CYBERSPACE CRAPSHOOT

By MICHAEL KRANTZ

Three months ago, a Missouri man going by the name Matthew Cunningham wagered $100 in a slot-machine tournament held on a Website called Global Casino. He lost. That, for Global Casino, was the good news. The bad news was that "Cunningham" was employed by the office of Missouri attorney general Jeremiah ("Jay") Nixon as part of a sting operation. Last Friday, in the first case ever against an active Internet gambling concern, a federal-circuit-court judge granted Nixon's request for a permanent injunction barring Global Casino's parent company, Interactive Gaming & Communications (I.G.C.) of Blue Bell, Pa., from taking any more bets from Missouri residents.

In the ongoing quest for an Internet bogeyman, pornography still gets the most ink, but gambling is where the action will be. Online betting--primarily through Websites that let you wager on sports events, enter lotteries and play casino games--is still in its infancy. Between $100 million and $200 million will be gambled online this year worldwide, says Whittier Law School professor and gaming-industry expert I. Nelson Rose. That's just a tiny portion of the national habit, of course. Americans legally hazarded an astonishing half a trillion dollars in 1995, earning the gaming industry profits of $44.4 billion--more than the net revenue from movies, music and sports entertainment combined. But as the Web becomes ubiquitous, online gambling will grab an ever larger slice of this multibillion-dollar pie. "I get two calls a day," says Rose, "one from the media, the other from someone who wants to set up shop on the Net. There's a feeling that they're getting in on the ground floor of the next TV."

Or, in the case of law enforcement, trying to stop the elevator before it's too late. Neither the gaming companies nor the prosecutors know how existing law will apply to cyberspace. Two years ago, Minnesota attorney general Hubert Humphrey III filed suit against Granite Gate Resorts, based in Las Vegas, merely for advertising its upcoming Web-based sports-betting service, WagerNet, to Minnesotans.

Now Nixon--who plans to run for the U.S. Senate in 1998--has taken the fight a step further, contending that Global Casino's operators broke the law by letting a Missouri citizen wager on their site, even though the computers that take the bets are on the Caribbean island of Grenada. No dice, says Lawrence Hirsch, general counsel for I.G.C. "There is no law on the books anyplace," he says flatly, "that prohibits us from doing what we do."

That's precisely what has Nixon fighting mad. He contrasts today's anything-goes Web gambling joints with the tightly regulated riverboat casinos plying their trade on the Missouri and Mississippi rivers. "Any 12-year-old with a credit card can play blackjack on the Internet," he says. "We don't know who owns these companies, what the odds are, whether winners will ever collect. We know nothing."

And Washington, he adds, has barely addressed the problem. Indeed, the Federal Trade Commission told TIME that FTC has no regulatory authority in this area; the Justice Department declined to comment. Senator Jon Kyl of Arizona, chairman of the Senate Judiciary Committee's subcommittee on technology, has introduced a bill that would amend federal statutes to cover online gambling; Congress could, however, choose to wait for the findings of a national commission currently studying the social impact of gambling in America. Its report is not due for two years.

Besides, any new federal law would only raise what Kyl's office dryly calls "enforcement challenges." The Interstate Wire Act makes it illegal for a company in the gambling business to send gambling information over any wire that crosses a state or national boundary. But most such companies today are, like Global Casino, based overseas, which makes existing law extremely difficult to enforce. U.S. citizens, for instance, can place bets via a Website called InterLotto that is operated by the government of Liechtenstein. Nixon wants legislation stipulating that violations of gambling laws occur in the state or nation where the bets are made. In fact, he'd like to outlaw online betting altogether. "If we're not going to do that," he says, "then we should just quit this sham of regulating gambling at all."

In the absence of aggressive legislation, the business is sure to mushroom, as organized groups invade territory held today by small-time pioneers. Under the Indian Gaming Regulatory Act, for instance, Native Americans exempt from federal regulation could easily move their lucrative gambling operations onto the Net. So could other folks with even more bookmaking experience. "I'm not that worried about the Modoc tribe," says Nixon. "I'm worried about the Gambino tribe."

With good reason, according to a software developer who brought a laptop filled with electronic playing cards and roulette wheels to a meeting at Las Vegas' Caesars Palace recently and found his new client wearing expensive designer clothes and stretched out on a couch. "He had these huge bodyguards on either side," the programmer recalls, "and this consigliere bending over to whisper in his ear." According to the programmer, the only questions in his client's mind were on which offshore island to locate his Web servers and from which local official to "buy a license."

Many Netizens consider cybergambling a fait accompli. "There's no way you can stop somebody who's reasonably tech-savvy from gambling," says Dave Herschman, CEO of Virtual Vegas Inc., a software company based in Santa Monica, Calif., whose 3-D casino was designed for Time Warner's soon-to-be-defunct Full Service Network and is headed for the @Home interactive network. Herschman considers current federal policy misguided. "Instead of sporadic antigambling crackdowns, we should be closely monitoring and taxing this industry," he says. "We're going to lose out on what could be one of the largest markets ever." His site today uses pretend money, but Herschman wants to play for real stakes. "We want to be like McDonald's," he says. "When the average American consumer can gamble on the Internet, Virtual Vegas is where we want him to go." Bugsy Siegel would be proud. And Jay Nixon will be waiting.

--With reporting by Dick Thompson/Washington

With reporting by Dick Thompson/Washington