Working late at home one evening last fall, an investor stared at
his computer screen, studying the blinking prices. Should he
sell his option contracts at $72 and collect a tidy profit, or
hold out for a bigger score, hoping the price would go to $100?
An hour earlier the market had been laughing in his face,
driving the price as low as $35, but the investor had kept the
faith and bought more and more.
The investor had been right. The market had overreacted to
unfavorable news early on, but the tide had turned back his way.
At $72 it was time to pull the trigger. He moved the cursor on
his computer screen to the SELL ALL CONTRACTS option and clicked
twice. In seconds a message on the screen confirmed the
execution of his order and the nearly 100% profit he had made in
less than two hours--yet another American success story of
high-tech financial derring-do in the bull market of 1997.
The investor turned off his computer for the night, fixed a
cocktail and sat down to watch the rest of the Buffalo
Bills-Miami Dolphins game on Monday Night Football. He no longer
cared who would win, lose or even cover the point spread, having
bought options on the underdog Bills at an average price of $35
when they were down 13 points in the second quarter and sold
them for $72 after Buffalo rallied to cut Miami's lead to three
in the fourth quarter (the Bills were getting 6 1/2 points). The
contracts would have paid $100 each if the Bills had covered the
spread, but as it turned out, Buffalo lost 30-13, which would
have made his options worthless had he held them instead of
American society has long drawn a fine but clear line between
this investor's speculations and those involving, say, soybeans.
One is illicit, the other applauded for driving the economic
engines of capitalism. The difference between wagering and
commerce, as the gambling historian Richard Sasuly has written,
"lies neither in pleasure nor in profit but in the amount of
social stigma attached to the process." The stigma of sports
betting in America has long been that, if you weren't doing it
in Nevada, you were breaking the law.
January 26, 1998
Enter the Internet. Our pigskin speculator's mouse clicks sent
his instructions scurrying through a maze of phone systems and
computer servers to the offices of the World Sports Exchange on
the tiny Caribbean island of Antigua, 125 miles north of
Venezuela. Wagering on Monday-night football--and a wide array
of other sporting events--is perfectly legal in Antigua and many
other nations with whom computerized financial transactions are
now just a tap of the forefinger away.
As Microsoft asks a nation of fledgling Internet explorers,
"Where do you want to go today?" a gambler with an itchy mouse
finger can choose from a growing list of World Wide Web sites
operating in more than a dozen Caribbean, European and South
Pacific nations. With the Super Bowl--and the annual orgy of
wagering that makes it the most-bet-upon event on the sports
calendar--on tap this Sunday, the real question may be, Where do
you want to bet today? After opening a deposit account by bank
transfer or credit card, any U.S. customer can click and type
his wagers on virtually any proposition involving a sporting
event (box, page 88). Since his money and the transaction are
beyond U.S. borders, the point that sports betting is still
illegal in 49 states may well be moot.
That legal twist makes this more than another novelty Internet
business or offshore dodge. In fact, it has prompted legislation
now pending in the Senate and mobilized a strange-bedfellows
confederacy in opposition to Internet gambling, including the
Christian Coalition, casino operators, the NCAA, the NFL, the
NHL and Ralph Nader's Public Citizen watch. Their fear is that
if the virtual reality of the Internet can whisk an American to
a foreign land where it's lawful to take the Broncos +12 in the
Super Bowl, sports betting in this country will become virtually
legal, changing the entire landscape of American sports wagering
and possibly the sports themselves.
There remains heated debate over the legal issues, and opponents
are optimistic about the passage of prohibitive legislation, but
the genie of global sports gambling may be out of the bottle for
good: Even if opponents of gambling are able to enact new laws
to forbid it, government officials concede there is probably no
way to enforce them. "It is clear we are on the verge of a
tremendous surge in this new type of gambling," says Senator
Richard Bryan (D., Nev.). "It is equally clear there is no way
of regulating it."
"International Internet gambling? We can't do anything about
it," John Russell, a Justice Department spokesman, has said.
"That's the bottom line."
Supporters of high-tech sports wagering, who number gamblers,
bookmakers, Internet entrepreneurs and civil libertarians, are
confident they will prevail. "Gambling is the future of the
Internet," says Simon Noble, executive director of the on-line
gambling division of Intertops, an Austrian-based bookmaker that
has been in business for 14 years and has had an Internet
operation based in Antigua for the past two. "You can only look
at so many dirty pictures."
Internet sports betting has yet to assert itself as more than a
rounding error in the national gambling ledger. It's estimated
that Americans will wager more than $600 billion this year,
nearly $2,400 per man, woman and child. About $500 billion of
that will be bet in casinos and on lotteries, horse races and
other legal propositions. The other $100 billion or so will be
wagered illegally on professional and college sports.
Internet sites will book well under $1 billion of that total
this year, but even conservative analysts predict explosive
growth: What was a $60 million business in 1996 will handle $600
million in bets in '98, with another tenfold increase likely by
2001. In '96 only two on-line sites handled sports bets; now
there are at least 50.
Efforts to stop this runaway train are centered on the Internet
Gambling Prohibition Act of 1997, a bill introduced last March
by Senator Jon Kyl (R., Ariz.). Kyl chairs the technology
subcommittee of the Senate Judiciary Committee and ranks
Internet betting alongside cell-phone cloning and telemarketing
fraud as top priorities.
Kyl's bill consists largely of amendments to the Wire
Communications Act, the broad federal law that makes it illegal
to call a bookie. His amendments would clarify definitions and
broaden language so the law would extend to betting on the
Internet. Penalties would range from six-month prison terms and
$2,500 fines for www.gamblers to four-year prison terms and
$20,000 fines for www.bookmakers.
"There are those who say we should just regulate Internet
gambling," says Kyl. "I don't believe it can be regulated, so we
have to prohibit it."
"We have to keep sports clean in order to keep people believing
in them," says Kyl. "We can't let gambling intrude, and Internet
gambling is the foot in the door. That's why the NFL, the NCAA
and the NHL are so behind what we're doing. They're worried.
They fear the influence of gambling, and the Internet could
allow it to happen with so much ease."
Jeff Pash, executive vice president of the NFL, in testimony
supporting the Kyl bill, made it clear where his league stands.
"Sports gambling breeds corruption," Pash said, "and undermines
the values our games represent. We do not want our games or our
players used as gambling bait."
Yet the purity of sports--which already attract $100 billion a
year in conventional illegal wagers--is not the primary concern
of some federal officials with an eye on Internet wagering.
Jonathan M. Winer, a high-ranking official in the U.S. State
Department, is more interested in the use of offshore wagering
accounts to conceal criminal profits. "If you want to launder
money, this is the way to do it," says Winer. "It's not hard.
Bet on Florida and bet on Georgia [when they play each other].
If you structure the bets properly, all you pay is the vigorish
for the ability to create profits that are offshore and
invisible, or to create losses that you can declare. Basically,
you have a money transfer because one side's going to lose,
one's going to win and pay double. Now dirty money appears clean.
"There's a reason the State Department is interested in keeping
Internet gambling from exploding. It's the wild, wild West out
there on the Internet."
While Internet wagering has provoked interest at the national
level, gambling regulation has traditionally been a state rather
than a federal function. Individual states are asking for
federal intervention, but the Justice Department has handed back
the hot potato. "The Department [of Justice] does not agree that
federal law should be amended so broadly as to cover the
first-time bettor who loses $5, particularly when Internet
gaming is expected to mushroom and federal resources are
shrinking," John C. Keeney of the Department of Justice's
Criminal Division wrote to the National Association of State
Attorneys General, which had asked for federal intervention.
A few states have taken action against Internet wagering sites
by invoking consumer-protection laws rather than gambling
statutes but have been effective only in cases involving
U.S.-based operations. Last May, Missouri attorney general Jay
Nixon obtained a civil injunction and a judgment for $66,000
against Interactive Gaming & Communications Co.--a Pennsylvania
outfit that's a subsidiary of Global Casino, which is based in
Grenada--for accepting wagers from Missourians. In Minnesota,
Attorney General Hubert Humphrey III filed suit against Las
Vegas-based Granite Gate Resorts after it advertised on the
Internet a site offering betting from Belize. (The matter is now
before the Minnesota Supreme Court to determine whether or not
the state has jurisdiction.) In both cases the key charge was
that state residents had been led to believe such betting was
perfectly legal, a claim most state attorneys general think is
"We don't have any victims [of Internet gambling fraud] who have
come to our office," admits Wisconsin assistant attorney general
Jim Haney, who has brought action against an American Indian
casino in Idaho that was offering an Internet lottery and
against an Internet site that operated from the Cook Islands,
off the coast of New Zealand, and claimed that Internet gambling
was legal in Wisconsin (which Haney disputes). "But that isn't
really the issue. Consumers may mistakenly believe that they are
safe to deal with these people. That's just never going to be
the case. With Internet gambling, you have no assurance that the
payouts will ever take place."
Many opponents of Internet gambling decry it as a totally
unregulated industry, but operators of the Web sites say this is
a smoke screen and insist that they would in fact welcome U.S.
regulation. Many of the leading operators have banded together
under the Interactive Gaming Council (IGC) and adopted their own
code of conduct. "There are a lot of sharks out there," says
Intertops's Noble. "We believe there needs to be regulation. We
don't want to compete against thieves. But I can't see how
America feels it can stop us. It is not America's job to be the
world's police force on the Internet."
"The key question we need to ask is, What is precipitating all
this concern among politicians?" says Sue Schneider, chairman of
the IGC and editor of Rolling Good Times On-Line, a Web site
that reports on and promotes Internet gambling. "Has someone
been hurt, or are all the horror stories just made up? The
reputable sites are regulated by governments around the world.
These are legitimate governments that are concerned about who
they regulate. How arrogant is it for American politicians to
say that those nations aren't good enough to regulate this
In Antigua, for example, Internet sports books must pay an
annual licensing fee of between $50,000 and $75,000, undergo
rigorous personal and credit investigations, and post bonds,
some as high as $500,000, to ensure that they can pay off
winners. "The U.S. says it's most interested in the player and
that they want to make sure we're not distributing licenses to
just anyone," says Gyneth McAllister, who as Expeditor of
International Investments for the Antiguan government has more
than 40 applications for Internet gaming licenses currently
under review. (Twenty-six sites are already licensed to operate
from Antigua.) "I met with the State Department and told them we
weren't going to make this illegal in our country, so it would
be best for all of us if we work together. The issue for the
United States should not be whether Internet gambling should
exist in Antigua or not. Antigua is a sovereign state and isn't
their concern. We are no banana republic.
"The problem I have with Senator Kyl's view is that it follows
the old American vision of the world as being headed by the
United States. But the United States does not control the world.
"We get at least one request for a license application every
day. You think of a bookie, you think of back alleys. This is
the new breed of bookie. They're often young, computer-savvy
entrepreneurs who like sitting behind that lit screen. They
don't break kneecaps, they write microcode."
Jay Cohen has never broken anyone's kneecap. Cohen, who
describes himself as "a nice Jewish boy from Long Island," moved
to Antigua in 1996 to set up the World Sports Exchange. Cohen,
who studied nuclear engineering at Berkeley, was working as a
trader on the floor of the Pacific Stock Exchange in 1995 when
he and partner Steve Schillinger saw an opportunity.
"The idea started back during the O.J. Simpson trial," Cohen
recalls. "On the market floor Steve was selling options on the
verdict: You could buy guilty, not guilty or hung jury. When
they'd lose a juror, for example, the market for hung-jury
shares would go up."
The same idea is behind their innovative sports-futures betting
markets, whereby a contract on the team that wins the NBA
championship is worth $100 at season's end. The New York Knicks,
for example, could have been bought for $15 in November, but
after Patrick Ewing's season-ending wrist injury in December,
the price dropped to $8. If the Chicago Bulls should take a 3-0
lead in the NBA Finals, their price would probably climb to $99,
but as all gamblers know, there's no such thing as a sure thing.
"Earlier this year in a Monday-night game," Cohen says,
recalling one memorable 10-point swing, "Pittsburgh was about to
kick a 40-yard field goal with six seconds left. If they hit it,
Pittsburgh wins 24-23. [Even if they missed, the Steelers were
getting three points and would have covered.] Because of that,
the price on Pittsburgh before that play was $99. So if you
bought Pittsburgh and they hit, you'd win $100, or a $1 profit.
We had a guy buy 20 contracts on Pittsburgh then, figuring it
was an easy $20. Then Jacksonville blocks the kick and runs it
back for a touchdown. He lost $1,980 on that block."
Cohen and Schillinger started out with only 20 customers for
their futures market of sports. They added straight win-lose and
point-spread sports betting to their site last April and by last
week claimed to have 2,000 customers making 100,000 bets a
month. The company has customers who log on from Belgium, Japan
and Russia, but 95% of the wagers are transmitted from personal
computers in the U.S., and 80% of those bets are conventional
sports bets, leaving the more exotic futures as a mere appetizer
on the betting menu. On those conventional sports bets, a player
must bet $11 to win $10, giving the Sports Exchange the same
4.5% vigorish that's charged by most Nevada sports books. (On
futures bets, the vigorish is built into the difference between
the buy and sell price the Exchange posts on each contract.)
Customers at Cohen's site and most others like it can open
accounts with credit-card cash advances, with bank-wire
transfers or, if they feel like waiting a week or more, with
bank checks or money orders. They are assigned an account name
and password, which they type in when logging on to the site.
They can type in bets, check their account balances and arrange
for their winnings to be mailed or delivered by air courier.
Tom Kasprovich, a 20-year-old University of Wisconsin-
Parkside student, opened an account with Intertops just before
kickoff of the Monday-night game between the Dallas Cowboys and
the Washington Redskins on Oct. 13 and explained to SI how he
did it. "It was simple," he said. "All I did was search the Net
looking for a place to bet. Intertops said they'd been around
for 14 years, so I felt my money was safe. I went to Western
Union and sent money Quick Collect, called Intertops and gave
them the money-transfer control number, waited 15 minutes and
had an account opened. I wanted it before the game started. I'm
betting the over, and I'm taking [the Cowboys'] Eric Bjornson
over [the Redskins'] Jamie Asher in the battle of which tight
end catches more passes. I'm more confident that Bjornson will
catch more balls than I am that Dallas will cover.
"This just makes the whole game more interesting for me. I don't
think this is something a state should be able to legislate. I
wish they would all butt out."
It is an extremely attractive business to prospective operators
because of a relatively low cost of entry and profit margins
that soar with volume. The necessary equipment and software to
set up a site run as little as $135,000, and operating costs are
roughly the same whether you have 50 or 5,000 customers. "Our
costs per bet are absolutely rock bottom," says Intertops's
Noble. "In the half hour between the AFC and NFC championship
games [on Jan. 11] we were accepting 250 bets per second. No
phone bookie could ever handle that kind of action."
"We're not the mob," says Cohen. "We're offering a clean,
regulated place to gamble. When people setting up an account ask
me if this is legal, I will not tell them that what they are
doing is legal. I tell them that I'm not a lawyer, but I'm
licensed to do what I do. I worry that one of these states is
going to try to set us up by asking that question.
"Why am I sure this is legal? I came from the stock market. If
that's not gambling, I don't know what is. You can't tell me
that when someone buys a stock on Monday and sells it on Tuesday
that that's investing. That's gambling, just like our futures
market. Internet gambling is the same as my last career, except
the folks I work with now are less sleazy."
Asked about compulsive gamblers, Cohen notes that his investors
can only wager money that is already on deposit (most sites
require a minimum deposit of between $300 and $600). He is also
proud that his site, like many others, offers a "link" that
customers can click on to connect them with Gamblers Anonymous.
"They say we're addicting gamblers," he says, "but can you
remember the last time you were in a liquor store and they
handed you information on Alcoholics Anonymous? Some people have
eating disorders. That doesn't mean you shut down all
Compulsive-gambling specialists say they are most concerned that
the easy access of the Internet could accelerate gambling
addiction. Dr. Howard Shaffer, director of the division on
addictions at Harvard Medical School, believes that the Internet
as a gambling vehicle will produce more dependence. "As smoking
crack cocaine changed the cocaine experience, I think
electronics is going to change the way gambling is experienced,"
"Gambling is a disease to five percent of the population," says
Tom Grey, director of the National Coalition Against Legalized
Gambling. "That group will, if we let them, entertain themselves
into bankruptcy. So obviously, the more available and accessible
you make gambling, the more you compound the problem."
"We're all libertarians these days," says the State Department's
Winer. "But do we really want anybody with limited financial
resources to be able to put all those resources on the line?"
The NCAA is alarmed by a recent study stating that 4% of
Division I men's basketball and football players have placed
bets on games in which they played, and almost 26% have wagered
on other college games. The NCAA is particularly concerned about
Internet gambling because computer literacy and access are so
high among college students. It's also a hot-button issue in
light of recent game-fixing probes at Arizona State (where
guilty pleas have been entered by three participants) and at
Fresno State (where an investigation continues).
NCAA executive director Cedric Dempsey wrote a letter in support
of the Kyl bill in September, saying Internet gambling
"threatens to undermine the integrity of sports contests while
jeopardizing the student-athlete and the intercollegiate
Bill Saum, director of enforcement for the NCAA, says, "We're
concerned that athletes may be wagering over the Internet and
that Internet wagering is about to explode on college campuses.
What we would end up with is a significant number of closet
gamblers, a number of whom would be athletes. That's a problem
for all of us."
College students, however, have for a decade been the
fastest-growing segment of the gambling population even without
the help of the Internet. The explosion of legalized gambling in
the U.S. over the last 30 years would seem to be the obvious
reason. There were no state lotteries until New Hampshire's in
1964, and 36 other states have since followed suit. Casinos were
restricted to Nevada until New Jersey brought casinos to
Atlantic City in 1978, and 20 other states now have some form of
legal casino gambling. Hawaii and Utah are the only states that
offer no sanctioned gambling.
Against this backdrop, cynics say that the government's
opposition to Internet gambling is nothing more than an attempt
to protect its own franchise. Says Bethany Noble of the Internet
Consumers Choice Group, a Washington, D.C.-based lobby group,
"It is really hypocritical when states like Missouri, Minnesota
and Wisconsin, which sanction gambling for their own profit,
start taking a moral stand against people betting with regulated
businesses on the Internet. It seems like their real interest is
in protecting their pocketbook, not their citizens."
Robert Goodman, president of the United States Gambling Research
Institute, a gaming industry group, adds, "It certainly makes
states less credible when they go after Internet gambling but
spend millions promoting their own gambling."
When he introduced his bill on the Senate floor last March, Kyl
opined that "gambling erodes values of hard work, sacrifice and
personal responsibility." Yet his state, Arizona, conducts a
lottery and sanctions off-track betting on thoroughbred and
"In the United States gambling is mostly prohibited," says Kyl,
"and where it is not, it is highly regulated. You know in
advance the exact odds. If you win, you will be paid. The state
makes sure of it."
If state governments now sanction so much gambling that the only
argument they can make is that new forms are insufficiently
regulated, the Internet operators have an easy answer: Regulate
"I welcome regulation," says Cohen. "If Senator Kyl thinks we're
not regulated well enough down here, bring us home. Whatever
standards they set, we'll live up to. Why not offer a federal
license? They can regulate it, tax it. The real issue here is
who is going to get the gamblers' dollars."
It was the lure of adding those easy dollars to state coffers
that led to the proliferation of lotteries and casinos in the
first place. Can legal sports betting be next? In December, New
York City mayor Rudolph Giuliani said sports betting was
"something worth looking at" as an added attraction for city OTB
The struggling horse- and dog-racing industries don't want
additional competition for the gambling dollar but oppose the
Kyl bill because its language may jeopardize the legality of
existing simulcasting and telephone-betting arrangements. The
big players in the legal casino business support the Kyl bill,
though they are careful to rest their case on the regulatory
argument, thus leaving their options open for the future.
"We support gaming that's regulated, and that's the problem
here," says Keith Whyte, director of research for the American
Gaming Association, an industry trade group. "Philosophically
our belief is that gambling is not an evil and that the vast
majority of people can control themselves while gambling. In
that vein, we support the growth of the gaming industry."
What if Internet gambling were legal and strictly regulated?
"Well, certainly I think our members would have to see it as a
growth opportunity," Whyte says.
Internet gambling may have truly come of age in November, when
the first conference exclusively devoted to it was held in
Washington, D.C. The three-day event drew 300 registrants at
$1,200 a head and was composed, according to one conference
organizer, "of about a hundred entrepreneurs hoping to set up
sites, a hundred people trying to sell hardware and software,
and the rest were FBI or state attorneys general."
The major news to come out of the conference was the
announcement that the governments of Australia and New Zealand
were readying themselves to regulate Internet gambling and want
to be major players in the emerging global industry despite U.S.
opposition. "The only effective way to get consumer trust is to
have a respected regulatory system," says Tony Cabot, a
prominent Las Vegas-based lawyer. "If Australia and New Zealand
fill that void, the future certainly changes."
"We're a progressive nation, and we saw this as a product to
sell," says Michael Cox, who is a member of New Zealand's
control authority. "Apparently American politicians have
forgotten what happens when you make illegal something the
people want. With alcohol, it got driven underground, lots of
people made a profit, and it became a sick industry. Learn a
lesson: People want to gamble in the privacy of their own
Steven Crist is the former editor-in-chief of The Racing Times
and a onetime vice president of the New York Racing Association.
WHAT'S ON THE MENU
Vegas-style sports bets--and a world of others--are now
available in every home through the Net
The day after the Green Bay Packers and the Denver Broncos both
won and covered the point spreads in their respective NFL
conference title games, sports bettors phoning their bookmakers
had a relatively meager menu of Monday-night action: five NBA
games, 10 NHL matches and a bunch of Division I college
Those surfing the Internet had quite a few more--and more
exotic--choices. Football enthusiasts could begin placing their
Super Bowl bets with a lot more options than whether to take the
favored Packers or the underdog Broncos. Shoppers at Olympic
Sports (a Jamaican-based site where bettors are invited to
"enjoy personal wagering with Spiro the Greek!") could ponder
such prices as 15-to-1 odds on Brett Favre's throwing six or
more touchdown passes. Several other sites offered more than 100
other Super Bowl propositions, such as who would score the
game's first touchdown (Green Bay's Dorsey Levens was favored at
4 to 1), what the first score of the game would be (30 to 1 on a
safety by either team) and, in a wager that some would say
epitomizes sports betting, odds of 10 to 11 to back either team
to win the opening coin flip.
In the mood for something more adventurous? How about 2 to 1 on
Antwerp against Westerlo in the Belgian Soccer League? Visitors
to Intertops's site could speculate on a full slate of matches
from the Belgian, English, Italian and Spanish soccer leagues.
Feeling patriotic? How about a bet at 7 to 2 on the U.S. to win
the hockey gold medal at the Winter Olympics in Nagano in
February? Want a long shot? You can get 50 to 1 on the Florida
Marlins to repeat in the World Series. Or 200 to 1 if you like
the U.S. to win soccer's World Cup this summer. (You can get 500
to 1 on Iran.)
Down Under, at Mark Read's International Allsports ("Oz's
biggest bookie!" screams the Web banner), exotica abounds. Open
an account, wire a deposit to Australia, and you too could be
taking 9 to 1 on Tasmania to win the Mercantile Cup in cricket.
Or you could visit the Belgian-based International Bet-Exchange,
which will book your bets on sumo wrestling.
The technical limitation in on-line betting is the same one that
troubles most home-computer users: The Internet can be slow,
especially at peak hours. Placing and confirming a bet can take
anywhere from 15 seconds to two minutes, so you can't make a Net
bet on every play of a game--at least not yet. The rule of
thumb, though, is that home computers double in speed every 18
months, so it may not be long before you can get 6 to 5 that the
next pitch will be a strike.
"There are those who say we should just regulate Internet
gambling," says Kyl. "I don't believe it can be regulated, so we
have to prohibit it."
"We're not the mob," says Cohen, who started with 20 customers
and now claims to have 2,000. "We're offering a clean, regulated
place to gamble."
McAllister says the U.S. can't dictate Antigua's policy on
Internet gambling: "We are a sovereign state, not some banana
"I don't think this is something states should be able to
legislate," says Kasprovich, a cyber bettor. "I wish they would
all butt out."
"We could end up with a significant number of closet gamblers,
some of whom would be athletes," says the NCAA's Saum.