a protest from the tiny Caribbean island of Antigua, that the United States was violating treaties it had signed by trying to prohibit Americans from gambling through Antigua's offshore sites. American officials have conceded that they failed to understand the implications of those treaties as far as wagering was concerned. The WTO ruled that the United States presented reasonable arguments against Internet gambling, but was being inconsistent by simultaneously allowing interstate simulcasting of horse races.

The proper response would have been for the government to drop its crusade against Internet gambling, a position which has little public or legislative support outside the values-and-brimstone brigade. An enlightened government might even have conceded that the Internet genie was out of the bottle and begun the process of legalizing and regulating online gambling on its own shores, to protect its citizens from pirates and to redirect revenue to government and the gambling industry. Instead, it passed the inflammatory Unlawful Internet Gambling Act and continued trying to defend an indefensible position to the WTO.

"The Bush administration has again taken a bad situation and made it much, much worse," wrote Nelson Rose, a professor at Whittier College and the nation's leading authority on gambling law. "As usual, the problem seems to be incompetence."

The administration not only lost its appeal of the WTO's ruling, but enraged the organization with what Rose called "bizarre" arguments "that would have earned them a grade of 'D' at best if this had been a law-school class.

"Taking ridiculous positions can lead to more than losing a case," he said. "It is insulting to the judges and can tempt a decision-maker to reexamine the entire record, to find more things wrong. It did this, in a document of 41 pages of tiny print, which the WTO took a year to write. The WTO now declared that not only U.S. federal laws, but also the laws of many states, discriminate against Antigua's licensed Internet operators. And that the U.S. discriminates not only on cross-border betting on horse races, but on all forms of remote wagering."

The matter has now attracted the attention and sympathy of far more powerful nations than Antigua. The New York Times reported Friday that the European Union, India, and Japan have joined Antigua in filing complaints about the U.S.'s ongoing violation of the ruling, and that some of these nations are now proposing WTO sanctions and talking about refusing to pay royalties on American copyrights in retaliation. The time has passed for reaching a quiet accommodation with Antigua, and the diplomatic and financial ramifications of WTO sanctions could make interstate wagering on racing a sacrificial offering.

"The U.S. is now left with only a few options - none of them good," said Rose. "Congress could outlaw all remote wagering . . . [which] would mean devastating these industries and throwing tens of thousands of people out of work."

A few vocal track operators have tried to explain their stagnant business performance in recent years by claiming that vast sums were being lost to offshore operators. If they were right, where is the surge in domestic handle since the Internet gambling legislation was passed?

Shutting down racing's only growth segment and its greatest hope for long-term prosperity is obviously not what industry leaders had in mind when they supported the legislation and the government's position. It is now time to concede that the war against Internet wagering has been lost in the courts of both domestic public opinion and international law. In the long run, racing will be better served by aligning itself with those seeking legal and regulated wagering through all forms of communications technology rather than by supporting the imposition of medieval morality in the 21st century.