Better for Bettors

Last week, New Jersey became just the third state to allow online gambling, after Nevada and Delaware opened up the untapped market earlier this year. Those who are physically in New Jersey can now play all the games offered in Atlantic City without getting off the couch. Within a week, 37,277 signed up for gambling websites, putting HeathCare.Gov to shame.

In a country that worships individual freedom and the glamour of Las Vegas, the legal hurdle for online gambling seems easy to cross. However, online gambling has been a murky legal area since its conception in the late nineties. In 2006, after years of failed attempts to regulate online gambling, four Republican senators sneaked the Unlawful Internet Gambling Enforcement Act as an amendment into a totally unrelated law on maritime security, and got it passed on the last day of Congress without a debate. Quietly and swiftly, Congress made this blossoming industry illegal.

After the act was signed, online gambling websites moved underground. The underground nature of online gambling means that those who placed bets with these websites were not protected from fraud. Full Tilt, a prominent online poker site, was accused of fraud, and its owner pled guilty to operating what prosecutors characterized as a Ponzi scheme in 2011. Nonetheless, an estimated 1,700 offshore websites continued to accept bets totaling $4 billion per annum.

The popularity of underground online gambling speaks volumes for consumers’ preferences. Gamblers who want to play casual games without visiting a casino have an option at their fingertips. Unlike casinos, online gambling is also cheaper, as the operators can cut the costs of operating a brick-and-mortar casino and paying skilled dealers. The barrier to entry for online gambling websites is relatively low, so websites will compete more freely for customers with deals and comps. Like Amazon’s displacement of retail stores and Netflix’s displacement of Blockbuster, online gambling has allowed us to gamble more efficiently and conveniently, and consumers have reaped this benefit.

Given that online gambling will be popular among consumers anyway, it may make sense to regulate, rather than ban, online gambling. Regulated online gambling will generate much-needed revenue through gambling taxes. Online gambling in New Jersey is subject to a hefty 15 percent tax on revenue, which is projected to generate $45 million for the state government. Legalization will also make online gambling safer, as regulators can protect gamblers from outright fraud and business practices that prey on gambling addiction.

So why was online gambling banned in the first place? I believe the ban was motivated by the lingering cultural stigma of gambling. Gambling was associated with the decadent lifestyle of gangsters and hustlers. For a few decades, it was only legally and socially acceptable to gamble in Nevada, the first state to legalize gambling. Gambling laws have loosened, but attitudes toward gambling have not. In a sense, gambling is analogous to heavy drinking—okay in a specific time and place, but not okay on a daily basis at home. Given this stigma, opponents of the law can easily conjure up an image of online gamblers as men who have lost control of vice in their private lives.

But there is no reason to think that gambling problems develop more easily online. First, since the cost of operating online gambling is lower, the bet size in online games can be as low as one cent rather than ten dollars, which is common in casinos. It is a lot harder to lose a large sum of money playing online. Perhaps more importantly, casinos offer much more than betting—and this turns people into problem gamblers. Last week, when I tried my luck at The Venetian in Las Vegas, I realized that it was not just the thrill of winning that pinned me to the table games. Casinos created a multitude of sensory stimuli with the clanking sounds of slot machines, the cheering crowds at table games, and the scantily dressed, way-out-of-my-league bartenders who serve free alcohol. The glamour and allure that makes casinos so successful can also disorient the gambler, in ways that betting in front of a laptop cannot.

Given that legal online gambling offers a cheaper, more convenient, and safer alternative to casino gambling, it is no wonder that one of the most vocal opponents of legalizing online gambling is Sheldon Adelson, the multibillionaire owner of Las Vegas Sands Corporation. Despite Adelson’s repeated claim that “money is not the consideration with me,” I am optimistic that online gambling will be competitive with traditional casinos and will be favored by many consumers. It will be up to state legislators around the country to open this new market to consumers.

Game on.

Jonathan Z. Zhou ’14 is an applied mathematics concentrator in Eliot House. His column appears on alternate Tuesdays.