USA Online Gambling - An Update

There is so much going on in the US in regards to online gambling that it is almost impossible to write and all-encompassing article. I won’t try to cover all of it, but here is an overview of relevant developments.

Previously passed laws:

The Wire Act was enacted in 1961. It was intended to prohibit sportsbetting by telephone to bookmakers. Then U.S. Attorney General, Robert F. Kennedy, thought it woild discourage organized crime and bookmaking.

The Professional and Amateur Sports Protection Act of 1992 (Pub.L. 102-559) set out to define the legalization of sports betting throughout the United States. This act effectively outlawed sports betting nationwide, excluding a few states.

The sports lotteries conducted in Oregon and Delaware were exempt, as well as the licensed sports pools in Nevada. Also excluded from the reach of PASPA are jai alai and parimutuel horse and dog racing.

And of course we all know about the UIGEA. The Security and Accountability For Every Port Act of 2006 (SAFE Port Act, Pub.L. 109-347) was an Act of Congress in the United States addressing port security. An online gambling measure was added at the last moment. The House and Senate passed it on September 30, 2006. President Bush signed the Act into law on October 13, 2006. Title VIII of the Act is the Unlawful Internet Gambling Enforcement Act of 2006 (or UIGEA). It (31 U.S.C. § 5361–5367) prohibits the transfer of funds from a financial institution to an “illegal Internet gambling site” and excludes fantasy sports, online lotteries, and horse/harness racing but does include online casinos, poker rooms and sportsbooks accepting real money bets.

Lobbying:

The BolaVerde Media Group (BVMG) recently released a new Internet Gambling Federal Lobbying report which estimates that $3.65 million was spent lobbying the U.S. government over online gambling during the third quarter of 2009. This includes both supporters and opponents. This money is a 50% increase from the previous year.

The leaders of the spending craze were Harrah’s Entertainment Inc., UC Group Limited and the Interactive Gaming Council. Their combined spending was $2.04 million, or 55.9% of the total. This is money spent in favor of online gaming.

It stands to debate how much influence lobbyists had on the current flurry of actvity regarding online gambling, both on a federal and state level.

Current activities on the federal level

There were 37 separate Internet gambling bills introduced in Congress between 1995 and 2010,by 19 different politicians. Balestra from BVMG said “It’s striking to me that while there’s been no shortage of political activity, no Internet gambling bill has passed both chambers of Congress as a standalone bill, and just one – UIGEA – passed as part of an unrelated bill and signed into law“. Let’s focus on two of the more interesting ones.

In the U.S. Congress, House Representative Barney Frank (D-MA), Chairman of the House Financial Services Committee, has promoted a federal resolution to legalize and regulate the internet gambling industry in the U.S. (H.R. 2667).

As of the time of this writing, Rep. Barney Frank’s Internet gambling regulation, Consumer Protection and Enforcement Act has signed on its 66th co-sponsor, Ohio representative Charles Wilson. The bill is designed to legalize and regulate internet gambling while protecting and safe guarding players, and instituting safeguards against compulsive and addictive gambling, underage gambling, money laundering and fraud and identity theft.

The bill also allows each state to decide on its own whether or not to allow internet gambling within its borders. It also provides for states and Native American tribes with experience in running regulated gaming, to have a role in the regulatory process. Wilson, a Democrat, is the third Congressman from Ohio to sign on to co-sponsor the legislation.

Most recently, on February 23, US Senators Ron Wyden (from Oregon) and Judd Gregg (New Hampshire) introduced the Bipartisan Tax Fairness and Simplification Act of 2010, a bill to simplify and reform the US tax code. The proposal includes a number of tax cuts, which the authors intend to offset by regulating and taxing Internet gambling.

“For a variety of reasons, we don’t believe this particular legislation shows a lot of promise,” BVMG Managing Director Mark Balestra explained. “However, this marks an important step for Internet gambling in Washington. “We believe the best short-term opportunity to move a pro-Internet gambling measure at the federal level is to make it a funding component for necessary, expensive legislation, particularly as Congress faces this historic budget deficit. Not only does the tax reform bill bring I-gaming back to light in the Senate, it is the first case in which such a policy has been successfully attached to another bill.”

On the State level

Many U.S. states are on the verge of bankruptcy. They are looking for a magic bullet that will increase tax revenues without cutting even more services for their already over-taxed residents. Many state governors and state legislators are trying to push through laws in anticipation of overturning the federal law that prohibits sports betting on both professional and amateur sports, the Professional and Amateur Sports Protection Act of 1992 (28 U.S.C. §3701) (PASPA).

The state legislature of New Jersey passed State Resolution No. 19 on January 12, 2010. It authorizes Senate President to “take legal action concerning certain federal legislation prohibiting sports betting.” It aims to repeal the federal ban on sports betting.

Senator Raymond Lesniak, who originally launched a lawsuit on his own in March 2009 against the federal government, claims that the 1992 law violates the 10th and 14th Amendments to the U.S. Constitution, in that “It establishes a selective prohibition on sports betting in the U.S.” The argument is that it violates the 10th Amendment to the United States Constitution by regulating a matter that is reserved to the States. And that it violates the 14th Amendment to the United States Constitution by being unconstitutionally discriminatory against the Plaintiffs and the people of the State of New Jersey.

Legislation was passed by the New Jersey legislature in its state Senate to amend the New Jersey State Constitution, allowing legalized sports betting, which the New Jersey voters would ultimately vote on in a referendum as early November 2010.

There are other states proposing sports betting and expansion of casino gambling, including online gaming, such as Iowa, Delaware, Massachusetts, California, Texas, Alabama, Missouri, Georgia, Florida, Pennsylvania, Indiana, Maine, New Hampshire, Connecticut, , Michigan, Kentucky, Illinois, and possibly more.

Delaware won the right to offer 3-game parlay style sports betting at its 3 racetracks or racinos for NFL games only. Delaware has not yet given up its fight to expand it’s offering and has appealed to the U.S. Supreme Court.

Iowa is crafting legislation to allow legalized sports betting.

California plans to introduce an online gaming network. However, there might be a conflict with the Indian Gaming licenses entered into in 1999 with Native American tribes. California tribes threatened to stop paying California state taxes on it’s gaming revenues if California pursues the online poker network plans. The state’s position is that the contracts do not include poker and cover only games of chance.

California wants its poker network to go nationwide, raising revenues by ultimately licensing interstate networks and thereby generating additional profits through the ownership of such various licenses between states.

Florida became the second state to file an intrastate egaming bill, when State Representative Joseph Abruzzo filed the Internet Poker Consumer Protection and revenue Generation Act of 2010. They are also planning legal, intrastate online poker. Florida may also allow it’s 21 pari-mutuels to operate card rooms as licensees of online poker companies. The players would be pooled into a central network. This network would be run by a central hub operator, chosen by the state.

Hub operators would be required to pay a non-refundable license fee of $500,000 to Florida’s Division of Pari-mutuel Wagering of the Department of Business and Professional regulation. They would then pay an annual license fee of $1,000 . They would also pay an additional 10% of gross receipts from the intrastate poker.The state tax rate for the card rooms will be 20% of gross receipts of the rooms. Player protection and safeguards against gambling addiction are also in the bill.

Missouri State Representatives Jason Grill and Mike Colona have also enlisted in the war against sports betting restrictions. They have put forth House Concurrent Resolution 22, calling on congress to repeal the Federal Professional and Amateur Sports Promotion Act (PASPA) of 1992. The proposal asks congress to repeal PASPA and allow states that wish to do so, to offer sports betting and thus partake in the economic benefits. This would include the estimated $81.5 million legally bet on last year’s Super Bowl.

Things are definitely happening at a rapid pace now. Where will that lead us? How will gambling affiliates be affected? How will existing online gambling properties fare? It’s hard to say. Most online entities use affiliates - but will they pay a decent rev share? Who will provide the software? Lots of questions and only time will tell.

This article is provided courtesy of Games and Casino and was authored in April 2010.

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