Ethical Analysis of Online Gambling
By: Quoc Nguyen
ENGR 288 - Software Ethics
Dr. Neil R. Quinn Jr.
June 9, 2003
Santa Clara University
Introduction
Background
Government
Stance
Global Effects
Ethical Analysis
Conclusion
Endnotes
Open up your email over a long weekend and you’ll likely find a plethora of online casino advertisements. “Welcome Bonus up to $150 free!” Ask the traditional land based casino gambler on whether he would gamble online and his first reaction would likely be “Are you nuts?” When gambling at land based casinos, games are likely to be fair because the consequences of cheating by casino operators are disastrous. Casinos found to offer rigged games will lose their gambling licenses permanently. Land based casino gamblers are also virtually guaranteed that any winnings they accumulate will be paid out. However, Internet casinos are generally unregulated and offer neither of these guarantees. Nevertheless, online gambling has garnered a huge global audience. Online casinos cater to the lucrative market of stay-at-home bettors who only need a bank account and Internet access in order to participate in online gambling. However, online gambling presents unique ethical problems to society.
The Internet has opened the gambling industry to a whole new range of consumers. Most states in the United States have some form of legal gambling, ranging from state lotteries to bingo. However, in order to participate in the more exotic casino games such as blackjack, poker, and slots, you used to have to travel all the way to Nevada, Indian reservations, or gambling boats. Today all you have to do is install casino software on your computer and you can experience online gambling in the comfort of your own home. Some online casinos offer games on web sites, so you don’t even have to install anything. Gamblers no longer need to fly to Las Vegas in order to play slots.
In a sense, the online casino is the perfect business. With “lots of cash flow, no distribution, and no real estate”1, a large percentage of the revenue received by online casinos translates directly into profit. Billions of dollars were spent on creating and maintaining gambling wonderlands such as the Bellagio and the Venetian. In contrast, creating a new online casino requires only licensing software from a casino software provider and maintaining the casino network services. Bear Stearns, a New York investment banking company that tracks the online gambling industry, estimates online gambling generated revenues of $3.5 billion globally in 2002.2 In comparison, the Nevada Gaming Control Board reported estimated revenues of $9.45 billion for all Nevada casinos combined in the same year.3 Casino-on-Net, the largest online casino in the world, had revenues of about $200 million in 2002.4 Only a handful of Internet companies have higher revenues. For comparison, Ebay, which has become one of the most successful Internet companies, received annual revenues of $413.9 million the same period.5 Online gambling has become a legitimate and a powerful force in the gambling industry.
The legal status of online gambling in the United States isn't clear. According to U.S. Attorney General John Ascroft, the 1961 federal Wire Act prohibits casino games on the Internet.6 The Wire Act is a federal statute that prohibits gambling over telephone wires. "The Wire Act makes it illegal for providers to offer or take bets from gamblers over phone lines or through other wired devices unless otherwise authorized by a particular state."7 However, the Wire Act was written long before Internet gambling ever existed, and lawyers are still debating on whether it applies to Internet gambling. In a speech addressed to Congress, Congressman Bob Goodlatte explained the ambiguity of the Wire Act:
"Under current federal law, it is unclear that using the Internet to operate a gambling business is illegal. The closest useful statute is the Wire Act, which prohibits gambling over telephone wires. However, because the Internet does not always travel over telephone wires, the Wire Act, which was written well before the invention of the World Wide Web, has become outdated -- it is not clear that it applies to the internet at all. Furthermore, even if it does, it only applies to sports betting and not virtual casino games like blackjack and roulette."8
A US District Court judge ruled that the Wire Act only applies to sports betting, and not to Internet casino gambling in general.9 In 1997, the Internet Gambling Prohibition Act was passed by the Senate by an overwhelming vote of 90-10, but was held up by the House.10 In 2000, Congress tried to pass an updated version of the same bill11, but the House rejected the bill again.12 On June 3rd, 2003, the House tried to pass the Unlawful Internet Gambling Funding Prohibition Act13, but the vote was cancelled when it became clear that the bill didn't have enough votes to pass the House of Representatives.14
Online gambling is legal in several countries in the Caribbean, Africa, and Europe. The Gaming Board of Great Britain has legalized and regulated Internet gambling: "There is nothing in the legislation which makes it illegal, or seeks to prevent, British residents gambling on the Internet from their own homes."15 Australia has also enacted legislation specifically aimed at online gambling. The Internet Gambling Bill became law in 2001 and specifically allows "Australian licensed online sports books, race betting and lottery sites to offer their product to Australian and international customers"16, but prohibits most other types of unregulated and unlicensed online gambling. Part VII of the Canadian Criminal Code allows Canadians to legally gamble on the Internet.17 Merrill Lynch has compiled a list of the responses of various countries to online gambling:
Lawyers from the United States have argued that since the actual act of gambling is taking place at a location where gambling is legal (e.g. somewhere in the Carribean), no laws are actually being violated, but this argument rarely holds up in court.
Ethical Problems
Gambling presents a large set of negative social consequences. Online gambling in particular has its own problems beyond those of gambling in general. Anyone can sit at home in front of their computer and gamble at an online casino. The computer can ask about your age and identity, but it doesn't have the means to verify that you are who you are. Land based casinos can rely on appearance to determine a gambler's age, but online casinos have limited means to prevent children from gambling. Typical security measures include using passwords and credit card numbers, but children sometimes have easy access to their parent's casino accounts, and the parents may not even be aware that their children are using their accounts. There is no full-proof way to prevent underage people from gambling.
Both online and land based casinos have problems detecting and deterring addicted gamblers. The addicted online gambler however is extremely hard to detect because of the isolated nature of online gambling. In order to gamble at a land based casino, the traditional gambler needs to leave his home and travel to a casino. Concerned family members can easily observe the gambler's behavior and determine whether he has a problem. However, concerned family members might not even know that an online gambler is even gambling. Online gamblers can easily hide their activity by hiding the gambling software any time someone enters the room, in the same way that solitaire players can minimize their games at work before anyone sees their screens.
Online gamblers can gamble whenever they feel like it. Instead of having to leave the house and travel to a land based casino, online gamblers only need to run a computer program to connect to an online casino. Whenever the online gambler has a gambling "itch", whether it's 7:00 AM in the morning or 11:00 PM in the evening, he can gamble online on demand. The ability to gamble anytime from the convenience of your home can quickly lead to addictive behavior and serious financial problems. Compulsive gamblers can find it hard to resist the temptations of gambling with its large variety of available games. One study by the Harvard Medical School in conjunction with the Massachusetts Council on Compulsive Gambling found that "individuals who gamble on the Internet were more likely to be probably pathological gamblers than individuals who did not gamble on the Internet."19
The chart above presents the proportion of gamblers classified as level 1 (non-problem), level 2 (problem), and level 3 (pathological) gamblers20
A final, but important ethical problem that applies only to online casinos is there is no guarantee that winnings are paid. With land based casino's, if you win $100 in chips, then you can be confident that you can convert those chips to $100 in cash at any time. This is not true with Internet casinos. Some casinos return winnings a few days after a cash-in request. For other casinos it takes weeks. There is one report where an online gambler won $28,700 by hitting three royal flushes in video poker in a short period of time, and was paid only after complaining for a whole year and getting online gambling consumer advocates involved.21 At first the online casino suspected the player of cheating, but after a year of negotiations with advocacy groups, the player was finally paid. There are also reports of online casinos which have "disappeared leaving their players empty handed and downright disgusted with the industry as a whole."22 The online casino industry has a long way to go before it can be claim the legitimacy and respect that the land based casinos have earned.
Online Gambler Demographics
Although online gambling illegal in the United States, about 50% of all deposits come from the United States.23 50% of online gamblers are women, and 30% are over 55.24 Datamonitor, a business information research company, has compiled an in-depth profile of the typical Internet gambler. Datamonitor found that Internet gamblers are typically younger and more technologically savvy than the traditional gambler, come from middle income ranges, and are evenly distributed between the sexes. In contrast, typical traditional land based gamblers are older, come from either the low or high income ranges, and are dominantly male.
The chart shows that a larger percentage of online gamblers play for fun and for smaller stakes when compared to traditional gamblers. Traditional land based gambling, such as state lotteries, Bingo, and Las Vegas type casinos affect everyone, including the very poor and the uneducated. Online gamblers on the other hand tend to be more affluent and educated, and are more likely to be able to deal with the financial and psychological strains of gambling. The conservatism of the majority of online gamblers is also reflected in the study "What Are the Odds?" by GreenField Online: "81 percent of gamblers only play online for free, and of those who are willing to play for money, 66 percent are willing to spend only $10 or less per visit."26
People love to gamble, and will continue to find ways to gamble online even though it may be illegal in some governments. The Internet offers inexpensive and easy access for them to embrace the games of chance, regardless of the state of the law. If governments like the United States continue to ban online gambling services, then those services will simply move overseas where the United States has no jurisdiction. Since the Internet allows virtually everyone to access these overseas services, the online gamblers will risk their money playing at potentially unregulated casinos subject to cheating, abuse, and fraud.
To perform an ethical analysis of this case, one has to consider three major ethical theories:
Teleological Analysis
A utilitarian analysis performs a costs/benefits analysis and selects the alternative that produces the maximum benefit for all of the stakeholders involved. The stakeholders of online gambling are online casino software producers, the online casino operators, land based casinos, governments, online gamblers, and the friends and families of online gamblers. The online gambling industry provides jobs for software producers and casino operators. These jobs are jobs that simply didn't exist before the online gambling industry came into existence. The Internet has opened the door to new opportunities to technology companies such as EBay and Amazon.com, and the online gambling industry has benefited at least as much as their Internet industry counterparts.
No one would like to see the demise of online casinos more than their large land based casino counterparts. Nevada casino giants such as Harrah's Entertainment have so far "resisted online gambling, in part because they fear it will raid their bettors."27 Nevada casino revenues have decreased by 0.3% between 2001 and 2002, but the decline was most likely caused by "the general downturn in the economy"28 rather than competition from online casinos. Worldwide online gambling represents a small but growing percentage of worldwide gambling. Most traditional gamblers enjoy of being at a real land-based casino and are unlikely to switch to online gambling. However, as online casinos become more prevalent, they will likely displace some of their land based counterparts. Revenues from land based casinos will likely decline further in the future because competition from online casinos.
Almost all governments openly support some form of gambling. California uses a state sponsored lottery to help fund its education system.29 The United Kingdom goes even further by regulating and licensing other forms of high-tech gambling and benefits by receiving taxes and collecting annual licensing fees from its online casinos.30 Conservative governments such as the United States, try to ban all forms of online gambling because of its negative impacts on society. Overall it's hard to say whether governments benefit or are hurt by online gambling. Most people would agree that the state of Nevada benefits from the gambling industry. Therefore, one could argue that governments that regulate online gambling benefit from online gambling, while governments that don't regulate online gambling are hurt by it.
The typical online gambler enjoys gambling. Winning money from online casinos gives him a rush of excitement, and losing money is viewed as the price of entertainment. The typical gambler is happy whether he wins or loses at a casino. A small percentage of gamblers are susceptible to gambling addiction and online gambling hurts them by making their addiction available to them. However, anything taken in excess is harmful. There are rabid baseball fans who are willing to spend $200 to see a game, and go to every single game that their favorite team plays in even though they might not be able to afford it. Few people would argue that baseball is damaging to society, but it is easy to see how baseball taken in excess can be damaging. In the same way, online gambling taken in excess is damaging to the individual, but taken in moderation is beneficial to the online gambler.
Friends and family of the online gambler are hurt by online gambling at almost any level. Online gambling, like most other video games, is an individual activity and isolates the online gambler from his friends and family. Whereas traditional gambling can be a group activity where friends can travel, gamble, wine, and dine together, online gambling keeps the gambler isolated in front of his computer and away from social interaction. Obsessive gamblers can cause financial problems to themselves, which leads to financial problems and related headaches for their friends and family.
The utilitarian analysis finds that online casino software producers, online casino operators, and online gamblers benefit from online gambling. Meanwhile, land based casinos and friends and families of online gamblers are hurt by online gambling. Some governments like the United Kingdom benefit by regulating online gambling while other governments like the United States are hurt by it. In determining whether online gambling is beneficial or not, it can be helpful to compare online gambling with other online industries. E-commerce has helped E-commerce providers such as Amazon and Buy.com as well as the consumers who use their services, but has hurt traditional retailers and governments who not until recently have been able to implement a sales tax system on Internet purchases. Most people would argue that E-commerce is beneficial to society, and much of the same argument can be used to conclude that overall, online gambling is ethically beneficial to society.
Deontological Analysis
The duty based ethical analysis determines the moral correctness of an action based on the intent of the action rather than the consequences. The criteria for determining what is right according to Kant’s categorical imperative are “Do all rational beings accept this action or decision regardless of whether they are the perpetrators or the victims?”31 In order to evaluate this imperative, one has to look at online gambling from the standpoint of a party that has no financial or utilitarian interest in the decision. Online gambling is a form of entertainment just like playing video games. One can think of it as a very expensive video game. Most online gamblers play for free, and most of the online gamblers who play for money play for extremely small stakes.32 If an online gambler derives relaxation and pleasure from online gambling, then there is nothing wrong with participating in it. The disinterested observer would not view buying a lottery ticket as an immoral act. Gambling online is easier than buying lottery tickets, but it is similar enough that it should not be considered immoral.
There are no economic benefits to online gambling. Would the world be a better place if online gambling didn't exist? If you answer yes to that question, then to be ethically consistent you would also have to answer yes to the question: Would the world be a better place if baseball didn't exist? Baseball fans spend hundreds of dollars on baseball tickets, and spend much of their valuable time watching baseball games. If baseball didn't exist, then these baseball fans could make themselves useful by spending their financial resources and time on contributing to society. However, without baseball they would be losing the thrills of seeing a home run, the excitement of witnessing a double play, and the joy of eating hot dogs and drinking beer while wasting the whole afternoon away. Since online gambling provides a venue for people to relax and enjoy their free time, it is morally acceptable.
Rights Based Analysis
Locke’ second Treatise on Property defines ownership of property as "The labour of his body, and the work of his hands, we may say, are properly his."33 The right to gamble is a right to peaceable dispose of one's own property and does not infringe on any other person's rights. If someone spends 8 hours of day working and contributing to society, then he should be free to spend his earnings in any way that he wants as long as he doesn't harm anyone else in the process.
The United States Declaration of Independence defines "unalienable rights" as "life, liberty, and the pursuit of happiness"34. Restricting gambling is an infringement on both liberty and the pursuit of happiness. Thomas Jefferson, one of the founding fathers of our country, often gambled by playing cards to relax while he was drafting the constitution.35. He even endorsed the lottery as a source of government revenue preferable to incoming tax and sales tax because it is “a tax laid on the willing only”36. The fact that today gambling occurs on the Internet does not affect a persons inherent right to it. Clearly, the rights based argument favors the allowance of online gambling.
The teleological, deontological, and rights-based ethical perspectives all favor allowing online gambling to exist. Gambling on the Internet is morally acceptable to society, even though some governments have tried to outlaw it completely. Attempts to ban online gambling are impractical because of the inherent open nature of the Internet. The Internet relies on thousands of privately owned service providers who route Internet traffic through their networks. Enforcing a ban on online gambling would require cooperation from most of these providers, most of who firmly object to banning any kind of Internet traffic. Outlawing domestic online gambling will merely push online gambling operations oversee where the domestic governments have no jurisdiction. Regulation can address many of the concerns of Internet gambling. For example, the United Kingdom and Australia have set up regulative laws for casinos within their borders to ensure fair gaming practices, prevent abuse, and ensure customer payouts. Online gambling has yet to resolve moral problems such as underage gambling and gambling addiction, but the prohibition of online gambling is a prohibition on individual liberty and property rights.
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