What Would Happen to the U.S. Online Gaming Market Once They Regulate it?

Nov 06

Gambling law in the United States is ruled over by three distinct sets of gaming laws, one each for local, state, and federal entities. There are states that have laws that go way back, as far as over two centuries ago. On the other hand, there are others that have been slow to tackle the major aspects of the industry.

Modern laws on gambling are intricate, in part because they’ve been developed over the course of several decades. And during that time, technology and society have also transformed, while for the most part, gaming laws have not.

In some ways, gaming law in the US is liberal. The following are good examples of this.

  • State-run lotteries are available in 44 US states.
  • Tribal casinos operate in more than half of American states, with a dozen large-scale venues under construction as we put this article together.
  • Small-scale game and card rooms can be found in most major cities, and plenty of small towns, too.
  • The government allows a few forms of betting (for charity, or for the elderly) with little regulation.

But in other areas — in particular, online gambling — the laws are not quite so progressive.

Where Do the Laws Governing Online Gambling in America Come From?

They’re taken from age-old language written long before the Internet was even conceptualized. This is particularly true at the state level. In at least one other case, a crucial anti-gaming law was geared to prevent all online gambling by limiting people’s ability to move funds to known gambling sites. There is a lot of legislation designed to restrict access to Web-based betting, which was created over concern about the effect of gambling on professional and amateur sports.

The legality of online gambling in America is subject to at least four layers of legal tradition. There are cities that are making moves to prohibit the practice, as are county governments, state lawmakers, and in some cases, the federal government.

Federal Online Gambling Law

There are three important federal laws are applied to the practice of gambling in general and online gambling in particular. These are the:

  • The Interstate Wire Act
  • The Professional and Amateur Sports Protection Act
  • The Unlawful Internet Gambling Enforcement Act

Let us take a concise look at each one to give you a better idea of what these are and what their effect is.

1) The Interstate Wire Act

The Interstate Wire Act makes it criminal to place bets “using a wire communication facility.” Until of late, the Department of Justice interpreted that to include all wagers that are made online. Though the Interstate Wire Act has been re-interpreted to make room for some forms of online gambling, the DoJ still asserts that the Wire Act makes Internet sports gambling illegal.

Passed in 1961, the Interstate Wire Act continues to have a substantial impact on the US gambling market today. The long title of this act discloses its sole intent – “… to amend chapter 50 of title 18, United States Code, with respect to the transmission of bets, wagers, and related information.” The goal was to make the transmission of bets and/or related data a crime. Technically, that means even discussing point spreads over the telephone is already a criminal act.

In hindsight, the Interstate Wire Act has nearly nothing to do with the legality or morality of gambling. It was actually used as a weapon against a few major organized crime bosses. US Attorney General Robert Kennedy made a name for himself in this battle against organized crime. The Interstate Wire Act of 1961 was the first piece of legislation inspired by Kennedy’s anti-mobster action.

This law was made not to prevent the average Americans from gambling, but to cut into the profits of organized crime families. At the time, these unlawful groups were producing revenue by offering sports betting “by wire,” meaning over a telephone line. Bettors used the telephone to communicate with bookies in Las Vegas, which was the only place where you can place legal sports bets in America during that time. Since most sports bets were made by telephone, it made perfect sense for the DoJ to go after phone wagers.

What the Wire Act really end up doing was create a new penalty for the Justice Department to utilize against crime bosses. And it worked well for the federal government. However, it also limited access to bets by wire for all Americans, regardless of what their intent was.

Through the years, the Wire Act’s language has essentially become its biggest enemy. The language in the bill does not have specificity – a layman reading the bill might easily be confused about which wagers are legal and which aren’t. Throw in the expansion of the Internet as a betting tool, and this law’s weaknesses are showing. In 1961, it was impossible to imagine the possibility of wagering over an Internet connection. Until recently, lawmakers have been befuddled over how to interpret the Interstate Wire Act to online gambling.

When the US Department of Justice simplified the Interstate Wire Act in 2011, the legal status of specific kinds of betting became clear. In a statement, the DoJ decided that “… interstate transmissions of wire communications that do not relate to a ‘sporting event or contest’ fall outside the reach of the Wire Act.” That’s great news for online poker and casino game players but still bothersome to sports bettors. In an appeal, the US Fifth Circuit Court of Appeals agreed with the DoJ that the Wire Act restricts the transmission of sports wagers but not any other kind of online gambling.

How the Interstate Wire Act Impacts You

Take note that the Interstate Wire Act has not been utilized to prosecute any individuals for placing bets by wire. The FBI has indicated a number of times that their focus is on prosecuting large-scale operations. It may be unlawful, under this law, to bet $20 on the Cowboys to cover against the Patriots, but the US isn’t keen on prosecuting an individual. There’s no infrastructure in place to monitor this kind of happenings, anyway. The worst the FBI can do is warn you that funds in your player account may be seized if the site you bet with gets busted.

Before 2011, you could safely assume that the Wire Act could be used to prosecute online gamblers. Now, that’s only true for people who place bets on sports. Then, 30 years later, as if the Wire Act weren’t a tough enough restriction for sports gamblers, the government acted again.

2) The Professional & Amateur Sports Protection Act (PASPA)

Passed in 1992, PASPA is not all that known when it comes to American gaming regulations and the one with the least impact on Americans’ daily online gambling activity. Some of its lack of authority comes from the fact that it was, by and large, a wholly unnecessary law. The Wire Act does a fine job of outlawing sports gambling.

The Professional and Amateur Sports Protection Act is at times called “the Bradley Act” after pro basketball player turned senator, Bill Bradley. The full title of this bill is “An Act to prohibit sports gambling under State law.”

It was an attempt to have sports betting declared illegal, all over the country, no matter what method was being used. The intent was to make a law that goes a step further than the vague language in the Interstate Wire Act.

The Bradley Act was deemed necessary because of panic in the legislative branch over allegations of game-fixing in pro and college sports. The bill was passed after a huge federal investigation into sports gambling, initiated by Senator Bradley’s personal agenda.

The Senate Judiciary Committee acted on testimony from David Stern, then-commissioner of the NBA, that “… the interstate ramifications of sports betting are a compelling reason for federal legislation.”

Essentially, it was much ado about nothing. No new wave of organized crime involvement in sports betting was afoot, and there were no signs of an increase in problem sports gambling or cheating scandals traced back to sports betting interests.

3) The Unlawful Internet Gambling Enforcement Act (UIGEA)

The UIGEA has had a larger impact on the actual practice of online gambling than any of the other pieces of legislation discussed above. The UIGEA was passed in 2006 as part of an omnibus national defense bill. Because legislators couldn’t get the bill passed of its own accord, they tacked it on to the SAFE Ports Act, a law which they knew would pass. These four or five pages were added to the SAFE Ports Act at the eleventh hour. As a matter of fact, it was so late that most lawmakers admitted that they didn’t even get a chance to read it.

The UIGEA was an effort on the part of a conservative branch of the American government to outlaw online betting. It was produced to shut down access to online gambling by making it unlawful for banks and other financial groups to process gambling payments.

The main concept was: if you can’t send or receive money, you can’t gamble.

In its own words, the UIGEA “… prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.”

The act specifically excludes a few markets – certain fantasy sports bets are excluded, as are a number of skill games and any existing legal intrastate and inter-tribal gaming markets.

Plenty of people think the UIGEA makes it illegal for Americans to bet online.

That’s not true. It simply makes it difficult for them to send or receive money from a known gambling site.

The UIGEA however, has some pretty dire flaws. Some big names in the online betting business — mostly poker and casino sites — pulled out of the US market, and some bettors lost access to their favorite Web-based casino or poker site. But plenty of Americans are still processing payments back and forth with a known gambling provider.

Another huge problem – it doesn’t regulate transactions for all forms of online gambling. The law does not cite some crucial gaming markets – state lotteries don’t come up at all, nor do inter-state bets on horse and dog racing. While some have interpreted this to mean that these activities are basically unregulated, the UIGEA defers to the Wire Act and other current federal law in these matters. In other words, it’s a pick-and-choose kind of a law that hasn’t accomplished its goal of shutting down illegal gaming at all.

The UIGEA has had an impact on American online gambling, just not in the way lawmakers intended. The most well-known case of enforcement came in April 2011, when the founders of PokerStars, Absolute Poker, and Full Tilt Poker were indicted for breaching conventions in the UIGEA. It came out in court that these organizations were attempting to skirt the UIGEA’s rules through the use of third-party payment processors and outright fraudulent accounting.

How the UIGEA Impacts You

The UIGEA is not something that individual sports bettors need to really worry about. It is used to keep banks and credit card companies from doing business with providers of illegal gambling – not to prosecute individuals who use those payment processors

State Gambling Law

The most difficult set of gaming laws to navigate in America is state law. For starters, you have to consider the law books of 50 states, two territories, and the District of Columbia. You also have to consider that some states defer to county or even municipal laws when it comes to gaming regulations.

Some US states have gone so far as to ban online gambling. The states of New Jersey and Nevada, for example, have declared that all non-state regulated online gambling is illegal. The other anti-online gaming states outlaw Internet betting in all forms.

CURRENT ANTI-ONLINE GAMING STATES

  • Indiana
  • Illinois
  • Louisiana
  • Maryland
  • Montana
  • Nevada
  • New Jersey
  • Oregon
  • South Dakota
  • Washington
  • Wisconsin

The states of Washington and Maryland represent an alarming trend – a new movement to ban online gambling in light of confusing evidence about its popularity and impact on health and society.

What Would Happen to the U.S. Online Gaming Market Once They Regulate it?

The DoJ has handed down a new directive that has stirred up the online gaming world and was enough to spread chills through the spines of many senators and online gaming operators that have looked forward to federal regulation over the next few years. The country’s Justice Ministry is challenging – and trying to amend – a ruling from 2011 that some States used as grounds to re-launch online poker and casino, within their geographical boundaries, after a six-year absence that began with the introduction of the UIGEA law in 2006.

Some people are wary that the Trump administration, which is openly linked to the interests of some land-based casinos, wants to make amends to benefit his friends that are operating land-based casinos. These resorts have been impacted by the fact that some states already allow players to play online poker and casino at the same time that Pennsylvania, another state which is considerably bigger than those that regulated gaming so far is ready to open up in 2019. And there are more that plan to gear up a regulatory framework for the re-opening of online poker and casino early next year.

What does the decision of early 2019 say and what does it actually mean? The interpretative order of the federal court would try to enforce the opinion that the original message of 2011 was misinterpreted. And the re-opening of online poker and casino has not been compliant. The uncertain view then – based on the unclear grammar and syntax of the text – makes way for an interpretation that only transactions focusing on sports betting companies are outlawed. And that poker and casino are not subject to the same limitations.

DOJ Casts Shadow Over the Operation Of Online Casinos in the US

In reality, according to most industry stakeholders, the new clarification is an effort to revoke the interpretative provisions of the 2011 law and hinting that states that have introduced online games – and have allowed the entry of operators from other countries – have done so unlawfully. This would be a huge hit for online gaming giants such as UK’s VGC (which operates the very popular poker room PartyPoker and party casino in New Jersey), UK’s Betfair which has also left its mark on the market and 888 that has joined a New Jersey casino and is also live since 2013. And of course, bet365, which recently announced its collaboration with a gambling leader from New York to launch an online betting product in partnership with the Americans room by early 2020.

What Would Happen in the Future With Online Poker and Casino in the US?

No one knows really knows what would transpire in the next few months. Some market insiders rushed to state their concerns on whether the Government forced such a decision to favor and serve particular interests that were keen to return to the pre-2011 situation. Others argue that it might be too late and that no interpretative provision can bring things to the situation that was enforced between 2006 and 2011 when online gaming was seen as an enemy of the state.