Washington, DC -- (ReleaseWire) -- 02/10/2015 --BENNETT: Michelle Mitton is a fellow at the Competitive Enterprise Institute, which specializes in consumer policy, FDA regulation of non-pharmaceuticals, alcohol regulation, food and beverage regulation, and Internet gambling. Mitton has also authored several studies on topics including sin taxes and alcoholic beverage regulation. Her analyses have been published and cited by both the Wall Street Journal and USA Today. On October 19th, she wrote an article titled "Online Gambling Ban Does Nothing to Protect Consumers," and this is where I want to start today. Michelle, welcome to Financial Myth Busting.
MITTON: Thanks for having me on.
BENNETT: Many people bet on the NFL, but not everyone knows that doing so online is technically illegal. How is it so common if it's outlawed?
MITTON: Well, a part of it is the nature of the Internet and just trying to regulate web sites that are based on outside of the U.S. For example, there are 85 countries in the world that have legal online betting, and legal sports betting online, so it's really difficult for the U.S. federal government to go after legal operations in other countries. The Internet is worldwide so people in America still have access to a lot of these web sites that operating legally in their own country but not necessarily legally here.
BENNETT: The NFL and the U.S. government don't get a piece of that business when it's off-shore. Are they doing anything to try to stop it, or to make it legal?
MITTON: In the last couple of years there's been a lot of discussion about whether or not we should legalize online gambling at the federal level, or at the state level, or what kinds of gambling we should legalize online or offline. A lot of people don't know that most sports betting, online or offline, is illegal unless you are in one of the few states that have legalized bookies.
BENNETT: Like Nevada?
MITTON: Yes, like Nevada and Montana I believe. Yes. Montana, Delaware and Oregon, they all had legal sport gambling before 1992 which was when The Professional and Amateur Sports Protection Act was passed and that was passed after the heads of the NFL, the NBA, and other major sports groups, saw people spending billions of dollars a year betting on their sports and for various reasons they thought that was a bad idea and they got the federal government to pass this law. So, in most states, it is illegal to gamble on sports.
BENNETT: Today is Super Bowl Sunday. I've read that an estimated 50 percent of Americans are going to be gambling on the game in some fashion. Is everybody an outlaw?
MITTON: Well, to a certain extent, yes. The American Gambling Association admitted that $3.8 billion would be wagered illegally on the Super Bowl this year. That's a huge amount of money compared to, I think, only a hundred million dollars that's going to be legally bet on the Super Bowl in the two places where legal bets can happen. So the most people who are betting in their homes, with their friends, they are doing the square pools, those aren't violating the laws but they would have to be very careful with their state, because it depends on the state even if you are in a house and doing that kind of betting. In some states like New Mexico and Pennsylvania, they do outlaw even that kind of wagering on individual sports, individual games, the outcome of games. There's been a couple of cases where the state government was going after people, people's offices being called, and people being fired for engaging in that kind of activity. So people would be wise to look into their state laws and be very careful about who they are betting with.
BENNETT: Especially if they are a target. You reported that some of the biggest proponents of the ban on Internet gambling are actually casino moguls, like Sheldon Adelson. Why would casinos want to ban online gambling? Can they not find a way to get their own cut of it?
MITTON: For the most part casinos actually do want to get into online gambling. They see it as a way to boost up their revenues. People don't travel to Atlantic City or Las Vegas as much anymore, and they see it as a way to reach out to the younger crowd, Internet savvy people who don't necessary want to fly out to Vegas for this, they just want to play it for maybe an hour. It really is a handful of people, Sheldon Adelson, who some of your listeners might recognize as being one of the largest single campaign donors for the GOP. He is one of the few people who really for various reasons doesn't want online gambling to become legal. And he's put his money, his political weight behind the effort to create a ban, a federal ban on online gambling. States like Delaware, New Jersey and Nevada have legalized online gambling and he really wants to stop that.
BENNETT: Governments, particularly on the state level, actually make a lot of money from gambling. Have states spoken up in any way about the federal imposition against online sports betting?
MITTON: Oh, yes. New Jersey for example has been trying to sue the federal government for the Sports Protection Act. They're trying to say that it's a federal overreach, and that gambling has traditionally been illegal unless states determine where it's legal and what types of games are legal. Many states and many state governors see the federal government trying to come in and impose federal law on gambling, or even overturn state law. You have Delaware, Nevada and New Jersey legalizing online gambling. They see that as a real harm to their sovereignty of states.
BENNETT: There is another argument out there that the government has a role in trying to curb our vices. To tell us what to eat ad what not to, tell us not to smoke, tell us when to drink and not drink... They want a part in our decision making, in our personal freedom regarding what to do with our bodies. The followup argument, then, is that if everyone gambles away their money, it would be bad for the country. How do you respond to that?
MITTON: I'd say you're right. If everybody gambled their money away and drank themselves to death, that would be terrible for the country. Luckily, most people don't behave that way. Regarding gambling addiction, despite the worldwide rate, gambling really hasn't been rising over the last thirty years, despite the fact that gambling has become so much more available in all of the states. If you just look at Maryland for example or Pennsylvania where casinos are popping up left and right, and yet, the gambling addiction rate isn't rising at all and people for the most part don't drink themselves to death. There is a small number of people who engage in problematic behavior, they have psychological problems or addiction. I would say that whether or not you think it's the role of the federal government or the state government to control people's vices, the simple fact is that it doesn't work. When you try to control vices, people just find a way around it, like betting with illegal bookies. Then what you have are people who are outside of the law and not protected and they don't have the same consumer protection like people engaging in regulated legal behaviors. That's where you run into some serious problems with the traditional gambling bookie and 'I'm gonna break your knees' kind of stuff. If this is a legal bookie, he would be able to just say, 'I'm going to take you to the court.' Period.
BENNETT: Is betting part of the America's football tradition?
MITTON: I think it's part of the human tradition. Just the human condition. People love to gamble no matter what the culture is. No matter how far back in history you go gambling is just something that human beings seem to love and we're naturally inclined to analyze risk and for whatever reason that's fun for us.
BENNETT: This week a SWAT team raided a high-stakes poker game in Virginia. They seized more than $150,000 from the players, taking 40 percent of that and returning 60 percent.
MITTON: Yes.
BENNETT: Poker is a game of skill and clearly some people are better at it than others. Some people even make a living playing it professionally. Why is it illegal to have this type of game in a home?
MITTON: Yeah. It really depends on what I said before on the states laws. Most states have an exemption against the legal gambling for social gaming and that's in the house. I think the reason that this particular game ran afoul of the law, was because the house was taking a cut, so the house was actually making money, and the person who's running the game claims that that money was just being used to buy food and beverages, and to pay for massage people, so that they can massage gamblers while they were playing. In most cases, that's legal. If you have a home game and players pool their money for chips and beer, whatever, usually that's fine. But they also had professional gamblers at this game. So that's another way that it can appear to the state as if it's not just social gaming, that this is an enterprise. When you run into trouble is when you actually have a gambling business when it's not just a social game, it's a business.
BENNETT: But this isn't a business. I grew up in Great Falls, Virginia, so I know the homes out there, they are not poor. And my understanding is that they have this game every 'once in a while'. Not once a month, not on a schedule, but 'once in a while.' How could the state perceive that as a business?
MITTON: The setback is that the state perceives it as violating in some way the state laws. I think they were going to take it court, but the players all accepted a plea deal, probably because it's a lot cheaper for them to just do that and to get 60 percent of their money back versus going to courts for years and trying to prove that the state is taking a law out of context. So I think most reasonable people, even though this was a lot of money, $150,000 or more, you just think, 'You know what? It's their money, they are entering this game free will, they can leave whenever they want, and, yes, it's a game of skill.' That's the reason that a handful of people end up at the final table at the World Poker Tour every single year. And, it's not chance, it is a game of skill. And these people would say that it's just not the government's right to tell us how we can spend our own money. They can spend their money, but they don't spend our money, right? Why should the U.S. then tell us how we can spend ours. Unfortunately, this is the way that the law is and there is a bunch of different interests in trying to keep gambling limited to their businesses, to the Indian Reservation, or to Atlantic City, or to Nevada, or the few places where you can legally play, so that they have control over it.
BENNETT: As a poker player yourself, how do these laws affect how you play?
MITTON: Well, I don't play it online.
BENNETT: Would you do it if it was available?
MITTON: Oh, absolutely. I probably wouldn't do it very often but, yes, if it is legally available and it's starting to become more available as the states legalize it and credit cards companies are starting to get their toe back into processing payments related to online gambling. I mean, it's a really fun way to spend an hour, two hours on the weekend, if you don't want to watch a movie, you are tired of reading a book, or you have nothing else to do, and you can just shut your laptop and walk away after two hours. You don't have to continue playing for hours and hours and lose money. Most of these web sites are instituting self-limitation. So if you say I don't want to spend any more than x amount, or I don't want to play any longer than this, then they will shut you down if you set those limitations for yourself. So you are done, you can't play anymore.
BENNETT: How is gambling actually defined?
MITTON: It depends on the state and the federal statute. Gambling is usually defined as something involving chance, betting on events, or a game of chance.
BENNETT: Poker requires skill, though, so that isn't really a game of chance.
MITTON: It isn't, and that's been the subject of many court cases, taking it to judges and saying, 'Well, is it a game of chance or is it a game of skill?' And judges have ruled in different ways on that particular issue. Some have said, 'Yes, it's not gambling. It's not betting, it's a game of skill.' And others have gone the other way. So that's why I always say if you are engaging in particular gambling behavior or betting, if you are playing poker, a wise person would look into the state law and sort of make sure that what they are engaging in is not illegal.
BENNETT: So do you think poker is a game of a skill?
MITTON: Absolutely a game of skill.
BENNETT: It's not a game of just luck?
MITTON: There is definitely some luck involved in it and I think anybody who plays poker will tell you that you're going to have the worst nights, and then you have good nights. Some nights you are just not getting those cards. But the skill comes in and you can always fold your hands, and always walk away from the table. You don't always have to bet when you have a hand. So there is definitely skill involved.
BENNETT: So are you betting tonight? Patriots or the Seahawks?
MITTON: Well, fortunately or unfortunately, Super Bowl isn't necessarily one of those things I have skills, or interest into, so I've no stake in this game.
BENNETT: But betting on fantasy football is currently legal?
MITTON: Yes. Even the federal laws that outlaw gambling of various kinds, they usually have carve-outs for fantasy betting. Like I said, the Professional and Amateur Sports Protection Act, that one does not have a carve-out for fantasy football or fantasy sports. This is for the most part in-house where you have the squares and you're betting on that, so most of the time you are not going to get into any trouble. Although as I said, think carefully about who you bet with because you could run afoul on the state law.
BENNETT: But betting on reality football is illegal to be clear?
MITTON: Yes, yes. It's the betting on the outcome of the single game and you may be in violation of the law.
BENNETT: Michelle, thank you so much for being on the show.
All data sourced through Bloomberg
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com. She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
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