The United States now permits intrastate online gambling, i.e., gambling contained by the borders of one state. Gambling that includes wagers that cross state lines, with the exception of fantasy sports and horse racing remains illegal.
Online gaming in the US wasn't as profitable as its proponents projected in 2014. But it did provide an infusion of cash into state coffers, and showed some growth potential for the future.
In 2014, three states licensed, regulated, and permitted intrastate online gaming – Nevada, New Jersey, and Delaware.
New Jersey, the most populous of the three states with an estimated 8,938,175 residents in 2014, allowed Atlantic City casinos to launch real-money online gaming on 26 November 2013.
For the first 11 months of 2014, New Jersey's online gaming sites generated $40,735,031 in gross revenue, $6,110,255 of which went to the state in taxes. New Jersey officials had hoped online gaming would generate about $180 million of tax revenue.
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.
Like New Jersey, Delaware offers the full suite of casino games online. It began offering games on 31 October 2013, but has struggled generate large amounts of revenue because of its small population of 925,749 people (2013 estimate).
For the first 11 months of 2014, Delaware generated $1,929,083.66 in gaming revenue.
Because Delaware has such a small population, it has signed an agreement to pool liquidity for online poker with Nevada, but the agreement hasn't been implemented yet.
The only online gaming activity Nevada regulates is online poker. Other forms of online gaming – with the exception of betting on horse races – remain illegal in Nevada.
Between 1 December 2013 and 30 November 2014, Nevada online gaming sites generated $9,955,000 in gaming revenue.
One online gaming company, Ultimate Gaming, closed in 2014. Ultimate Gaming was the first company to launch an online poker room in Nevada (Ultimate Poker), in April 2013. It also operated both an online poker room and online casino in New Jersey.
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, although 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 23 December 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.
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.
Delaware and New Jersey quickly joined Nevada in passing online gaming legislation. 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.
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 19 January 2009. And financial institutions had to begin complying with the regulations by 1 December 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, although 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.
In the November 2014 elections, the Republican Party took control of Congress. With billionaire Republican power broker Sheldon Adelson pushing Congress to ban all forms of online gaming, there's a chance federal action will be taken in 2015 that will curtail the growth of online gaming – if not outright ban it in most states.
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