States Eye Revenue from Online Gambling

What does it say when states are in such desperate financial straits that their citizens are taking to the streets of Madison, Wisconsin? Quite a few governors think it says it's time for states to legalize Internet gambling. After all, the house always wins.

While the focus lately has been on Wisconsin, New Jersey is actually the front line of the gambling revolution at the moment. Gov. Chris Christie this week will decide whether to allow Atlantic City casinos to set up gambling websites for residents of the Garden State.

Online gambling has been outlawed in the United States since 2006, when Congress barred credit card companies from processing gambling transactions across state lines. Casino interests have been trying to cut Congress in on the game in recent years but to no avail.

However, while Congress can pass laws governing interstate commerce, it generally can't dictate what states do or don't allow and if states want to allow residents of their state to place bets on websites that operate only within that state, they might be able to do so, although legal challenges would no doubt by plentiful.

The U.S. Justice Department, for one, has long decreed that nearly all forms of online gambling are illegal, although it has not specifically addressed the interstate gaming issue.

Opposition is also likely from Indian tribes, who currently have a virtual monopoly on casinos in many states as well as offshore Internet gambling sites and at least some casino operators.

In New Jersey, it's estimated that intrastate online gambling wold produce about $200 million in revenue, of which about $30 million would be paid to the state in the form of taxes. That's not enough to solve the state's budget headaches but it's a start.

And then there's the question of whether online gambling would cut into the revenue of the big casinos in Atlantic City. One study said it would probably reduce Atlantic City revenues by 5% but if the casino companies operated the sites, the money would simply be shifted from one pocket to another.

Of course, there are those who argue that government can never successfully prohibit anything – witness such blatantly ignored laws as traffic regulations, drug laws and prohibitions against tax chiseling. Supporters of this view would say that gambling will happen and the government might as well take its cut.

Supporting this view is the experience of offshore sites like Poker Stars and Full Tilt Poker. Although it's illegal for Americans to gamble on these sites, it's illegal for the sites to allow it and it's illegal for financial institutions to transfer the money, an estimates 10 million Americans play regularly.

In other words, governments that let the revenue from gambling elude them may wind up behind the 8 ball.