Internet Gaming in the U.S.—Past, Present, & Future

In a previous blog entry titled, ‘Status of Internet Gaming in the U.S.,’ we gave you our version of Cliff’s Notes on what has been happening at the state level with regard to Internet gaming.  This time, we will explore the events that led up to the DOJ’s December 23 opinion, and afterwards, explore the DOJ opinion’s potential ramifications nationwide.

Over the years, various federal actions have addressed the issue of Internet and interstate gaming directly.  Below is a brief description of the major ones.

  • The Interstate Wire Wager Act (Federal Wire Act) of 1961:
    • Made it illegal to make wagers on telecommunication systems across state and national borders.
    • Previously interpreted by the DOJ to apply to all forms of online wagering
    • The Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006:
      • Explicitly prohibited businesses to collect revenue from Internet wagering.
      • Immediately scared many Internet gaming operators out of the United States…but not all.
      • Department of Justice Memorandum Opinion regarding Online Lottery Programs (issued in December 2011):
        • Provided a new interpretation of the Interstate Wire Wager Act of 1961
          • Interstate transmissions of wire communications that do not relate to a ‘sporting event or contest’ fall outside the reach of the Wire Act.”

Internet gaming has been around almost as long as the World Wide Web has.  Until 2006, the federal government had no legislation that addressed Internet gaming directly, but it did interpret the Federal Wire Act to prohibit online wagering.  Based largely out of concern that the potential for money laundering was to great in the booming online poker industry, various members of the federal government in the early to mid 2000’s pushed for new legislation which targeted Internet gaming specifically.  The result of this effort was The Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006.

After being passed, the UIGEA shook up the Internet gaming industry.  The new legislation made it illegal for businesses to collect revenue from online wagering.  Several Internet gaming operators fled the U.S. market…but not all.  Some online poker operators believed, through unconventional methods, that they had found legal workarounds to the UIGEA and became giants with continued operations in the U.S. during the later part of the 2000’s.

Fast-forward to April 15, 2011— PokerStars, Full Tilt Poker, and Absolute Poker became household names shortly following the event known as ‘Black Friday.’    Without warning, the DOJ issued a formal complaint against the previously mentioned online poker operators based on the Illegal Gambling Business Act of 1955 and the UIGEA of 2006.  Black Friday knocked the wind out the entire industry.  Several of the founders of the three online poker companies were arrested and key assets such as domain names and bank accounts were seized by authorities.  In complete contrast, and shortly preceding Black Friday, speculation and reports about brick-and-mortar casino partnerships with online operators had been headline gaming industry news.

Two people charged with the DOJ’s Black Friday complaint have already made plea bargains and face sentencing later this year.  To date, the DOJ’s December 23 opinion has not affected the charges levied against the founders of PokerStars, Full Tilt Poker, and Absolute Poker.

As previously mentioned, the DOJ issued a Memorandum Opinion on December 23, 2011 which reversed its previous interpretation of the Federal Wire Act.  The opinion was released as a response to petitions from New York and Illinois’ lotteries seeking permission to sell lottery tickets online.  Prior to the December 23 opinion, the DOJ’s interpretation of the Wire Act would have prohibited online lottery ticket sales.  As of the issuance of this opinion, the DOJ finds that the Wire Act only applies to sports betting, effectively finding it lawful for states to run in-state online lotteries.

If Black Friday knocked the wind out of the Internet gaming industry, the DOJ’s Opinion rejuvenated it.  States, vendors, tech companies, and several other constituents are scrambling now at what they view as a window of opportunity.  As described in our previous blog on Internet gaming, many states are working on implementing their own Internet gaming legislation and programs via their lotteries.  Since interstate wagering already exists in lottery programs like the Powerball, interstate online poker could be legally feasible.

It remains unclear what advantage, if any, the DOJ Opinion provides to Native American tribes looking to get in on the action.  In February 2012, the United States Senate Committee on Indian Affairs will meet to discuss the implications of the DOJ’s Opinion for tribes.

The DOJ did not offer a new interpretation of the UIGEA in its December 23 opinion, nor has its complaint levied against those online poker operators been rescinded.  Nonetheless, several entrepreneurs, social media companies, existing Internet gaming operators and vendors, and other similar entities are creating a buzz as they search for a fit in the states’ race to bring Internet gaming to their jurisdiction.

As exciting as all of this is, there are still a lot of uncertainties.  What will become of the UIGEA, and how will this affect state Internet gaming programs?  Will the federal government pass their own legislation to regulate Internet gaming nationwide in the near future?  In our next blog on Internet gaming, we will discuss what has been going on at the vendor level in lieu of the excitement the DOJ’s Opinion has created.

Contributed by:

Nicholas Farrae

Analyst, Economics & Gaming

nicholasfarrae@tmg-consulting.net  or 504.569.9239 x 31

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Disclaimer
The views, interpretations, or strategies expressed are those of the authors, and do not necessarily reflect the position of TMG Consulting. This site is meant for educational purposes only and does not constitute professional advice. TMG Consulting makes no representation as to accuracy, completeness, or suitability of any information on this site and will not be liable for damages arising from its display or use.

Status of Internet Gaming in the U.S.

With all of the recent developments in online gaming and so much to sift through, we thought it was time to give our readers our version of the Cliff’s Notes.  First, there has been a lot of talk and a lot of movement toward legalizing online gaming in the United States, with much activity on the state level.  Second, many land-based and online gaming firms have been partnering-up in anticipation of legalization.  This blog entry is the first in a series and will briefly discuss what is happening on the state level.

The Department of Justice’s December 23 opinion opened the flood gates for states to consider online gaming, with many looking to get started with online lottery sales.  Those discussing sales of lottery tickets over the Internet are Connecticut, New York, Illinois, Maryland, and Massachusetts.  Still other states are discussing or are in the process of legalizing other forms of online gaming: Iowa, New Jersey, Ohio, California, Nevada, and Maine.

In Connecticut, where gaming is the exclusive right of Native American Tribes, those tribes have been in talks with the governor.  The Tribes have stated that a new agreement with the state would be necessary to allow Internet gaming, and it is still unclear whether the state lottery or the tribes would get the rights to it.  The sale of lottery tickets online is expected to come up for discussion in the upcoming legislative session.

Iowa is considering multi-state Internet poker, with legislation being considered this session.  The current plan would legalize online poker games within the state and with those in  other jurisdictions that have approved Internet gaming, including Washington, DC, Nevada, and possibly foreign countries.  The Iowa Racing and Gaming Commission has estimated the rake from these games to be between $13 million and $60 million annually, with the potential for $3-13 million in tax revenues annually.

New Jersey recently made news for legalizing sports betting, although the state will now have a fight with the federal government to overturn a law banning sports betting in all but 4 states.  The state is currently considering legislation to allow all casinos to offer online gambling including poker, blackjack, and other casino games.

Nevada has been the most pro-active of any of the states with regard to Internet gaming.  Nevada was the first state to legalize Internet gaming, with a law on the books for a decade that has not yet been implemented.  Recently, the Nevada Gaming Commission wrote online gaming rules and have also adopted online poker regulations.  Internet poker could go live in Nevada in as little as 9 months.

This is an exciting time for proponents of Internet gaming.  No one expected the recent DOJ opinion, and its effects will be realized in the near future.  How the states will react is still up in the air.  Right now, nothing is certain except that the online gaming landscape will be changing and soon.

Contributed by:

Suzanne P. Leckert

Director of Gaming, Feasibility & Land Use Analysis

suzanneleckert@tmg-consulting.net  or (504)569-9239 x 33

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Disclaimer
The views, interpretations, or strategies expressed are those of the authors, and do not necessarily reflect the position of TMG Consulting. This site is meant for educational purposes only and does not constitute professional advice. TMG Consulting makes no representation as to accuracy, completeness, or suitability of any information on this site and will not be liable for damages arising from its display or use.