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Online gambling a threat to global economy, U. of I. expert says

John Kindt
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College of Business

Gambling expert John W. Kindt says U.S. Rep. Barney Frank’s renewed push to overturn the decades-old ban on online gambling would put the nation at risk of an economic collapse.

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12/3/2009 | Jan Dennis, Business & Law Editor | 217-333-0568;

Legalized online gambling would fuel an epic surge of betting in the U.S., leaving lives in tatters and the world’s economy in jeopardy, a University of Illinois professor and national gambling critic warns.

John W. Kindt says U.S. Rep. Barney Frank’s renewed push to overturn the decades-old ban on online gambling would put the nation at risk of an economic collapse rivaling the 2007 sub-prime mortgage crisis that sparked a deep and lingering global recession.

“Barney Frank has been railing against the lack of regulation on Wall Street and now he’s trying to create an even more dangerous threat by throwing the prohibition against Internet gambling into the toilet,” said Kindt, a professor of business and legal policy who has studied gambling for more than two decades.

Frank, a Massachusetts Democrat who chairs the House Financial Services Committee, resumed hearings Thursday on legislation he sponsored that would lift the longtime ban on Internet gambling, allowing the Treasury Department to license and regulate online gaming companies that service American customers.

Legalizing online gambling and the firms that run it would create a potentially disastrous speculative bubble in U.S. financial markets similar to the sub-prime mortgage crisis, spawning fast-growing companies with exaggerated earnings expectations that far outstrip real value, Kindt said.

“I actually think a speculative bubble on Internet gambling would be worse because it’s based on nothing,” Kindt said. “With the sub-prime crisis, there was at least some real property involved. With online gambling, there’s nothing but people dumping money into their computers.”

Global markets have already seen the consequences, Kindt said. The London Stock Exchange, which permits trading of online gaming company shares, saw its value plunge by $40 billion in one day after the U.S. strengthened its ban on Internet gambling in 2006.

Online gambling also would “throw gasoline” on a recession that has already cut deeply into Americans’ savings and put more than 7 million people out of work, Kindt said.

“Money that should be spent on cars, refrigerators and other goods that build the economy and create jobs would instead be wasted on Internet gambling in every living room, at every work desk and at every school desk,” he said.

Kindt says Frank’s bill flies in the face of research that supports maintaining a ban that traces to the 1961 Federal Wire Act, pushed through by then-Attorney General Robert F. Kennedy to curb the flow of money for organized crime.

“In today’s world, that money-laundering threat also applies to terrorist organizations,” said Kindt, a contributing editor and author of the United States International Gambling Report Series, a 3,000-page collection released this year that includes hundreds of pages on the perils of online betting.

He says online gambling also would yield steep social costs, including gambling addiction, bankruptcies and crime.

The threat of addiction is especially high among younger people, who studies show are already twice as prone to gambling problems as older Americans, Kindt said. Studies estimate that about 4 percent of young people are addicted to gambling and 8 to 12 percent are problem gamblers.

“It’s getting worse and worse as gambling spreads and would soar if online gambling is legalized,” he said. “Internet gambling is known as the crack cocaine of creating new, addicted gamblers because it’s so accessible.”

Kindt says bankruptcy and crime rates also would balloon as people deplete family finances or raid their employers’ accounts to cover online gambling debts.

Thursday’s hearing on Frank’s bill comes less than a week after the Treasury Department and Federal Reserve postponed the effective date of new regulations that would strengthen the existing ban.

The new rules, which had been set to take effect Dec. 1 but were pushed back until June 1 of next year, would prohibit U.S. financial institutions from accepting payments from credit cards, checks or electronic fund transfers to settle online wagers. U.S. bettors have been estimated to supply at least half of the revenue of the $16 billion online gambling industry, which is largely hosted overseas.

Frank said the delay will give Congress time to overturn the Unlawful Internet Gambling Enforcement Act. He also sought to repeal the act but failed in 2007, just a year after Congress approved the measure.

He argues that online gambling should be legal as a matter of personal liberty and that the federal government could gain tax revenues if Internet gambling is allowed and regulated.

Kindt disagrees, saying the costs far outweigh the benefits.

“Online gambling should not be legalized for the same reasons that hard drugs remain banned,” he said. “The social and crime costs are enormous and if gambling is easy to access more and more people will get hooked.”

Editor's note: To contact John W. Kindt, call 217-433-0075.

View a video of John Kindt discussing online gambling on "First Business."

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