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By Jonathan D. Salant and Lorraine Woellert

May 5 (Bloomberg) -- Legislation allowing Internet gambling in the U.S. is scheduled to be introduced tomorrow by Representative Barney Frank.

Similar legislation failed in the last Congress. Frank, a Massachusetts Democrat, has support for the new bill from such companies as Youbet.com Inc. and Harrah’s Entertainment Inc., in addition to the Poker Players Alliance, formed to overturn a 2006 ban on Internet poker.

Supporters “have been mobilizing,” Frank said in an interview last week. “This is a grassroots thing.”

The legislation would allow licensed gambling operators to accept online wagers from people in the U.S. The bill would revise the Unlawful Internet Gambling Enforcement Act of 2006, which made it a crime for banks or other institutions to process financial transactions used to place illegal bets online.

Regulations implementing the law took effect in January, and some payment processors have until Dec. 1 to comply.

Online gambling operations, banks, state lotteries and poker aficionados opposed the 2006 law. Some critics said the law makes no distinction between legal and illegal online wagering. For example, some states such as California allow lottery tickets to be purchased online. In addition, the ban doesn’t affect online betting on horse racing.

To support Frank’s new proposal, Las Vegas-based Harrah’s registered to lobby for the first time and spent $405,087 from January to March. To supplement its in-house lobbyists, Harrah’s hired veteran Democratic fundraiser Tony Podesta.

Youbet Lobbyist

Woodland Hills, California-based Youbet hired its own lobbyist to push for legalized online gambling, according to Chief Executive Michael Brodsky.

The Poker Players Alliance brought in another outside firm and boosted its lobbying expenses.

Among gambling stocks in London, PartyGaming Plc is down almost 80 percent from its 2006 high and Sportingbet Plc is down close to 90 percent.

Youbet takes online bets solely on horse racing, though Brodsky said the company would expand into online poker and other gambling if Congress permitted it.

“Our customers would love to do more and we would love to offer our customers more,” said Brodsky, 45. “There’s a big opportunity to do something that makes sense for everyone. It’s a very nice revenue-raiser at a time when everyone is looking to plug in the holes.”

Harrah Vice President Jan Jones said regulating and taxing online gambling might swell government coffers by $2 billion to $6 billion annually. “At a time where there is no money, that can be going to health care or S-CHIP,” the children’s insurance program, Jones said.

To contact the reporters on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net.