Environment and Planning A 2003, volume 35, pages 1245 ^ 1260
DOI:10.1068/a35106
Chips, bits, and the law: an economic geography of Internet
gambling
Mark Wilson
Geography/Urban and Regional Planning and Institute for Public Policy and Social Research,
Michigan State University, East Lansing, MI 48824-1111, USA; e-mail: [email protected]
Received 8 April 2002; in revised form 9 October 2002
Abstract. Online gambling offers valuable insights into the relationship between real and virtual
places. Gambling in most countries is highly regulated, with its geography reflecting the licensing of
gambling to specific activities and locations. The ability to use the Internet challenges the legal
foundation for gambling by offering access in an efficient and private way from distant locations.
The heaviest concentration of gambling websites is found in North America and the Caribbean, with
the leading locations for gambling-domain-name registrations being the United States, Canada,
Antigua and Barbuda, Costa Rica, the United Kingdom, and St Kitts and Nevis. In this paper I
explore the location and operation of Internet-gambling websites, with emphasis on the legal and
economic geography of this activity.
Introduction
Gambling is a common activity found in many of the world's societies and cultures,
yet as a legal industry it has a very specific economic geography because of its
political, cultural, and economic characteristics. Gambling can and does take place
whenever and wherever people are willing to risk money on the outcomes of events.
In this definition, gambling is an informal activity that has a broad geography
associated with those people who choose to bet on an outcome. In contrast, gambling
as an industry is often legally constrained to specific activities and locations, and its
geography is defined by regulation and public policy. With legalized gambling being
traditionally a creation of policy that is usually location specific, the ability of the
World Wide Web to expand the reach of services provides new opportunities to offer
gambling to a wide market.
The linking of computers and telecommunications is changing the spatial relationships of production and marketing by decreasing the friction of distance and by
enhancing the flow of information and capital. Bakis et al (1994), Brunn and Leinbach
(1991), Cairncross (1997), Castells (1996), Hepworth (1990), and Kellerman (1993), for
example, focus on ways in which telecommunications are remaking the global economy
and information society. These scholars, among others, initiated thought about the
meaning of distance and place in terms of economic geography. The impact of information technologies and the geography of cyberspace also draw from analysis of global
regulatory landscapes (Hudson, 1998) and from the distinction between the boundedness of economic activity and legal jurisdiction. More recently, legal scholars have
started to analyze how the Internet is shaping the application and meaning of laws.
Among the issues analyzed are questions associated with intellectual property and
digital content online, the privacy and identity of individuals and information, and the
ability to apply territorially based laws to cyberspace. In trying to capture the complexity of law in cyberspace, Biegel (2001, page 28) suggests that there may be many
different `cyberspaces' for legal purposes:
``Indeed, at the turn of the century, the Internet can be viewed as ... a library, a telephone,
a public park, a local bar, a shopping mall, a broadcast medium, a print medium, a
medical clinic, a private living room, and a public educational institution.''
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The Internet can also be used as a casino. Online gambling provides a rich case
study of Internet issues as it involves the contrast between the seamless and global
appearance of the World Wide Web and the place-based realities of the law. The
Internet often offers the look and feel of an extraterritorial phenomenon, somehow
disconnected from the physical and traditional realms that until recently shaped our
actions and behaviors. But, far from being divorced from place, online gambling is a
product of the unique institutional conditions created by governments through policy
and the legal system, and as such is very much the product of specific locations. The
case of online gambling and the resultant legal issues of applying place-based laws to
cyberspace activities illustrate how institutions are changing their outlook because of
the Internet, and how existing laws are creating a distinct Internet geography for
online gambling.
Legal gambling is an artificially created industry because it takes a common
practice, placing a bet, and determines how and where the activity may take place.
The legal structure of gambling makes it an excellent candidate for Internet application, which allows gambling to be accessed from places where it was not possible to
access it in the past. Internet gambling provides a valuable case study of industrial
adaptation and public policy because it provides a direct challenge to the established
structure and control of the industry. An example of online gambling is Casino
Australia, which has a name suggesting Australia, a domain name registered in New
Hampshire in the United States, and a website based in the Netherlands Antilles.
Similarly, Casino Lima Rio is registered as a domain name in Florida and the website
is located in Costa Rica, while VegasLand Casino has its domain name registered in
London in the United Kingdom, its technical contact at Yahoo in the United States, its
financial base in Antigua, and its website in the United Kingdom.
Online-gambling websites are made to appear to be part of the mainstream businesses in their markets, yet frequently are located offshore to avoid legal restrictions.
For example, many Caribbean-based Internet-gambling websites are oriented to the
United States. These sites are made to appear as if they are based in the United States
in several ways, such as by avoiding reference to currency exchange and by presenting
transactions only in US dollars, and by using toll-free telephone numbers with 800 and
866 area codes common to US-based toll-free systems. Online gambling tends to be
concentrated in countries and regions that allow and encourage this form of economic
activity, such as Antigua, Costa Rica, and Panama. In addition, in the United States
and Canada, states, provinces, and Indian reservations also have different regulatory
frameworks for online gambling.
Before continuing it is valuable to clarify terms used in this analysis of Internet
gambling. Traditional `bricks-and-mortar' gambling facilities are now often termed
`terrestrial operations' in contrast to the online form of Internet gambling. Also, the
term `gambling' is used rather than `gaming' for several reasons. First, `gambling' better
captures the risk associated with the action, whereas the industry has moved over the
past decade to use the term `gaming' with its connotation of entertainment rather than
risk. Second, in the context of cyberspace, gaming is more accurately associated with
online multiuser games than with gambling. To illustrate the evolution and geography
of online gambling, I begin by discussing the role of the law and regulation in shaping
the spatial distribution of online gambling, followed by an examination of the nature of
online gambling. I then turn to a discussion of the worldwide distribution of the
industry and a case study of the leading online locations drawn from a location
analysis of almost 1200 online-gambling websites. In the concluding section of the
paper I address current issues and trends associated with online gambling.
An economic geography of Internet gambling
Gambling and the law
1247
Gambling as an industry is the creation of a legal environment that determines most of
the parameters of behavior. The regulation of gambling emerged for ethical and moral
reasons of concern for citizen welfare, as well as to support an industry that provides a
consistent and growing source of tax revenue and economic activity. The location of
terrestrial-gambling facilities is usually the product of legislation that creates regions,
districts, or specific locations where gambling may legally occur. Examples include
legalized gambling offered by many casinos in the US state of Nevada, or within
Atlantic City, New Jersey, and casinos as the sole legal gambling facility in cities
such as Zandvoort (Netherlands), Brisbane (Australia), Seoul (Korea), and Estoril
(Portugal). Before the Internet, the regulation of gambling was able to shape the
industry and to provide a national-level and state-level tool for social welfare and
economic development by allowing gambling to be confined to specific areas. Controlling locations also afforded authorities some protection from gambling opponents by
limiting the geographic areas where gambling could take place.
Terrestrial casino gambling is characterized by physical attributes, such as the need
to travel to, and to be in, a gambling establishment at a time when it is operating and to
use money or chips to gamble. Regulation determines the types of casino games offered
and the conditions of playöincluding the age and sometimes the nationality of the
player. Even common and widespread forms of gambling, such as lotteries, require that
one meets age requirements and visits a location with the legal right to sell tickets. In
contrast, online gambling is an electronic experience that transcends time and place,
and avoids the physical use of money. Terrestrial and online gambling exemplify
Negroponte's (1995) distinction between the atoms of the physical world and the bits
of the electronic world. Online gambling operates as a completely electronic act; there is
no need for any physical exchange of money or products. As gambling takes place as an
exchange of `bits', it is well suited to the Internet. The control mechanisms of legalized
gambling in the past depended upon the ability to limit access and participation to age,
time, and place. As an electronic activity, these factors need no longer apply, which
dramatically changes the physical foundations of the legal control of gambling.
At the core of the legal issues associated with online gambling is the concept of
jurisdiction, which concerns the applicability of a law to a person or for a specific
matter. Questions of jurisdiction arise when there is uncertainty about applicable laws
and about which are the appropriate courts to deal with legal issues. As laws are based
upon the power of government, which has well-defined geographic boundaries, there
has evolved a body of precedent in the legal system to determine how laws are applied.
Mickens (2001) starts her analysis of legal jurisdiction in cyberspace by noting that
laws have always been organized around place, yet the meaning of place in cyberspace
fails to carry the same legal significance. Johnson and Post (1997, page 4) refer to the
1909 decision in American Banana Co v United Fruit Co (213 US 347, 357, 1909) when
the court concluded ``All law is prima facie territorial'', and proceed to portray the
Internet as ``... undermining the feasibilityöand legitimacyöof applying laws based
upon geographic boundaries''. The case of online gambling is a good example of how
the Internet is challenging the feasibility of existing law. Jurisdiction issues arise both
for the gambling firm and for the users of the site. Most significant for the legal
process is the determination of where the gambling occurs: at the location of the
user, at the location of the firm, or in some other jurisdiction.
Before I address online gambling specifically, it is valuable to discuss Internet
jurisdiction issues in general as early cases are shaping current legal decisions.
Scholars of US law point to several cases in the United States as central to the
shaping of legal thought on US Internet issues. Mickens (2001) refers to International
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Shoe Co v Washington (326 US 310, 1945), which deals with defendants who are not
physically present in a jurisdiction. The case finds that jurisdiction applies if the
defendant has had minimum contact with the territory, and that the suit does not
conflict with a sense of legal fair play in other jurisdictions. Jones (1999) notes the
importance of fair play, indicating that the jurisdiction with the greater claim should
have precedence in a suit. Early Internet cases that utilized this decision include
United States v Thomas (FED App. 0032P, 6th Cir., 1996), when a federal agent in
Tennessee downloaded pornography from a website based in California and the
website was indicted in Tennessee. The court decided that the action had an impact
in Tennessee, and its jurisdiction would apply. In Playboy Enterprises v Chuckleberry
Publishing (79 Civ. 3525, SAS, 1996) the court found that an Italian website was distributing
material to US residents in violation of trademarks held by a US firm, and although the
court could not prevent the website from operating it could prevent it from distributing
material to those living in the United States (Wilske and Schiller, 1997).
In their discussion of international Internet jurisdiction, Wilske and Schiller (1997)
identify five principles that shape international law and its application to cyberspace.
First, the territoriality principle gives states the right to control conditions on their
territory, which would give a government authority over local web content and over
links to computers elsewhere. Second, the nationality principle gives states the right to
regulate the conduct of citizens at home and, in some cases, elsewhere. This principle
would give a country or jurisdiction the right to prohibit residents from using specific
classes of website, such as gambling websites. Third, the effects principle can be used
when an act in one jurisdiction causes harm in another. Fourth, the protective principle allows a government to protect its own functions even when the action takes place
outside its territory, such as computer hacking or espionage. The fifth principle of
universality applies to crimes that are internationally accepted as wrong, such as
crimes against humanity.
The regulatory environment for traditional bricks-and-mortar-based gambling in
many countries limits the conditions and locations of this activity, and was a particularly attractive target for Internet commerce. With the evolution of the World Wide
Web, offshore locations could offer online gambling to a wide audience that could not
access such activities locally or as conveniently. Also important, minimum-age limits
for gambling could also be easily bypassed through Internet services. Internet gambling
contrasts two opposing elements of law. The territoriality principle means that onlinegambling websites are legal if the business and server are located in a country or
jurisdiction where such commerce is legal. There is little that a country, such as the
United States, can do to oppose commerce in another country which is legal in that
location. A common response to the legal problems of offshore gambling is to prohibit
residents from using such sites. The legal problem then moves from being a case of
identifying and prosecuting website owners, to identifying and prosecuting a far larger
population of residents. More recently, countries have legislated that firms should not
serve residents; for example, Australian law allows online gambling in that country as
long as residents cannot access the services. This type of legislation places responsibility
on the website to exclude specific groups, identifiable by their IP addresses.
Although gambling websites were initially resistant to regulation, there has been
growing support for some regulation of gambling websites in locations such as Antigua
and Barbuda and the Netherlands Antilles. A lightly regulated gambling industry can
point to government monitoring of games, practices, and equipment, and thereby offer
reassurance to gamblers that industry practices are consistent and honest. Antigua has
established controls and procedures to monitor firms and offer processes for dispute
resolution. One of the few ways that online-gambling sites can emphasize their legitimacy
An economic geography of Internet gambling
1249
is through regulation by a recognized government. A regulated industry also becomes a
source of revenue for government and encourages future development as concentrations of
the occur.
Terrestrial gambling versus online gambling
Online gambling contrasts with traditional legalized gambling in several ways, particularly
in terms of start-up cost, licensing, and regulation. Traditional forms of gambling face
considerable start-up costs, such as physical capital investments in buildings and
equipment. Recent casino and hotel developments in Las Vegas range from US $60
million to over US $1 billion (Las Vegas Convention and Visitors Authority, 2002), and one
slot machine costs approximately US $5000 and casinos often have hundreds or even
thousands of slot machines in their facilities. In addition to capital costs, licensing fees
are also significant expenses. In Nevada a nonrestricted gaming license includes taxes and
fees of US $330 per slot machine; an annual license fee of US $100 ^ 200 per game; a
monthly fee of 3% to 6.25% of gross gaming revenue; and an entertainment tax of 10% on
revenue from food, refreshments, and merchandise (Nevada Gaming Commission, 2002).
The regulation of casinos and gambling facilities in the United States also involves
extensive screening of all investors and principals in a gambling firm, with the aim of
limiting the access of organized crime to the financial system of gambling and its potential
for money laundering.
In contrast, online gambling has low start-up costs and few barriers to entry.
Programming, server, and Internet connectivity costs are very low for online sites,
and full online systems can be purchased from software producers. Schone (2000)
writes of a gambling-website start-up in Belize with a budget of $150 000, the cost
of 30 slot machines in a traditional casino. Background screenings tend to be far
less stringent in some offshore locations, and online license fees are also far lower
than for physical properties. An online-gambling website based in Antigua and
Barbuda pays an annual fee of US $75 000 for a virtual casino and US $50 000
to produce a sports book (Directorate of Offshore Gaming, Antigua and Barbuda,
http://www.dirgaming.gov.ag/). In the United Kingdom, betting on horse racing by
telephone or Internet is subject to a 15% tax paid by bookmakers on gross profits
(HM Treasury, 2001a), whereas online gaming based in Vanuatu pays an annual tax
of 2.5% of net gaming revenue (Interactive Gaming Consultants, 2002)
Although achieving considerable cost-savings and avoiding the level of regulatory
oversight common in the United States, online-gambling sites also must confront a
number of disadvantages that traditional gambling venues do not. Established traditional firms have spent decades developing brand names and images to attract
gamblers. It is much harder for online sites to build brand loyalty, especially if they
do not have the physical presence of a hotel or casino to anchor their identity.
Consumers are wary of Internet commerce, so online sites need to show their
legitimacy, which is often achieved by providing testimonials by gamblers, audit
reports on the accuracy of their games, and toll-free telephone lines for information
and problem resolution. Still, consumers remain reticent to gamble online, with a
Greenfield Online (2001) survey finding that a third of its sample had visited
a gambling site and that over half of this group were concerned about the security
of their money and the likelihood of receiving any winnings.
The mechanics of online gambling
Gambling online is a highly profitable and rapidly growing component of e-commerce. Janower (1996) traces the first Internet-gambling site to August 1995 when
Internet Casinos Inc. started with 18 online games. Since that time the industry
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has expanded to 1200 ^ 1400 sites (Bear Stearns, 2001) and revenues of US $6.7 billion
(Datamonitor, 2001). The industry is growing rapidly, with escalation in the use
of gambling sites as consumers become more familiar with online commerce,
and as gambling websites become more sophisticated in attracting gamblers and
reassuring them about their legitimacy. The scale of gambling is exemplified by the
case of World Sports Exchange, an Antigua-based online-gambling site that receives
over 100 bets per minute on busy sports weekends (Pascual, 2000). Online gambling
offers a way to reach a global market, with easy market entry and low operating
costs, and, as such, challenges the foundation of the existing industry. The mechanics
of online gambling include three major factors: a domain name, site identity, and a
server to house the site; the gambling software powering the site; and facilities for
financial transactions.
Domain names and online identities
Gambling websites present identities through domain names and site design, conveying
as directly as possible the focus of the site and often an association with terrestrial
gambling locations. Domain names are obtained through registration with one of
several dozen currently authorized services, at rates from US $25 annually. Identity in
a crowded online market for gambling requires easy-to-remember names and investments in links from portals, directories, and nongambling websites. As is common in
e-commerce, gambling websites pay for visitors linking to their site. Domain names for
gambling websites are often associated with games (blackjack, slot machines, cards,
roulette), terrestrial or exotic locations (Las Vegas, Monte Carlo, the Caribbean), or
common casino names (Lady Luck, Silver Dollar, Lucky Streak). Online, gambling
sites attempt to capture physical casino attributes of visual and musical stimulation,
and to keep consumers using one website or a related series of websites owned by the
same organization. To attract and keep gamblers, sites seek more sophisticated games
and use advanced graphics that present a far more visually stimulating site than usually
occurs for e-commerce applications.
Domain names represent addresses that are directed to servers, containing website
information, and the owners of the domain name choose where to house their site.
Domains are separate from servers in that the name does not have to be permanently
attached to one server, but can be readdressed to another server when needed. The
owner of a domain name can choose to have the name address a local or distant server,
leading to different geographies of domain-name ownership and to the servers with
which the names are associated. This distinction is particularly important when analyzing online gambling as domain names may be registered in one country, such as the
United States or Canada, while the server for that address is located in Antigua,
Curac°ao, or the Isle of Man.
Analysis of domain-name registration data, and samples of sites in major locations, suggests four models for online gambling: legalized online gambling, directory
or forwarding sites, special-case gambling, and countries with an ambiguous legal
standing for gambling. Each of the four forms is discussed below.
Legalized online gambling refers to locations where there is explicit legislation
that makes online gambling legal. Approximately seventy countries have legislation that
allows some form of online gambling. To date, legislation has taken several approaches,
such as specifying a subset of gambling as legal (casino games, sports, horse racing, etc) or
detailing classes of legal usersösuch as people aged twenty one and over. For example, a
number of European countries allow online gambling only in the form of the national
lottery, or gambling is limited to one or several sites with government approval.
An economic geography of Internet gambling
1251
Directory or forwarding websites list online-gambling sites and often add an
evaluation or assessment of the quality and odds offered at each site, or simply serve
to forward the visitor to another website. Directory or forwarding sites are often
found in countries that do not allow online gambling, but link visitors to servers
offshore where gambling can take place.
Special cases occur where unique local conditions allow gambling in a country where it
would otherwise be illegal. The most common example of special cases is Native American
and First Nation territories in the United States and Canada, which have a unique or
uncertain legal ability to establish gambling on tribal lands, and, by extension, have the
potential to have servers on their territory (Hammer, 2001; Siegel and Anders, 2001).
Ambiguous legal climates are common in many countries that have not legislated, or do
not want to legislate, online-gambling behavior. The absence of regulation allows
or encourages gambling websites to exist.
Gambling software
Gambling websites often feature games traditionally found in existing casinos, such as
card games (poker, blackjack) and slot machines. One element of gambling websites
that focus on the US market is betting on sports events, which is highly limited in the
United Statesöwhich offers few legal outlets for sports gambling. Online gambling
works in several ways, through downloaded software for casino games or through Javabased and HTML-based systems. The software for online gambling can be purchased
as a complete package, and the firms developing the software are creating a brand
identity for their games and accuracy. The software firms that develop online games
use the rhetoric of entertainment and excitement to describe their products while also
emphasizing their fast download speed and bandwidth efficiency. Software firms often
offer turnkey systems that include site design and identity, casino games or sports
betting only, and built-in financial links. For example, Microgaming was founded in
1994 and is located in the United Kingdom and the Isle of Man. The firm has the
largest installed base in online gambling, which uses software for casino games and
financial transactions, and employs PriceWaterhouseCoopers to audit probability
and payout percentages.
Financial structure
Gambling websites require registration of users and advance deposit of funds for
gambling, usually though the use of a credit card or electronic transfer of funds from
banks or online financial services. Winnings are returned in a similar fashion, through
credit cards or online transfers, although many sites limit the amount and frequency
with which winnings are returned. Gamblers may find that, despite having a positive
balance in their online account, the website will limit withdrawals of winnings to a set
amount, such as US $500 or US $1000 per month. The preferred currency for online
gambling is the US dollar, and even though other currencies may be accepted the US
dollar is the dominant currency used for gambling. Many websites do not specify
currency and assume the gambler knows that the US dollar is the basis for transactions.
The movement of money is central to the operation of an online-gambling website,
with a wide range of monetary transfers used online. Credit cards are convenient and
are the preferred way to transfer funds, but Simpson (2001) notes that credit-card firms
face greater cost and risk with online gamblingöparticularly the cost associated with
charge-backs, when consumers claim a service was not provided and seek to cancel
a charge from their credit card. In addition, the rate of fraud is far greater for online
gambling than for e-commerce in general. Credit-card issuers charge high rates to
online-gambling sites, from 4% to an established firm to 9% for a new site that has
no track record with credit cards. These rates are two-to-five times greater than the
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usual costs for online and retail transactions. Online-gambling transactions now carry
special codes that allow banks to decide whether or not to accept charges from a
cardholder. After several legal suits against banks and credit-card firms, along with
high security costs, the banking industry has limited the use of some credit cards so
that they cannot be used for online gambling. Increasingly, gambling websites will note
that common credit cards (such as Visa and Mastercard) cannot be used to open an
account, or that their use will incur additional charges.
As credit-card issuers charge more for, or no longer allow, transactions with onlinegambling sites, alternate electronic transfers are emerging as the preferred means for funds
transfer. Firms such as PayPal, Neteller, FirePay, and Citadel serve as intermediaries for a
wide range of e-commerce transactions, including online gambling. These financialservices firms act as banks inasmuch as they hold funds (deposited from checking
accounts, credit cards, etc) and can be used for online transactions with merchants who
also hold accounts with the same firm. As FirePay notes on its website, ``Use your account
to pay any business that accepts FirePay, without revealing your credit card details or
payment history'' (http://www.firepay.com) This method of financing online gambling is
also in flux as one of the leading funds-transfer firms, PayPal, recently excluded gambling
sites from its system. Online-gambling websites also contract out responsibility for handling financial transactions to one of several financial-services firms specializing in online
financial systems, such as EFS Caribbean, VirtualExchange, and CPC Cyber Processing
Corporation. These firms have their operations in Antigua and Barbuda, although EFS
Caribbean has its domain name registered from Vancouver and VirtualExchange lists its
domain administrator in Toronto.
Location of online gambling
Terrestrial-gambling facilities are often easily identified by their garish neon lighting or
dramatic architecture, but finding the location of an online-gambling operation is far
more difficult. Online-gambling sites rarely make their location apparent and often
conceal their country of operation. Analysis of the leading locations for domain names
suggests that gambling sites registered in the United States are least likely to have
information about their location, whereas sites in Canada and the United Kingdom
are more likely to have some geographic information on their sites, even if it is in
obscure positions within the site. The websites usually list contact information in the
form of toll-free telephone numbers or e-mail addresses, which reveal little about their
location. Also, most sites omit a mailing address for their firms. To complicate matters,
gambling websites often represent several locationsöwith domain names registered in
one country and websites located on servers in other countries. Location can, therefore,
be read in several ways depending on the attribute of analysis. In this study the focus is
on the ownership and location of domain names identified as gambling websites.
To map the geography of Internet gambling a data set was compiled from online
directories, and 1122 sites were identified in June 2001. The database was designed to be as
complete as possible and includes domains collected from lists and directories of gambling
websites, but the lack of a clearly defined universe of such sites limits the conclusions that
can be drawn from results. The location of these gambling websites was investigated
by using the Whois database (http://www.networksolutions.com/en US/whois/index.jhtml)
to identify the owner and address of the domain name, and additional analysis used
traceroute software and website investigation to find the location of servers or business
operations. Domain-name data were provided for the author's database by Zook, who has
developed protocols for utilizing Whois registration data (2000).
The domain names themselves do not reveal much on the surface as almost all
gambling websites use generic top-level domain names rather than country-code top
Table 1. Online-gambling domains by country and major urban concentration 2001 (source:
author's data; Whois directory http://www.networksolutions.com/en US/whois/index.jhtml).
Country
Number
of sites
% of
total
Anguilla
Antigua
Argentina
Armenia
Australia
Austria
Bahamas
Belgium
Belize
Bosnia
Bouvet Island
Brazil
British Indian Ocean Territory
British Virgin Islands
Canada
4
110
1
1
16
1
11
1
6
2
1
1
1
20
253
0.4
9.8
0.1
0.1
1.4
0.1
1.0
0.1
0.5
0.2
0.1
0.1
0.1
1.8
22.5
Cayman Islands
Cook Islands
Costa Rica
Cyprus
Denmark
Dominica
Dominican Republic
France
Germany
Gibraltar
Greece
Grenada
Haiti
India
Israel
Japan
Korea
Namibia
Netherlands
Netherlands Antilles
New Zealand
Panama
Philippines
Romania
Russia
St Kitts and Nevis
Saudi Arabia
Singapore
South Africa
Spain
Sweden
Switzerland
Trinidad
Turkey
Turks and Caicos
United Kingdom
United States
5
3
90
8
2
6
3
10
2
3
1
2
33
1
8
1
1
4
2
9
1
39
1
1
2
61
2
1
22
3
1
1
2
3
1
73
278
0.5
0.3
8.0
0.7
0.2
0.5
0.3
0.9
0.2
0.3
0.1
0.2
2.9
0.1
0.7
0.1
0.1
0.4
0.2
0.8
0.1
3.5
0.1
0.1
0.2
5.3
0.2
0.1
2.0
0.3
0.1
0.1
0.2
0.3
0.1
6.4
24.8
9
0.8
Venezuela
Total
1122
Major concentrations
Brisbane 5
Nassau 5
Belize City 6
Montreal 108, Toronto 37,
Winnipeg 32, Quebec City 24,
Vancouver 17
San Jose 84
Roseau 5
Port au Prince 26
Willemstad 5
Panama City 39
Basseterre 47
Durban 12
London 25
MiamiÐFt. Lauderdale, 29,
Los Angeles 28, Las Vegas 24,
Denison, Texas, 18, San Diego 13,
San Francisco 10, Wadsworth, Ohio, 8
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level domain names. Of the gambling websites analyzed for this paper, the most common
domain was .com, with fewer than 3% being .net, .org, or having a country-level domain.
The location of gambling websites by country and major urban concentration derived
from the Whois database is presented in table 1. The heaviest concentration of gambling
websites is found in North America and the Caribbean, and several European countries
have legalized online gambling. In terms of the number of sites, the leading locations for
gambling-domain-name registrations are the United States (278 sites; 24.8% of all sites)
and Canada (263 sites; 22.5% of all sites), followed by Antigua (110 sites; 9.8% of all
sites), Costa Rica (90 sites; 8% of all sites), the United Kingdom (73 sites; 6.4% of all sites)
and St Kitts and Nevis (61 sites; 5.3% of all sites). When presented in terms of population,
the most intensive online-gambling activities take place in Antigua, which has one
gambling website per 610 residents. Other concentrations occur in St Kitts and Nevis
(one site per 650 residents), the British Virgin Islands (one site per 1050 residents), and the
British Indian Ocean Territory (one site per 3000 residents). In comparison, the ratio for
Canada is one site per 122 000 residents, with one site per 825 000 in the United Kingdom,
and one site per million residents in the United States. Each of the major locations for
online gambling is analyzed below.
The United States
The United States represents a complex case as it contains many state jurisdictions and
Native American jurisdictions with an interest in shaping the structure and form of
online gambling. Generally, online gambling is generally considered illegal, although
different states have varying levels of concern about the activity. Some states are
aggressive in their enforcement of laws, while others have not been active. Even though
it is illegal to gamble online, winnings remain taxable by the Internal Revenue Service.
In 1998, the state of New York charged 22 website operators with violating the 1961
Wire Wager Act, which prohibited use of telecommunications for gambling purposes
(Pascual, 2000). The act was originally passed to prevent the use of telephones to make
bets but has been interpreted to be applicable to the Internet. The websites targeted by
the suit were offshore and the operators responded that they were legal in their
locations. Almost all of those charged remain outside the United States and the only
conviction occurred when an operator was arrested while visiting the United States.
Given the legal environment in the United States, which generally opposes online
gambling, it is surprising that the United States is home to more gambling websites than
any other country. Of the 278 domains registered in the United States almost all are
.com, with 19 .net and 2 .org, and have wide-ranging ownership as no single entity
registers more than 7 domain names. The leading concentrations of domain ownership
occur in MiamiöFt. Lauderdale, (29 sites), Los Angeles (28 sites), and Las Vegas
(24 sites), which may be accounted for in terms of strong ties to Caribbean locations,
entertainment, or terrestrial-gambling operations, respectively. The unexpected concentration in Denison, Texas (18 sites) is associated with registrations by 3 firms, while
Wadsworth, Ohio (8 sites) has 7 sites registered by one organization.
Domain-name records show many websites registered in the United States, but, as
gambling online is illegal in that country, additional analysis was undertaken to
determine the legal status of US gambling domains. Use of website analysis and
traceroutes reveals that many websites registered as domains in the United States serve
as legal directories to offshore-gambling sites or link directly to gambling sites in legal
jurisdictions. Table 2 lists the purpose or final destination of gambling domains registered in the United States. Of the 278 US gambling domains, 56 sites are off-line or
reserved for future gambling operations and 105 serve as directories forwarding visitors
to other gambling sites and do not offer gambling directly. Almost one third of
An economic geography of Internet gambling
1255
Table 2. Function and location of US-registered gambling domain names 2001 (source: author's
data; Whois directory, http://www.networksolutions.com/en US/whois/index.jhtml).
Website function or location
Number of sites
Antigua
Bahamas
Canada
Comoros
Costa Rica
Curacao
Cyprus
Directory
Dominican Republic
Grenada
Hong Kong
Offline
Panama
St Kitts and Nevis
Turks and Caicos
United Kingdom
Unknown
39
1
13
1
19
14
2
105
1
2
1
56
1
2
1
3
17
Total
278
US sites (80 domain names) are hosted in the Caribbean, with the leading locations
being Antigua (39 sites), Costa Rica (19 sites), and Curac°ao and Netherlands Antilles
(14 sites). US domains are also hosted in a range of locations including Canada, Hong
Kong, Cyprus, and the Comoros. No geographic identification could be found for
17 sites.
Initially the US terrestrial-gambling industry and state lotteries were generally
opposed to legal online gambling in the United States. As the popularity of the Internet
has grown and the offshore industry has expanded and become more sophisticated
there have been recent shifts in attitudes towards legal online gambling, with some
interest in using the Internet to compete with offshore sites. One example of the
reversal of roles in the United States is the partnership between Las Vegas-based
MGM Mirage and Silicon Gaming to develop websites with free games that advertize
the Las Vegas properties of the partnership and prepare it and the public for domesticgambling websites in the United States (McDonald, 2000). In June 2001, Nevada
enacted legislation that allows for the licensing of online gambling for resort hotels
and enterprises holding nonrestricted licenses (Nevada Legislature, 2001). The nature
of the legislation is to protect the existing industry by giving it sole rights to online
gambling, while preventing the legalization of Internet-only gambling operations. In
September 2002, MGM Mirage announced it would establish its first online-gambling
website on the Isle of Man and would offer blackjack, roulette, and craps to gamblers
located outside of the United States (Richtel, 2002).
Canada
As of late 2001, Canada did not have any national or provincial legislation dealing
specifically with online gambling, although there is also no explicit prohibition
against individuals gambling online (Canada West Foundation, 2001). Of the 263
gambling domain names registered in Canada most are .com, with 13 .net, and 7
.org. There are no gambling sites that use the country-code top-level domain of .ca.
Ownership of domains is more concentrated, with 9 individuals or organizations
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owning 5 or more gambling domains; the 2 leading owners own 30 and 18 names,
respectively. Most names are registered from the Province of Quebec, with Montreal
being the leading city worldwide ö with 108 domain names registered. The primacy of
Montreal can be accounted for by 4 major organizations that hold 46 domain names
between them. A similar pattern occurs for other cities in Canada, with Toronto
(37 sites), Winnipeg (32 sites), Quebec City (24 sites), and Vancouver (17 sites) having
concentrations of domain-name ownership held by several organizations in each city.
The Canadian industry shares some similar characteristics with the United States
in that many Canadian gambling domains serve as directories or forward visitors
offshore to sites and servers in the Caribbean. One significant factor in Canada is the
Mohawk Territories of the Kahnawake, located 9 miles (15 km) from Montreal,
which has in place policies for interactive gaming and a Can $10 000 annual
license fee Kahnawake Gaming Commission website, http://www.kahnawake.com).
The Kahnawake Gaming Commission was established in 1996 and in 1999 enacted
regulations for the control of online gambling. The commission has licensed almost
40 gambling sites, which are hosted by Mohawk Internet Technologies on servers in
Kahnawake, although not all of the domain names are registered in Canada.
Although the Mohawk Territories claim the right to license gambling, the Province
of Quebec disagrees and has started an investigation into the gambling operations of
Kahnawake (Moore, 2001).
Antigua
Antigua and Barbuda was an early location for online gambling because of its wellestablished telecommunications infrastructure and reputation as a tax haven. There are
110 domain names registered in the country, with 108 being .com and 2 with .net
suffixes. Ownership of domains is concentrated, with 8 organizations having more
than 5 domains, and the largest holding 20 gambling domain names. Not all domains
registered in Antigua use hosts in that country, and some Antiguan registered gambling
domains are hosted on other Caribbean islands such as St Kitts and Nevis. Antigua is
a common destination for domains registered in the United States and Canada, and
has evolved over the past decade as a leading center for online gambling. At first,
gambling tended to focus on telephone betting from the United States, and later it
developed along with the Internet as an online-gaming center.
The government of Antigua and Barbuda sought to encourage economic development and to diversify its tourism industry through a series of policies during the 1990s.
In 1994, a free-trade zone was established offering incentives for firms to locate and
operate in the zone. Although the Internet was in its infancy when the zone was
established, the language of the legislation suited the zone for online commercial
activities. In 1999, Antigua established a regulatory body with responsibility for licensing and monitoring offshore gaming. The Directorate of Offshore Gaming monitors
online gaming software for accuracy as well as enforcing financial regulations about
financial transactions and the recording of gaming revenues. The directorate also has a
toll-free consumer telephone line for reporting problems with Antigua-based online
websites. The government of Antigua and Barbuda emphasizes the legitimacy of its
online-gaming industry, and uses the website of the Directorate of Offshore Gaming
(http://www.dirgaming.gov.ag/) to detail government policies about online gambling
and also to receive complaints about Antigua-based online-gambling firms. The government provides a `preferred seal' for websites to display to show they meet all licensing
requirements.
An economic geography of Internet gambling
1257
Costa Rica
Costa Rica developed an offshore-gambling industry around telephone-based sports
betting, focusing on the US market, and has evolved as a location for Internet
gambling. There are 90 gambling domains registered in Costa Rica, with almost all
(84 sites) located in the capital, San Jose. Almost all domains are .com, with 2 .net, and
one .org. The concentration of the industry is moderate, with 4 organizations holding
at least 5 names, and the largest holding 17 domain names. Many domains registered
from Costa Rica forward to gambling websites throughout the Caribbean, with the
most common locations being Antigua and St Kitts.
The ambiguous context for online gambling is evident for the industry in Costa
Rica, which has established the legal interpretation that servers are neutral and that
gambling is not considered to take place if residents of the country cannot access the
website. Gambling websites based in Costa Rica block access by residents, and therefore, in the eyes of the law, there is no online gambling occurring in Costa Rica. The
country has less-developed telecommunications infrastructure compared with some of
the other Caribbean locations, but its lack of licensing regulation is seen by some
websites as an attractive element (Varney, 2000).
United Kingdom
The United Kingdom is the leading home for gambling domains registered in Europe,
with 73 domain names having British addresses. Of the domains, all but 2 are .com and
2 are .net domains. Ownership is concentrated: 2 organizations own more than half of
the UK domains. Pacific Casino owns 22 domains and Winter Marketing owns 19
domain names; Winter Marketing is based in Wales and markets online casinos
through its ``Own a Casino'' program, which creates the website for an online casino
that is then promoted by the client. British-registered gambling domain names share a
similar pattern to those of the United States and Canada in that many domains
forward to offshore locations, especially in Antigua and Barbuda. This may well
change as gambling legislation is changed.
In March 2002 new legislation was proposed to update gambling laws that had
remained largely unchanged in 40 years (Department for Culture, Media and Sport,
2002). Under the proposed changes in legislation it will be possible to develop large
terrestrial casinos and also to establish online gambling in the United Kingdom. The
government sees legalization of online gambling as a way to develop a new export
business:
``Against this background of deregulation and proportionate consumer protections,
there is every reason to believe that Britain can establish a reputation for itself as a
world leader in the field of on-line gambling, just as it has with other types of
gambling'' (Statement 4.52, page 24).
St Kitts and Nevis
St Kitts and Nevis allowed legal online gambling through the Betting and Gaming
(Control) Act of 1999 (St Kitts, 1999), which licenses Internet gambling for a one-time
fee and annual gambling tax. Of the domains registered from St Kitts and Nevis, all
but one is .com, and most names are registered in Basseterre. Half of all gambling
domains registered from St Kitts and Nevis are held by one firm, Global Interactive,
with 2 organizations holding 5 names each. Global Interactive is a developer of online
casinos and sport books and is based on St Kitts and Nevis, with branches in London
and Hong Kong.
The 6 countries referenced here account for more than three quarters of all
gambling-domain-name registrations. Conspicuously absent are domains registered
in major economies such as Japan (which had one domain in English licensed in
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Belize), France (which had 10 domains, of which 6 are offline, 6 are registered by one
firm, and all use English as the primary language, with 2 sites based in Luxembourg
and 2 in the Seychelles), and Germany (which has 2 domains, both in English, one
being a directory and the other a gambling site based in Antigua). On the other hand,
many countries with limited economic opportunities are emerging as locations
for gambling domains, such as Belize (6 domains), the Cook Islands (3 domains),
Cayman Islands (5 domains), Cyprus (8 domains), and Namibia (4 domains).
Conclusion
Examination of gambling websites reinforces the primacy of legal issues as the core
motivation for the location of the industry. The leading countries for domain registrations contain many directory or forwarding websites (such as Canada, the United
Kingdom, and the United States), or are centers for legal online gambling (Antigua,
St Kitts and Nevis), or benefit from an ambiguous legal climate (Costa Rica). At this
time the global geography of the online-gambling industry seems primarily driven by
legal issues, and the location pattern will change as the law responds to Internet
commerce.
Several trends and issues are evident for online gambling. Most significant is the
policy challenge of the ambiguous legal status of online gambling in many countries
and the lack of clarity as to where gambling takes place. Countries wanting to protect
their residents or their domestic-gambling industry must confront the flexibility and
legal offshore status of many online-gambling websites. The territoriality of law
makes the location of gambling a crucial issue, yet little progress has been made in
reconciling the location of gambling on a server offshore versus its location on the
computer of a gambler. For law-enforcement agencies, focusing on the websites is
attractive as it concerns far fewer parties: there are over 1000 websites in contrast
with millions of online gamblers. Territoriality remains significant, however, as the
websites are usually located offshore and under another legal jurisdiction that must
be respected. Attention now turns from controlling legal offshore websites to preventing
or redirecting domestic online gambling.
The position of gambling organizations is changing in terms of the legal status
of online gambling, with a slow reversal in attitudes held by terrestrial-gambling and
online-gambling firms. Terrestrial firms had originally opposed online gambling to
protect their investment in existing casinos; for example, legislation was put in
place in the United States and Nevada to maintain the status quo for casinos and
lotteries. In contrast, firms moved or were established offshore in order to benefit
from minimal regulation of their activities. Now, offshore firms often seek some
regulation as an indicator to gamblers of their legitimacy, such as licensing in
Antigua, whereas terrestrial firms accept online gambling and seek ways to benefit
from their brand identities ö exemplified by the recent establishment of online
gambling from the Isle of Man by Las Vegas casino MGM Mirage.
One element of concern for law-enforcement authorities in the United Kingdom
and the United States is the relationship between online gambling and crimeöin particular, the ability to use gambling websites as a way to launder money. The OECD Task
Force on Money Laundering maintains a list of noncooperative countries (OECD, 2002)
that includes the leading online-gambling locations. Among the top twenty noncompliant
countries are several online-gambling centers, such as Dominica, Grenada, and St Kitts
and Nevis. Antigua and Barbuda was also the focus of money-laundering investigations
as the online-gaming industry received little oversight initially, and Fineman (1997) writes
that secrecy laws and inadequate regulation of financial markets made the country
popular for money laundering and computer fraud. It was not until July 2001 that the
An economic geography of Internet gambling
1259
British Treasury was satisfied that antilaundering regulations were sufficiently strong
to allow it to end its financial advisory against dealing with Antiguan institutions
(HM Treasury, 2001b).
Just as Internet technology allowed the growth of online gambling, it may also hold
the technical answer to the legal issues associated with gambling online. Increasingly,
websites have the ability to identify the location of visitors and to determine access by
location. Cha (2002) gives the example of UKBetting.com, which prevents residents of
the United States, China, and Italy from accessing their service. Australia has recently
banned online gambling for residents but allows nonresidents to gamble at websites
based in Australia. The legislation has had the effect of sending the online-gambling
industry that targets Australians to Vanuatu and attracting websites that want to serve
the Pacific market outside Australia (Shulze, 2002). The Vanuatu websites will not allow
access by users from the United States, Canada, and Australia.
Online gambling is not yet seven years old, but has expanded rapidly and become a
familiar feature for browsers around the world. Most significant about the industry is
that its existence is based primarily on the territoriality of law and the artificial
geography of legalized gambling, and the ability of online gambling to utilize the
Internet to escape the geographic limitations set by government. The case study is
valuable as it offers insights into the challenges that the Internet provides to existing
conventions based on geographic jurisdictions. In reconciling the Internet and legal
issues of online gambling, the very foundation of the law itself becomes subject to
review.
Acknowledgements. This research has benefited from the assistance of Matthew Zook and use of
his Whois domain-name database and from the comments of Aharon Kellerman and two
anonymous referees.
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