Report to the Congress: Video Gambling in 

Foreign Air Transportation 

March 1996

Video Gambling in Foreign Air Transportation

WHY THIS The Gorton Amendment, section 205 of the Federal Aviation Administration

STUDY WAS

DONE

Authorization Act of 1994, added the following provision to the United States 1

Code:

An air carrier or foreign air carrier may not install, transport,

or operate, or permit the use of, any gambling device on board

an aircraft in foreign air transportation.2

As a result of the Gorton Amendment, the United States today prohibits

gambling on flights to or from this country that are operated by a foreign air

carrier, as well as on all international flights of U.S. carriers and all commercial

flights within U.S. airspace.3

Congress’ intent in amending the law to encompass foreign-carrier flights to

or from the United States was to ensure equal treatment of U.S.-flag and

foreign-flag carriers and avoid putting U.S. airlines at a competitive disadvantage in providing international passenger service. Prior to the amendment, a 4

foreign airline could offer gambling on board its flights to or from the U.S.

while existing law precluded our airlines from doing likewise. Instead of

authorizing U.S. airlines to offer gambling on their international flights,

however, Congress chose to prohibit gambling on all foreign-carrier flights to

or from this country. During Senate deliberations, concern was expressed that 5

a different approach, such as allowing U.S. carriers to offer gambling on their

international flights when outside U.S. airspace, might be more appropriate 6

for ensuring equal treatment at some future time. Consequently, the Gorton

Amendment also directed the Secretary of Transportation to complete a study

of:7

The aviation safety effects of gambling applications on electronic interactive video systems installed on board aircraft for passenger use, including

an evaluation of the effect of such systems on the navigational and other

electronic equipment of the aircraft, on the passengers and crew of the

aircraft, and on issues relating to the method of payment.

Public Law 103-305 (Aug. 23, 1994). 1

49 U.S.C. 41311(a). 2

Gambling is prohibited on international flights of U.S. carriers and on commercial flights within 3

U.S. airspace under previously enacted legislation, popularly known as the Gambling Devices

Transportation Act (also as the Johnson Act), codified in 15 U.S.C. 1171 et. seq.

Congressional Record (Senate - June 9, 1994, pp. S6663-S6664). 4

Congressional Record (Senate - Ibid., and Aug. 8, 1994, p. S10954). 5

Permitting gambling on commercial flights within the airspace of the United States is not at issue. 6

Sec. 205 (b), op. cit. 7
EXECUTIVE SUMMARY

Report to the Congress: Video Gambling in 

Foreign Air Transportation 

March 1996

RESULTS IN

BRIEF

Congress is

Concerned about

Gambling’s Impact

The competitive implications of permitting foreign air carriers only, but

not United States air carriers, to install, transport, and operate gambling

applications on electronic interactive video systems on board aircraft in the

foreign commerce of the United States on flights over international waters,

or in fifth freedom city-pair markets.

Whether gambling should be allowed on international flights, including

proposed legislation to effectuate any recommended changes in existing

law.

The Department is not at this time recommending any changes to the law prohibiting gambling in foreign air transportation. Rather, we will monitor foreign

airlines’ implementation of gambling along with related developments and,

depending on those developments, recommend legislative changes that we find

are appropriate for assuring U.S. airlines remain competitive in providing international passenger services. Insofar as other nations allow, foreign airlines will

continue to have the opportunity to offer video gambling on flights other than those

to or from the United States; some foreign carriers have expressed an intent to do

so. U.S. airlines, meanwhile, can continue to install interactive entertainment

systems on their aircraft fleets, though they remain prohibited from offering video

gambling as an entertainment feature. Should gambling on their international

flights be authorized in the future, implementing the gambling feature would entail

adding a software program to their installed systems.

By monitoring foreign carriers’ progress and experience with video gambling,

the Department believes that much of the uncertainty presently surrounding

gambling aboard aircraft will be alleviated, enabling a more informed determination of whether to authorize gambling on international flights and how such

gambling should be regulated. In this regard, our decision not to recommend

any change in the law at this time is based on the following factors:

The Congress is deliberating proposals for a comprehensive study of

gambling’s impact on the nation. The proposals, which have bipartisan

support and are endorsed in principle by the Administration (see p. 14 and

Appendix), reflect growing concerns over the socio-economic costs resulting from the rapid spread of legalized gambling during the past several

years. The Department is reluctant to recommend an enlargement of

gambling’s presence until those concerns are authoritatively examined. If

approved, the proposed study would also provide information useful for

determining the need to regulate gambling aboard aircraft and the appropriate scope of any regulatory scheme, particularly with respect to the issue

of “problem” and “pathological” gambling behavior and the effectiveness

of the existing federal-state regulatory framework.

Competitive Harm

is Prospective

The adverse competitive impact on U.S. airlines as a consequence of the

current gambling ban is potentially quite significant, assuming that all
EXECUTIVE SUMMARY

Report to the Congress: Video Gambling in 

Foreign Air Transportation 

March 1996

Behavioral Risk is

Uncertain

Need for

Regulation is

Not Clear

KEY QUESTIONS

EXAMINED

Safety Effects

Competitive

Consequences

foreign airlines are able to provide video gambling and elect to do so.

Whether, when and to what extent foreign carriers will implement on-board

gambling is not known, however. As of the end of March 1996, no international airline offered video gambling and, to our knowledge, introduction of

gambling games was imminent for only one foreign carrier -- as a trial on a

single aircraft.

Furthermore, while there is no evidence that on-board electronic entertainment

systems increase safety risk from a technical standpoint, the potential for

increased risk resulting from the behavior of certain passengers while gambling

cannot be dismissed at this time, especially in light of concerns raised by the

Association of Flight Attendants and other parties. On one hand, current

flight-crew training requirements, along with the design and implementation

of the gambling games promoted for use on aircraft today, would appear to

minimize behavioral risks. On the other hand, no airline today has significant

experience with video gambling, and the risk associated with the behavior of

the problem or pathological gambler while aboard an airplane is not known.

Indeed, both the incidence of pathological gambling among the current U.S.

population and the costs imposed on the nation by pathological gambling

behavior have yet to receive an adequate accounting. Pending evidence of

actual competitive harm to U.S. airlines and better information on problem

gambling, we are not persuaded that increasing the inventory of potential

behavioral risks is warranted by authorizing on-board gambling at this time.

In addition, allowing gambling on the international flights of U.S. carriers

raises several policy and regulatory issues. It is not clear the extent to which,

or by what means, regulation should occur. Airlines and gaming vendors

stress that their gambling games are designed as simple, “fun” entertainment

with low stakes, frequent pay-outs, and extended play. On the other hand,

absent regulatory oversight, there may be no assurance that on-board gambling

would remain benign, or that the integrity and fairness of the gambling games

would be adequately safeguarded.

The Department’s study focused on the following questions regarding the safety,

competitive and legal implications of video gambling in foreign air transportation:

Do on-board electronic entertainment systems, which house video gambling games

as well as other customer services, present an increased technical risk for air travel

safety, i.e., are the systems structurally sound and compatible with all safety

systems, components and related operations aboard an aircraft? Moreover, would

gambling itself present any increase in behavioral safety risk, i.e., would it cause

a passenger to behave in a manner that might interfere with or disrupt the safetyrelated duties of the aircraft’s flight crew?

In what manner and to what extent would the competitive position of U.S. airlines

be harmed as a consequence of the existing U.S. gambling ban? How would their
EXECUTIVE SUMMARY

Report to the Congress: Video Gambling in 

Foreign Air Transportation 

March 1996

Bilateral Issues &

Legal Framework

EFFECTS ON

SAFETY

Technical Risk

Behavioral Risk

COMPETITIVE

CONSEQUENCES

Measuring

Competitive

Impact

competitive position be affected if the law were changed to permit gambling on

foreign-carrier flights to or from the United States, or on the international flights

of U.S. carriers as well?

What issues are raised regarding our bilateral aviation relations with other nations

when the United States prohibits gambling in foreign transportation by non-U.S.

carriers? Likewise, what statutory or regulatory issues are presented by removing

or easing the current ban on gambling in foreign air transportation?

The entertainment systems in operation today, including ones with a gambling

feature, have been certificated as safe from a technical standpoint by the Federal

Aviation Administration (FAA). FAA assesses technical risk in accordance with

specific safety requirements and a well-established certification process. Under

this process, an entertainment system proposed for installation on an aircraft is

evaluated for electromagnetic interference with other equipment on the airplane,

electrical power loading on the aircraft's power generation and distribution system,

the potential for fire hazard, potential interference with emergency procedures and

passenger evacuation, and other factors affecting the safe operation of the aircraft.

Behavioral safety risk is addressed by FAA’s flight-crew training requirements,

which encompass behaviors ranging from passenger dissatisfaction with some

aspect of an airline’s service, to aberrant behaviors associated with fear of flying

or other neuroses, and extreme behaviors that threaten the safety of occupants or

the aircraft (e.g., hi-jackers). The Department believes that the behavioral risk due

to video gambling probably would be minimized given the scope of FAA’s training requirements. We cannot, however, wholly discount the concerns cited by

flight attendants and others regarding behavioral risk until adequate experience is

gained with in-flight video gambling and the behavior of problem and pathological

gamblers aboard aircraft.

To measure competitive impact, the Department assessed the opportunities for

foreign carriers to offer video gambling compared with the major U.S. airlines on

flights involving the Atlantic and Pacific regions, assuming (1) the current U.S.

gambling ban remains in force, (2) the law is changed to permit only foreign

airlines to provide gambling on flights to or from the United States, or (3) the law

is changed to allow gambling on the international flights of U.S. airlines as well

as foreign-carrier flights to or from the United States. For analysis purposes, it was

also assumed that all foreign-carrier passenger flights in the relevant markets offer

video gambling. We then developed estimates of the revenue impact associated

with these assumptions. Much of our analysis draws upon the results of a survey

of U.S. international air travelers that was conducted at the Department’s direction

by Yankelovich Partners Inc., a nationally recognized consumer survey firm. We

limited our analysis to routes involving the Atlantic and Pacific regions because

they are the routes where we believe video gambling will be offered initially and because
EXECUTIVE SUMMARY

Report to the Congress: Video Gambling in 

Foreign Air Transportation 

March 1996

Entertainment

Systems Are a

Competitive

Necessity

Impact of Current

Gambling Ban

Foreign-Carrier

Flights to/from U.S.

the Department-directed survey was targeted to trans-Atlantic and trans-Pacific

air travelers.

Our analysis concludes that U.S. airlines will install electronic entertainment

systems on their international fleets regardless of whether or not they are allowed

to offer video gambling. If U.S. carriers did not install entertainment systems, an

estimated 4 percent of their international traffic in the Atlantic and Pacific regions

would shift to foreign carriers having entertainment systems. Since a 4-percent

traffic shift would amount to an annual revenue loss of over $490 million, U.S.

airlines of competitive necessity will implement entertainment systems. We

estimate the cost to install those systems on the U.S. international fleet serving the

Atlantic and Pacific regions at about $401 million, and that additional fuel costs

due to the weight of the systems would amount to about $43 million annually.

Given that both U.S. and foreign airlines will install entertainment systems for

competitive reasons, we also conclude that the ability of foreign carriers to offer

gambling could provide them with a substantial competitive advantage over their

U.S. rivals. Specifically:

The absence of video gambling per se on U.S. airline international flights is

not likely to have a material effect on the U.S.-carrier share of international

passenger traffic in the Atlantic and Pacific regions. Passenger fare revenue,

in other words, would not be significantly affected by the presence or absence

of video gambling.

However, if video gambling is offered, an estimated 18 percent of passengers

will use it. Because the great majority of foreign-carrier flights in the Atlantic

and Pacific regions do not involve flights to or from the United States, and

therefore are not affected by the current U.S. gambling ban, foreign airlines

have a potential new revenue source not available to their U.S. counterparts.

We estimate the revenue from gambling aboard foreign-carrier flights (exclusive of those to or from the U.S.) at approximately $480 million per year,

some of which would be earned in direct competition with U.S. carrier service

in fifth-freedom markets. This new revenue would be available to the foreign

airlines to defray the cost of their entertainment systems, reduce fares where

they have the flexibility to do so, or otherwise support their operations worldwide. In this respect, the current gambling ban may not provide a level

competitive playing field for U.S. airlines.

Further, if the U.S. law were changed to permit gambling only on foreign-carrier

flights to or from this country, we estimate that foreign airlines could receive an

additional $112 million in gambling revenue per year. Again, some of this

revenue would be earned on flights competing directly with U.S. airline service

on which gambling would continue to be banned.
EXECUTIVE SUMMARY

Report to the Congress: Video Gambling in 

Foreign Air Transportation 

March 1996

U.S. Airlines’

International

Flights

BILATERAL

ISSUES &

LEGAL

FRAMEWORK

Regulation

Needed?

Communication

By Wire

Federal or State

Regulation

Finally, if U.S. airlines were allowed to offer video gambling on their international

flights, we estimate they could earn $300 million per year in gambling revenue

from their international service in the Atlantic and Pacific regions combined. Net

of direct operating expenses, which we estimate at approximately $75 million per

year, video gambling could yield net revenues of about $225 million annually for

U.S. carriers.

The Gorton Amendment and the Department’s request for public comments on

the issues of this study have engendered formal diplomatic protest to the Department of State concerning the regulation of foreign-airline conduct outside the

territorial limits of the United States. Changing the law to allow gambling on

foreign-carrier flights to or from the U.S. could be expected to eliminate this

concern on the part of our bilateral aviation partners.

In principle, there are a variety of frameworks of gambling regulation and enforcement which could be applied to U.S. air carriers if gambling were authorized on

their international flights. Before that authority were granted, however, certain

issues would have be addressed regarding how -- or even whether -- a given

framework should be applied:

Since it is envisioned that gambling activities aboard aircraft would require

the use of communications facilities, a decision to allow gambling in foreign

air transportation must address whether 18 U.S.C. 1084, concerning wire

communications, would or should apply. If applicable, it may be difficult to

implement air-to-ground verification of credit card accounts for gambling

activity, for example.

Under current Federal law, the regulation of gambling operations is largely

left to the States. Pursuant to 49 U.S.C. 41713, however, a State is preempted

from enacting or enforcing a law, regulation, or other provision related to a

price, route, or service of a U.S. carrier. Thus, a decision to allow gambling

must also address what entity, if any, would regulate the gambling operations

and ensure the integrity of gambling devices on board U.S. aircraft.