Morality vs. Money

When the French police arrested two Austrian on-line-gambling executives on September 15, they did it in the name of protecting France from "the explosion of money games in a heedless manner." Indeed every recent state move to crack down on online gambling, from the United States to Denmark, Finland, Germany, Hungary, Italy, the Netherlands and Sweden, has followed the same moral argument: it's all about saving our people from the sins of gambling.

The problem is that all of these countries allow licensed gambling at home, and in some cases are promoting its expansion very aggressively. So what's it really about? In recent months the EU has launched proceedings against all these nations (except of course the United States) for protecting national monopolies in violation of EU laws guaranteeing free movement for goods and services.

Gambling may be the world's most tightly regulated industry. But the result in virtually all cases is a business that flowers in chosen places precisely because it is banned elsewhere. That's true where national or state governments license private casinos (think Vegas or Atlantic City) or where the government runs the monopoly (as in Germany, where the state franchise runs gambling operations in all 16 states). In Europe, state casino and lottery monopolies generate more than $31.7 billion a year, and in the United States private casinos alone generate roughly the same. "How can you say that you're concerned about gambling being dangerous to the moral and social fabric of your society if, at the same time, you promote a massive lottery and try to get people to come and gamble?'' asks Paul Renney, a partner specializing in Internet law at Addleshaw Goddard in London. "It's contradictory.''

Opponents of online gambling are exploiting a loophole in the EU laws protecting free trade, which allows member states to take measures to protect the social and moral fabric of their societies. The Netherlands has used that provision to ban Ladbroke's of Britain from offering online betting to the Dutch, arguing that such Web operations are harder to police for fraud and monitor for addictive behavior. The French deployed a similar argument in arresting the two Austrians, executives Norbert Teufelberger and Manfred Bodner, in September. They have been released on bail and are awaiting trial. Didier Dewyn, secretary-general of the European Betting Association, refers to such proceedings as "witch hunts" that deprive targets of even the basic EU right to travel freely within the union.

Yet the policing problem is real. British Culture Secretary Tessa Jowell recently led a 30-nation conference on how to govern Internet gambling. Participants could agree only that the recent American ban on online gambling would succeed in driving the industry underground. Meanwhile, Britain is trying its own strategy: to lure online casinos to set up in Britain, subject to British regulation--and taxes. But there's probably no way Britain can compete with places like Malta, where regulations are loose and the taxes as low as 4.17 percent. Nor would the establishment of a British online-gambling capital address the threats to morals or money flow in rival states like France and Germany, which appear willing to fight this to the bitter end. France's state-run betting agencies, Pari Mutuel Urbain (PMU) and La Française des Jeux (FDJ), took in €16.9 billion in 2005, and Germany's gambling market is estimated at €29 billion.

It is a myth that the Internet cannot be policed: just look at China. But the EU has no stomach for the kind of strong-arm methods China employs. After the U.S. ban took effect in October, major operators like, PartyGaming and Holdings 888 became even more reliant on marketing to European customers. With gambling now available on some 2,300 Web sites worldwide, through mobile phones and interactive TV, an estimated 3.3 million people in Europe now regularly bet online. Even if they win the EU legal battle, on-land gambling probably can't stop the online threat, not in the long run.