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Against long odds, the race is on to bring online gambling to the U.S.

Around the world, there are more than 650 gambling Web sites, and four to five new ones are rolling out each day. At least $1.2 billion was wagered on the Internet last year.

World Sports Official Is Found Guilty in First Case of Internet Wagering (Feb. 29)

Youbet.com Agrees to Pay $1.3 Million to Settle Probe (Jan. 14)

Commission to Recommend Ban on Internet Gambling in the U.S. (June 4)

In the U.S., laws addressing Internet gambling and lotteries aren't clear, but they are generally regarded as banning the activities. Not helping matters: Legal gambling ages vary by state, and one risks breaking federal laws by taking bets across state borders. So the question is: Can all this, and other legal wrinkles, really be policed on the Web?

Now, two rival dot-coms have developed online gambling models that they think Nevada regulators will approve. They are stepping lightly, hoping to get state clearance for fairly limited operations: Only people in Nevada will be able to place bets online and only on sports.

Virtgame.com Inc. and Youbet.com Inc. essentially hope to set up Web-gambling laboratories to demonstrate to wary regulators that they can prevent minors and out-of-staters from betting. Once they do that, the companies then hope to win approval to expand into casino games, other forms of betting, and other states.

Virtgame and Youbet each say they've built computer firewalls that will bar underage gamblers and allow them to prevent bets from being placed from outside a particular legal jurisdiction. Virtgame, based in Del Mar, Calif., is planning to launch its online sports bookmaking operation in April with privately held Coast Resorts Inc. in Las Vegas, a casino company with properties that cater to Las Vegans.

"They say they're ready to go, and I believe them," says Michael Gaughan, Coast Resort's chairman and chief executive.

Youbet, meanwhile, has said it plans to have its online sports-betting business running by the kickoff of football season, assuming it gets regulatory clearance.

The companies plan similar betting systems. To wager on a Knicks basketball game, for instance, a gambler would open an online account, proving his or her age and Nevada residency with driver's license and credit-card information. Further checks would ensure that the person is actually placing the bet from Nevada, and not dialing in through a foreign Internet-service provider, the companies say.

To a great extent, the companies' online plans are a leap of faith. Gambling regulators in Nevada are skeptical -- and they concede that they themselves aren't sure how existing laws apply to online gambling. While the U.S. Congress wrestles with proposed legislation to permit Internet lotteries, as well as parimutuel and other forms of gambling, Nevada regulators are busy studying the issues. "We're still trying to firm up exactly what Internet gaming really is," says Gregg Gale, chief of the Nevada Gaming Commission's audit division.

But neither company is waiting around for final determinations. They anticipate an online gambling explosion if other forms of Internet betting, such as lotteries or virtual casinos, take off in the U.S. "We are very, very hopeful that there will be clarity on the legal climate later this year," says Robert Fell, Youbet's chairman and chief executive.

Internet gambling offers a whole new set of wagering possibilities. Youbet hopes to let clients auction wagers among other customers while games are in progress. Allowing the gamblers to auction the bets among each other keeps the casinos out of it -- thereby avoiding any conflict with Nevada laws that prohibit casinos themselves from taking bets after a game begins, says Russell Fine, one of Youbet's founders and its chief technology officer. Someone could bet, for instance, on whether the Dallas Cowboys will make the next down -- if the gambler can find a bettor online to take the wager.

Probably in violation of state or federal laws, many U.S. residents already gamble through the multitude of Web-wagering sites run by offshore operators. Using credit cards to place bets, they spend an average of more than $600 a year, or one-third as much as gamblers who actually step into casinos, according to a study by Greenfield Online Inc., a market research company.

With haphazard enforcement, many independent offshore casinos risk little by illegally targeting U.S. residents. But operators in the U.S. must protect their licenses here. Nearly every U.S. casino executive has investigated the possibilities. "I've looked at it 18 ways," says Arthur Goldberg, chief executive of Park Place Entertainment Corp., who has met with Virtgame officials. But Mr. Goldberg declines to join up without a clear nod from regulators. "You'd jeopardize your license," he says.

Legal quagmires have kept online gambling stocks from taking off. Youbet, which currently operates an online horse-race betting system with a unit of the British Hilton Group PLC, was unchanged at $5.1875 in Nasdaq Stock Market trading as of 4 p.m. Wednesday -- far below its 52-week high of $17.875 reached in June.

Backed by venture capital and an Antigua-based Internet casino, Virtgame was founded by CEO Joseph "Rocky" Paravia, who spent much of his career running casino operations at Caesar's Palace in Las Vegas. He started up the company with $750,000 in seed money from investor Michael Yacenda, president of eLot Inc., of Milford, Conn. Elot recently agreed to buy Virtgame in an all-stock deal valued at about $28 million.

The deal gives Virtgame access to cash backing to help compete with the larger Youbet, says Matt Kliber, Virtgame's director of new business development. Once the Nevada online betting system is up and running, Mr. Kliber says, it will serve as a "template" for proposals by eLot to run online state lotteries around the country.

Los Angeles-based Youbet was founded in 1987 by Russell Fine, now its chief technology officer, and a friend, David Marshall, who has since left the company. "We wanted to build an infrastructure that could support lots of forms of gaming," says Mr. Fine, who describes himself as a "former hacker."

Youbet's chairman and chief executive, Robert Fell, is a racing aficionado and polo player who originally came to the company as an investor. Mr. Fell holds about 4% of the company's stock, according to its most recent proxy, while Mr. Fine and Mr. Marshall together own about 21%. Youbet's horse-race betting network has been operating since 1998.

Youbet's Nevada plans have hit snags. It had announced plans to start online sports betting with Station Casinos Inc., based in Las Vegas. But their letter of intent expired weeks ago and Station executives are "re-evaluating" their agreement after Nevada regulators made it clear they will look very closely for legal breaches, says Station's general counsel, Scott Nielson. "We have to be sure not just that it's not illegal, but that it's legal," he says.

Meantime, Youbet has had regulatory problems in California. In the wake of an investigation by the Los Angeles district attorney of the legality of Youbet's separate online horse-race betting network, the company recently agreed to pay a $1.3 million civil settlement. That was to clear up the issue, and keep it from hindering its Nevada plans, says Mr. Fell.

The district attorney had questioned whether it was legal for Youbet's computer servers to transfer bets across state lines from California to Hilton Group's operation in Pennsylvania and whether Californians could legally place the bets over phone lines. To appease the district attorney, Youbet agreed not to take Californians' bets and to move its computer servers out of California to Nevada.

Station's concerns about an online sports bookmaking operation follow a Nevada Gaming Control Board complaint filed in December against American Wagering Inc., a Las Vegas company with an Australian-based online casino. Last summer, a gambling control agent logged onto that offshore casino and placed a dozen bets on baseball games from Las Vegas, in violation of Nevada laws. He won $14. American Wagering is appealing the complaint.

Bob Ciunci, American Wagering's chief financial officer, says no laws were broken and the company regards the complaint as "an internal control violation" because an employee failed to follow company procedures.

Write to Christina Binkley at christina.binkley@wsj.com>>