Bloomberg: Online gambling deserves a nationwide chance

The following editorial appears on Bloomberg View:

In a victory for fun, liberty and sound fiscal policy, New Jersey will Tuesday let most of its residents gamble online. All Americans should be so (dare we say it?) lucky.

New Jersey is the third state, after Delaware and Nevada, to permit online gambling within its borders, and a dozen or so others will consider doing so next year. By 2023, according to a forecast by Bloomberg Industries, annual online gambling revenue could reach $23 billion nationwide. In a just world, it would be legal nationwide, too.

Practical problems abound with a state-by-state approach. For one thing, a game such as poker requires significant pools of liquidity — also known as "a big pot" — to work well, which is a challenge in small states. Joining forces in regional gambling blocks, as some states are considering, would expand the market, but it could quickly become a mess if they all have conflicting regulations. Banks and payment processors are turning down perfectly legal gambling transactions for fear that they'd be enabling out-of-state or underage bettors.

These are symptoms of a larger incoherence. Online gambling, like everything else on the Internet, is inherently interstate commerce. That makes federal regulation more sensible.

Two bills in Congress are on the right track. One would legalize all forms of online gambling, except sports, and create an oversight office at the Treasury Department. It would also allow states to opt out. The other proposes a 4 percent federal tax on operators, and allows states to collect an additional 8 percent. Combined, they offer the outline of rational federal approach.

Of course, there will be plenty of objections. Sheldon Adelson, who made his zillion-dollar fortune separating casino-goers from their money, has recently discovered moral objections to gambling (online, anyway). He should stop whining. Casinos — like every other industry, from music to media to retail — will have to adjust to the Internet's ruthless disruption. Casinos could capitalize on their brands, regulatory knowledge and customer-service skills to compete for online action, and they could use loyalty programs and promotions to lure their new Web-savvy patrons to the house. They can also offer benefits the Internet can't: cash transactions, anonymity, exotic entertainment, free cocktails.

Some states may not like the idea, either. They might depend on tax revenue from casinos to shore up their budgets, for instance, or they might object on moral grounds. Neither is a good reason to oppose these laws. States will be able to raise substantial new revenue from online wagering, and traditional casinos will still be producing cash for a long time to come. If state officials find gambling sinful, they could always opt out.

At any rate, problem gambling and other harmful side effects will probably be easier to prevent online. If would-be punters are required to open an account and have their identities verified, imposing loss limits should be fairly easy from a technical perspective. (As with most things digital, convenience comes at the expense of privacy.) Compulsive gamblers might still get around such safeguards, but doing so would certainly be harder than at a casino, where you can plow through chips as long as you like. Online operators could also more easily comply with anti-money-laundering laws and prohibitions against underage gambling. Again, it wouldn't be foolproof, but neither are real-life casinos.

Finally, a federally regulated system would help move the online gambling action away from the shady offshore shops that currently prevail and toward licensed — and taxed — domestic operators. Gamblers could be assured that their financial transactions are safe and legal, and that the games aren't rigged. Public officials, meanwhile, would be rewarded with a windfall: Taxing online wagers could lead to as much as $41 billion in new revenue over 10 years.

People clearly like gambling. Letting them do so where they want would make them happy. Regulating it properly would keep them safe. And taxing it all will make lawmakers smile. A decent trifecta, you might say.