Online gambling action shifts to states
By Martin Merzer
Thwarted by federal
law and entangled in a knot of often contradictory regulatory and judicial
rulings, millions of American credit card users eager to place online wagers
are finding that their state governments may be their best bet.
A number of states,
hungry for new revenue and influenced by supporters of online poker playing and
more risky forms of gambling, are moving toward the partial legalization of
Internet gaming. Not
surprisingly, Nevada is leading the drive at this point, but legislative or
regulatory action regarding online betting also has been under way in Delaware, California,
New Jersey and several other states.
have opened and 2012 will likely be an active year for state legislatures
around the country," said Laurie Itkin, founder of Rouge Government & Public
Affairs, a San Diego, Calif., legislative and regulatory consulting firm that
keeps a particularly close eye on online gambling and related issues.
All of this is of
great interest to many credit card customers. Yet it's a multilayered and
exceedingly complicated issue. So, before examining the situation in several
key states, we should set the stage by taking a look at the overall national environment
and the online gambling state of the art.
gambling" is an umbrella term that covers pretty much all forms of online gaming,
including sports betting, Web-based slot machines and other activities often
found in brick, mortar and neon-intensive casinos. Virtually all online betting
is funded by charges placed on and winnings transferred to gamblers' credit
cards. By 2008,
online betting accounted for about $22 billion in annual global revenue, according to industry estimates, with half of that
originating in the United States.
most popular form of Internet gambling, by far, is online poker. How popular?
Try this: The Poker Players Alliance, a Washington, D.C.-based lobbying
organization, alone claims more than 1 million online poker players as its
supporters. During online poker's heyday a few years ago (more about this
later), tens of thousands of Americans would be playing at any given moment.
2006, Congress attempted to ban or at least significantly restrict what it
called "illegal Internet gambling." Acting in the dead of night, tacking the
restrictions onto a totally unrelated port security bill, Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA). Republican supporters said they were
trying to protect young Web-surfers and adults addicted to gambling; Democratic
opponents said the law primarily was intended to protect the interests of
politically influential casino operators.
The bill sought
to choke off the money supply to online betting operations by prohibiting
credit card companies and other institutions from processing financial
transactions involving those firms. It was signed into law by President George
W. Bush Oct. 13, 2006, and went into full effect Jan. 19, 2009.
Complicated legal landscape
The federal law is vague and ambiguous. Among other things, it never
gets around to defining the key term "illegal Internet gambling," and it significantly
complicated efforts for everyone involved in the activity -- individual
gamblers, online betting operations and credit card companies.
April 15, 2011, a day now called "Black Friday" by online gambling advocates,
the U.S. Justice Department indicted the founders of the three largest online poker operations
-- PokerStars, Full Tilt Poker and Absolute Poker. The feds seized those poker websites
and issued scores of restraining orders. The charges, based on the UIGEA,
included bank fraud, conspiracy, unlawful Internet gambling, money laundering
and wire fraud.
upon thousands of U.S. online poker players later learned that their accounts
-- funded by their winnings and by charges to their credit cards that often were
processed by foreign institutions -- had been drained dry by what federal
prosecutors called outright fraud and a sophisticated Ponzi
scheme. Nearly [%Link?type=article&id=5841&text="$300 million
in those U.S. gamblers' accounts vanished"%], allegedly into the hands of the poker
September 2011, the U.S. Justice Department issued an opinion
quite favorable to most forms of online gaming. It said
that the Federal Wire Act of 1961, which prohibits the use of telephone lines
and similar means of communication in the placing of bets, applies only to
wagers placed on sporting events. Itkin described this as "a watershed event."
states the impetus to introduce intrastate online gaming
legislation, as the Federal Wire Act is no longer considered to pre-empt state
online gaming, except
for Internet sports wagering," she said.
some in Congress are trying to overturn or modify the UIGEA, and other efforts
are under way to specifically legalize online gambling. For example, a federal judge
ruled in August that, technically speaking, poker isn't gambling and thus,
presumably, shouldn't be covered by any federal anti-gambling laws. U.S.
District Judge Jack B. Weinstein of New York said poker predominantly is a game
of skill, a somewhat odd ruling that further complicates the situation for
pretty much everyone, though it was embraced by poker players.
"Judge Weinstein's thoughtful decision recognizes what we have
consistently argued for years -- poker is not a crime, it is a game of skill,"
John Pappas, executive director of the Poker Players Alliance, said at the
time. "As the judge's opinion aptly notes, poker is an American pastime that is
deeply embedded in the history and fabric of our nation and his decision sets
aside the notion that the vague laws render the game criminal."
Given a vague federal
law and friendly federal opinions, credit card users and anyone else trying to
assess the overall legal status of online betting -- at least at the federal
level -- might just as well roll the dice.
"What we need is
thoughtful, deliberate legislation that will regulate the thriving online poker
industry, require the most state-of-the-art technology to keep kids and problem
gamblers safe, protect players from fraudulent websites, and bring billions of
dollars and thousands of jobs to the United States," Pappas recently said in a
A turn to the states
Unwilling to wait for congressional
action that may or may not arrive, advocates of online poker and other forms of
Internet gaming have
turned their attention to state legislatures, regulatory agencies and governors'
Any state law or
rule regarding online or any other form of gambling applies only to that state. So, state-authorized
online gambling operations must be restricted to users currently within the
borders of that state. Several companies are at work right now developing
software that would monitor and regulate such activity, no easy task
considering the ability of hackers and even more ordinary Web surfers to
camouflage their locations.
With that in mind,
here is a thumbnail description of online gambling developments underway in
various states, listed by magnitude of activity.
A leader in the field, Nevada already has in place its online betting
legislative and regulatory foundation. It recently approved online gambling
licenses and more are on the way. Internet poker operations could begin soon,
limited -- as we have seen -- to intrastate players.
past few months, Nevada regulators have been awarding licenses to operators and
vendors and continue to work through the backlog," Itkin said. "Dozens of
companies have lined up to apply for licenses."
Somewhat surprisingly, Delaware also is a leader in online gambling, though in
a specialized subcategory. Its governor recently signed into a law a bill that
authorizes online lottery games. Pre-paid debit-type cards, sold by local convenience
stores and other retailers, are the only form of accepted payment and the games
can be offered only by Delaware's three existing licensed "racinos," racetracks
that also operate to some extent as casinos.
Jersey: A new law allows gamblers already on the grounds of Atlantic City
casinos to place a variety of bets through their smartphones and other mobile
devices. A bill allowing a wider form of Internet gambling throughout the state
is moving through the legislative process. Taken together, the laws would
authorize remote forms of blackjack, poker, slot machines and other
conventional casino games.
Several powerful state legislators proposed a bill that would authorize online
poker operations. An early version of the bill could have led to other online
casino games, but that element was eliminated. The bill died without final
action in 2012, but is expected to be resurrected in a subsequent legislative
A proposed law to allow casinos, racetracks and other entities to sponsor
currently unspecified online games is expected to be considered during the
state Senate's November-December session.
Iowa: The state Senate
passed a bill that would allow intrastate online poker wagering. The measure
was not considered by the House before the legislative session ended.
legislatures still have the challenge of building support for specific
approaches to online gaming," Itkin
said. "In California, for example, a number of powerful tribes oppose
online gaming legislation
unless it blocks nontribal entities from competing. The debate in
California could go on for many years because consensus appears to be hard to
credit card industry has to get its act together. Most authorities already
consider online bets on horseracing to be legal, but credit card companies and
other financial institutions -- constrained by that tangled knot of legal and
regulatory precedent -- are refusing to process bettors' credit card and debit
horse-racing wagering is a relatively small industry, there hasn't been a big
enough hue and cry to change the status quo," Itkin said. "As states begin
to legalize more forms of online gaming, the lack
of uniformity among banks and credit card issuers is going to be
frustrating for states and consumers."
See earlier story: Law bars processing credit cards for bets
Published: October 10, 2012
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