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An Overview of Internet Gambling Regulations

Jamie Wiebe, Ph.D., Factz Research & Michael D. Lipton, Q.C., Elkind & Lipton LLP August 2008

Submitted to the Ontario Problem Gambling Research Centre

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Executive Summary
There are currently more than 2,000 Internet gambling sites worldwide (Schwartz, 2005). Revenue from these sites is estimated to reach $18 billion by the end of 2008 (Dresdner Kleinwort Wasserstein, 2005). Due to its exponential rate of growth, market impact, and the risks associated with gambling excesses, Internet gambling is a cause for apprehension from many perspectives.

Through regulation, a jurisdiction is able to protect those parties engaged in the risks of the activity. Some jurisdictions have established regulatory frameworks with supporting standards and policies, while others have not. The result is that regulatory frameworks are widely divergent. What follows is an overview of regulatory standards in jurisdictions around the world. For the purpose of this report regulatory frameworks are organized into 3 distinct tiers: Tier 1 regimes are focused on maximum player protection and compliance; Tier 2 regimes are characterized by a more flexible approach aimed at attracting a higher number of operators; and, finally, Tier 3 regimes are those that allow companies to conduct Internet gambling in an unregulated environment.

The current climate for Internet gambling is unstable, a result of both the disparity of regulation among jurisdictions and the resulting aura of public mistrust this disparity has engendered. An internationally-recognized regulatory framework would help address this instability by impartially resolving cross-border disputes and mandating a high standard of customer service and game integrity. A variety of regulatory approaches could be applied to accomplish the same goals; and such a framework would make it possible to evaluate divergent regulatory practices from a politically independent perspective.

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Introduction
The terms “Internet gambling”, “online gambling” and “e-gambling” generally refer to using a personal computer to connect to a gambling website in order to place a bet using real money. Of the remote communication options available, including telephone and television, the Internet is the most commonly used medium and is expected to retain its dominance of the remote gambling space. Global Betting and Gaming Consultants estimates the Internet’s share of the remote gambling market to be 80% (Dresdner Kleinwort Wasserstein, 2005).

Historically, governments have opposed gambling for moral, ethical and social reasons (Kearney, 2005). Limited forms of gambling have been permitted (such as lotteries and on-track horserace wagering), but it has not been allowed to spread as a commercially independent industry and has been fiercely restricted. In addition, some states have monopolized gambling to generate non-tax revenue. The Internet has eroded this position by destroying natural barriers. The technological advances that have allowed gambling opportunities to be offered across international borders have turned Internet gambling into a global issue The number of Internet gambling sites has increased from 30 in 1994 to more than 2,000 in 2005 (Swartz, 2005). Revenue has grown from $6.7 billion in 2003 to $9.2 billion in 2004 and is estimated to reach $18 billion by the end of 2008 (Dresdner Kleinwort Wasserstein, 2005). Factors driving growth in the online gambling market include: the increasing popularity of western sports worldwide, the broadcasting of events and tournaments to fill time on an increasing number of sports channels, as well as the worldwide market penetration for televisions, credit cards and computers with Internet access (Dresdner Kleinwort Wasserstein, 2005). The most common types of Internet gambling sites are sports betting, lottery ticket sales, and casino games such as poker, blackjack and slots. Sports betting currently...
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