Friday, August 11, 2006

BetonSports: Enforcement is Working

Today’s Wall Street Journal reports (story by Lilly Vitorovich) that BetonSports is closing its operations in Antigua and Costa Rica, which serviced its gambling accounts with U.S. customers. This action comes in response to indictments of its owners and some other company executives on racketeering and conspiracy charges in an effort by the U.S. to crack down on Internet gambling.

According to the article, approximately 90% of the revenues from BetonSports came from U.S. customers. Without them, the business may not be viable. Even though the physical operations of the company are located outside of the territorial borders of the United States, the company appears to be deciding to shut down. After paying its debts, there may be little left for shareholders, according to the article.

This is an interesting development. One would think that foreign-based operations would continue operating as long as they were beyond the jurisdictional reach of U.S. law enforcement operations. However, the fact that individuals connected with these businesses are currently in U.S. custody, facing not only asset forfeiture but possible prison sentences if ultimately convicted, is likely to be an influential factor here that would not be present in other gambling operations.

Some conservative critics (including Walter Williams, for example) have criticized efforts to proscribe internet gambling as an unfounded extension of federal power. One might also criticize efforts to stop this activity (or at least to through sand in the bearings) as unattractive because they may be motivated by desires to reinforce the market power of state-sanctioned gambling outlets.

The federal power issue is overstated; gambling regulation at the federal level has a long history, leading back to the sale of interstate lottery tickets. The federal government appropriately intervenes when the laws of a particular state are subject to being overtaken by jurisdictional limitations. What is interesting about this case is that the federal government itself is severely hamstrung by jurisdictional limits in these matters.

The criticism of reinforcing state power is probably correct, though this is not in itself a sufficient reason to favor unlimited Internet gambling. One of the biggest concerns here is access by minors, which is problematic. Given the fact that young people are still developing logical control functions, this is a sound basis for curtailing access to an activity that is potentially ruinous.

Of course, another reason involves protecting people from themselves – which is unpopular in libertarian circles. We know that a significant number of people will incur ruinous costs because of human weakness. Though the present state of gambling regulation in state-sanctioned forms does not deal with this weakness very well, there are at least some marginal benefits over the unregulated environment of the online betting outlets. Moreover, we must recognize that we do not live in a world were costs are segregated and responsibly born by those who incur them; many costs are externalized.

It will bear more watching to see the ultimate impact of this case on ongoing gambling legislation.


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