American comic Arthur Baer once said that "betting is pretty much like liquor: you can make it illegal, but you can’t make it unpopular."

This is very much the case with online gambling in the US where it is essentially illegal to set up an online gambling business, yet the majority of worldwide revenues are generated from US-based Internet users. eMarketer estimates that online gambling revenues worldwide totaled $10.9 billion in 2005, up from $8.5 billion in 2004.

Despite the fact that the Department of Justice has explicitly stated that it is illegal to set up an online gambling operation in the US, and by extension to advertise online gambling, confusing and sometimes conflicting state and federal laws have left room for a range of legal interpretation. However, there has been a renewed push from the government to curb online gambling activity.

First, a new bill was passed in the House of Representatives, aiming to limit Internet gambling by making it illegal for US-based banks and credit card firms to make payments to online gambling sites. It is unclear whether the Senate will pass the bill into law.

Second, the CEO of BetonSports, David Carruthers, was detained on July 17 and, along with several others from the company, indicted on charges of racketeering – running an illegal activity to make money.

BetonSports is a publicly traded company in the UK. It has gambling licenses in the Caribbean, Europe and Asia and its head office is in Costa Rica. This is common set up for companies that take bets from US consumers so this will be an important test case for the entire sector. The stock market reacted quickly, with shares of all the major online gambling companies suffering significant falls on July 17.

According to a recent survey by Harris Interactive, the majority of US Internet users believe that online gambling should remain illegal because there is no effective way to regulate or control it.

This, however, has not been the approach in the UK, where the government continues to create legislation to regulate the online gambling sector, rather than banning it. History, along with the wisdom of Arthur Baer, suggests that this may be a more workable approach than complete prohibition.

More here.