The United States now permits intrastate online gambling. That’s gambling contained by the borders of one state. Gambling that includes wagers that cross state lines (interstate) – with the exceptions of fantasy sports and horse racing, remains illegal.
Three states currently license, regulate, and permit intrastate online gaming – Nevada, New Jersey, and Delaware.
New Jersey, the most populous of the three states with an estimated 8,899,339 residents in 2013, allowed Atlantic City casinos to launch real-money online gaming on November 26, 2013. Online casinos in New Jersey must have their servers located in an Atlantic City casino and are permitted to offer any game played in the casino.
As of December 2013, more than 150,000 real-money online gaming accounts had been created with New Jersey operators.
Delaware, which launched real-money online gaming on October 31 (Happy Halloween!), acquired about 2,800 players in its first month of operation. And those players wagered $3.8 million in that time frame, according to the Delaware Lottery.
Like New Jersey, Delaware offers the full suite of casino games online. But because Delaware has an estimated 2013 population of 925,749, it is actively seeking out partners to pool liquidity with poker.
US law currently allows states to form compacts – which are essentially agreements between two individual states. The lotteries in the US use compacts to share player liquidity and build massive jackpots. The same would be true in poker. Players in Delaware would be allowed to compete against players in a state that has signed a compact with Delaware. The compact would govern issues like regulation and taxation.
As of January 2014, Nevada has two online poker rooms operating in the state. Ultimate Poker launched in April 2013 and WSOP.com launched in September 2013. Until a third operator joins the market, Ultimate Poker and WSOP.com are not required to disclose their earnings and other information in regulatory filings, so it’s tough to gauge their success. However, as of December 31, WSOP.com is averaging about 110 cash game players (based on a seven-day average) and Ultimate Poker is averaging about 90 cash game players, according to PokerScout.
Online gaming companies in Nevada, by law, are only allowed to offer online poker.
The road to permitting intrastate online gambling has been a long and winding one. The chief obstacle to intrastate online gambling has been the Department of Justice’s (DOJ) interpretation of the Wire Act.
The Wire Act was enacted in 1961 to prevent bookmakers from accepting sports bets over the telephone. But for years, the DOJ maintained the Wire Act prohibited all forms of internet gambling, while online gaming proponents maintained the Wire Act only applied to sports betting.
The DOJ’s position prevented the domestic growth of online gaming in the US, though jurisdictions outside the US offered real-money play to American residents.
But in 2011, the DOJ reversed its long-held position that all forms of online gambling were illegal because they violated the Wire Act. In a letter released on December 23, 2011, the DOJ said the law applied only to sports betting, and intrastate gaming outside of sports betting did not violate the law. Gambling across state borders, say between poker players in California and Nevada, remained illegal according to the DOJ.
The ruling cleared the way for states to regulate and license intrastate online gaming. Nevada began issuing licenses to operators and software providers in 2012. On April 30, 2013, the first legal Nevada-licensed online poker room, Ultimate Poker (www.ultimatepoker.com), opened for business. Ultimate Poker is operated by Fertitta Interactive. Station Casinos owns 57% of Fertitta Interactive. Tom Breitling owns 14.3%. Frank Fertitta and Lorenzo Fertitta control Station Casinos. The Fertitta brothers also own the Ultimate Fighting Championship (UFC). More licensees were expected to have launched competing poker rooms by the end of 2013.
Nevada also adopted legislation in 2013 that allows it to sign compacts with other states to build player liquidity. Essentially, if Nevada signs a compact with a state, players on Nevada online poker networks will have access to players on poker networks in the other state and vice versa.
Two states have joined Nevada in offering online gaming. In June 2012, Delaware authorized online gambling in response to expanded brick-and-mortar casino gambling in Maryland and Pennsylvania. And in February 2013, New Jersey signed into law online gambling legislation in an effort to help Atlantic City casinos. Unlike Nevada, New Jersey and Delaware are licensing and regulating the full suite of casino games, including table games such as blackjack, roulette, and craps.
Delaware's online casino will be operated by the Delaware Lottery. New Jersey's online casinos will be operated by casinos running brick-and-mortar operations in Atlantic City. Both Delaware and New Jersey hope to have online casinos operational by the end of 2013.
Historically, gambling regulation in the US has been reserved for the state governments. However, sometimes federal law supersedes state law. The Department of Justice (DOJ) had, prior to 2011, held that the Wire Act prohibits all forms of online gambling in all the US states. Federal gambling law does not address games of skill or state lotteries that wish to offer subscription services on the Internet.
And that view colored past prosecutions of online gaming cases.
Accusations of Wire Act violations are usually accompanied by other charges, including conspiracy, money laundering, and violations of the RICO Act, Travel Act, and the Illegal Gambling Business Act. Enforcement of the Wire Act is directed at the gambling operators; there is no language that makes it illegal for a consumer to place a wager.
Because the Act was written in 1961 its language is limited to communication systems that use "wires," and the types of betting it describes are limited to fixed-odds propositions, such as are offered on sporting and other events. It simply was not possible to have foreseen remote casino and poker games over 50 years ago, so taken literally, the language of the Wire Act is not adequate to apply to casino gaming and poker over the Internet. In a case involving online gamblers who tried to get their credit card debts ruled unenforceable because their online casino gambling had been illegal, the Louisiana Court of Appeals for the Fifth Circuit declared in 2002 that the gambling losses were indeed enforceable because "the Wire Act does not prohibit non-sports Internet gambling."
The DOJ disagreed with the Fifth Circuit Court of Appeals decision, and for years the Wire Act served as the foundation for all of the DOJ’s arguments against the legality of Internet gambling for both sports wagering and non-sports wagering. DOJ officials asserted this belief several times before Congress since 2002. The DOJ also asserted this belief when advising the US Virgin Islands and the states of Nevada and North Dakota against regulating online gaming. They also threatened and settled with media companies that advertised for online gambling companies.
The DOJ was successful in convicting Jay Cohen, president of World Sports Exchange, for Wire Act violations in 2000.
Internet gambling on horse racing is permitted by the Interstate Horse Racing Act in states that have chosen to regulate such wagering. Although the DOJ insists that the Act is not consistent with the Wire Act it has never filed charges against any of the many domestic remote horse race wagering operators.
In fall of 2006, the United States enacted the Unlawful Internet Gambling Enforcement Act (UIGEA), which makes it illegal for financial institutions to facilitate payment transactions between offshore gambling operations and American customers. The law says nothing about it being illegal for a person located in the US to gamble on an Internet site.
The UIGEA resulted in the online gambling industry’s publicly listed companies withdrawing from the American market, while many private companies continue to serve it.
UIGEA regulations require financial firms that participate in designated payment systems to implement policies and procedures that are designed to halt payments being made to gambling businesses in connection with unlawful Internet gambling.
Certain participants in designated payment systems are exempt from the rule because the government questions the practicality of these participants attempting to identify and block unlawful Internet gambling transactions. For example, participants in automated clearing house (ACH), check collection, and wire transfer systems would be exempt, barring a beneficiary’s bank or a bank that is directly involved with an illegal gambling business. The rule also outlines the types of policies and procedures that non-exempt participants in designated payment systems may adopt in order to prevent transactions that are restricted by the UIGEA.
The UIGEA regulations were approved on January 19, 2009. And financial institutions had to begin complying with the regulations by December 1, 2009.
The states of Illinois, Michigan, Indiana, Nevada, Oregon, South Dakota, Washington, and Louisiana have all passed legislation that specifically prohibits unauthorized forms of Internet gambling. All forms of gambling are illegal in Hawaii and Utah.
In April 2008, federal regulators and representatives of the financial services community testified before Congress that any attempts to enforce the UIGEA would result in serious regulatory burdens. A result of the testimony was new legislation introduced by Reps. Barney Frank and Ron Paul, proponents of legalizing and regulating online gaming, that would prohibit the Department of the Treasury and Federal Reserve System from implementing any regulations related to the UIGEA. The proposed bill did not pass.
In October 2008, the state of Kentucky was granted permission by Franklin County Circuit Judge Thomas Wingate to begin the seizure of gambling websites. In January 2009, the Kentucky Court of Appeals overturned the ruling in a 2-1 decision citing that domain names are not gambling devices under Kentucky law. The Kentucky Supreme Court reversed the appellate court’s decision, saying the online gaming interests arguing the case lacked standing.
The Kentucky case is still ongoing, though a few online gaming companies have settled with the state. Bwin.Party settled its case with Kentucky for $15 million.
In April 2011, the DOJ indicted the founders of PokerStars, Full Tilt Poker, and Absolute Poker/UB. The charges, most of which have been settled, resulted in the forfeitures of hundreds of millions dollars in cash and assets, the sale of Full Tilt to PokerStars, the closing of Absolute/UB, and the withdrawal of PokerStars and Full Tilt from the US market. In addition to shutting down the US operations of the most popular online poker sites, the DOJ indictments convinced many operators to shut down their US-facing operations, leaving American online gamblers with a limited marketplace.
That marketplace is now being filled, in a limited way, by the state-by-state expansion of online gaming.
Efforts to pass federal legislation that would allow interstate online poker, but ban other forms of online gaming, have stalled in Congress. No federal legislation is expected to pass in 2014.
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