Legal Online Gambling

Since the introduction of the World Wide Web in the early 1990s, there has been explosive growth in the online gambling industry.  With the rapidly increasing presence of these operations, most of which are managed outside the United States and Europe, the U.S. Congress began to push for legislation that would ban internet gambling.

 

The first online gambling site launched in August 1995.  The Internet Gambling Prohibition Act was filed in the U.S. Senate in 1997.  By that time, internet gambling had become a 300 million dollar industry staked on a mere 32 online casino sites.

 

Today, it is estimated that there are well over 3,000 internet gambling websites, many of which offer various wagering options, including sports betting, casino games, lotteries and bingo.

 

Internet gambling revenue in the United States was $5.9 billion in 2005, according to Christiansen Capital Advisors (CCA).  CCA estimates that nearly 23 million people gambled on the internet in 2005.  Approximately 8 million of those gamblers were from the United States.

  

Legislation on Internet Gambling

On Friday, October 13, 2006, the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) became U.S. law.  Though it does not explicitly forbid online gambling, it prohibits the funding of internet gambling.

 

The UIGEA makes the acceptance of bettor funds by operators of most online gambling websites illegal.  Online gambling operators who knowingly accept deposits intended for wagering from credit cards, electronic fund transfers and/or checks in connection to or with the participation of a bettor are conducting illegal activities.  These illegal activities may violate federal and/or state anti-gambling laws, and are punishable by fine and imprisonment.

 

By way of explanation, it’s important to understand how online casinos earn revenue.

 

Typically, gamblers upload funds to the online gambling company, make bets or play the games that it offers, and then cash out any winnings.  Non-U.S. gamblers may fund their gambling accounts by credit card or debit card, and they may cash out winnings by placing them directly on their credit or debit card. 

 

As a result of the UIGEA, U.S. banks now prohibit the use of their credit and debit cards for the purpose of internet gambling.  Attempts by Americans to use credit cards at internet gambling sites are summarily rejected.

 

A number of electronic money services offer accounts with which online gambling can be funded.  However, many top fund-transfer sites such as FirePay, Neteller & Moneybookers have discontinued service for U.S. residents.

 

Some officials argue that it is against the law to wager over the internet and by telephone. Others claim that the illegal part is the gambling operation itself (i.e. whether or not its operations are based in the U.S.).  To circumvent the latter, many gaming sites operate offshore in places like the Caribbean, Latin America and Australia.

 

Still others say that it's simply not worth debating.  The rationale here is that gambling cases are unpopular to prosecute and are often ignored unless an egregious illegal or ethical code has been violated.

 

The Internet Gambling Regulation and Enforcement Act, introduced in Congress in April 2007, established an enforcement framework for licensed gambling operators to accept bets and wagers from individuals within the United States.

 

This bill chokes web gaming’s money supply by making it illegal to write a check, use a credit card or tender any form of payment to gambling online.  Provisions in the bill require bank regulators use their enforcement powers to go after banks whose officials either knowingly or unknowingly permit payments be made.  

 

 

Revenues from Internet Gambling 

Let’s pause here and go back to the late Nineties.

 

1997 saw the advent of the online casino craze, a time when the American economy was still booming and the internet was the latest trend.  By 1998, the dot come bubble had burst and several web powerhouses went belly up.  It was advertising revenue from offshore gambling sites that helped in keeping the internet economy afloat.

 

Today, this same revenue remains a driving force behind internet profitability.  Because most offshore gambling sites are out of the reach of U.S. authorities and are legal in the countries in which they operate, there is precious little U.S. legislation can do to stop them from doing business. 

 

It is estimated that 60 percent of all offshore gambling dollars come from Americans. But according to the U.S. Justice Department, internet gambling is illegal for Americans.  The courts have ruled that under the 1961 Wire Wager Act, which prohibits the use of phone lines for placing sports bets, internet sports betting is also illegal.

 

Many credit card companies have already distanced themselves from online gambling.  This list includes Bank of America, Fleet, MBNA and Chase Manhattan, as well as Citibank, which controls approximately 12 percent of the U.S. credit card market.

 

Credit card transactions are often coded to indicate what is being bought or sold.  By blocking certain codes, banks that issue credit cards can avoid issuing credit for much of the gambling activity that occurs on the internet.

 

In the past, companies like PayPal dominated the online gambling payment market.  This is no longer the case, however, as PayPal recently determined to stop taking gambling payments due to the uncertainty of the law. 

 

 

Legal Gambling: Other Issues

Gambling Addiction:  Another issue is how to address the needs of problem gamblers.  Online casinos present difficulties for these individuals, just as land-based casinos do.  But online casinos have the ability to set financial limits on an individual's gambling via the use of shared record-keeping.

Social Arbiters:  Ironically, it is the U.S. federal and state government itself that has become the largest supporter of gambling.  There are 44 states that have lotteries, 29 of whom have casinos.  To a greater or lesser degree, most of these states are dependent on revenues raised from gambling activities.

 

Social Stigma:  Where it was once viewed a sin or a social disease, gambling is now widely considered a hobby, a distraction, a vacation, even a career.   Newsweek, a popular U.S. magazine, recently reported that gambling has become a common feature of American life. 

 

The position of the American Gaming Association, which represents the commercial casino entertainment industry, has remained constant throughout the debate.  The association maintains that “the technology necessary to provide appropriate regulatory [sic] and law enforcement does not presently exist with regard to internet gambling… until those concerns can be adequately addressed, the AGA remains opposed to internet gambling."
 

International Reaction to Legal Gambling

Countries in which online gambling is legal take exception to U.S. attempts to outlaw it.  Antigua and Barbuda recently announced their intention to bring the United States before the World Trade Organization (WTO) over its anti-internet gambling stance and what they see as interference in their economic development.

 

Antigua has more than 100 licensed online casino operators that, in total, generate millions of dollars every year for the Antiguan government.  With the downturn in the tourism industry, it has come to rely on revenues resulting from the licensing and taxing of online casinos within its territory.  The online betting industry employs 3,000 people in Antigua, and officials say the U.S. is in violation of its commitments under the WTO's commercial services agreement.

 

Legal Gambling: Pros and Cons

Pros
Legalizing Internet gambling has positive sides for all parties involved - gamblers, gambling websites and government.

• For online gamblers, security is arguably the most important feature of legal online gambling - how many times have you gambled online at a casino or a sportsbook and won, only to find out that there will be no check coming your way?

   

  Crooked online casinos and sportsbooks will continue to exist, even if internet gambling is legalized.  But legalization will mean more licensed gambling websites and less fraud.

   

• The benefits of legal gambling for casino site operators are obvious.  Decriminalizing businesses, whether a sportsbook, casino, poker room or payment processor, means entrepreneurs can look out for their customers, versus looking over their shoulders for the authorities.

   

• This brings us to the third group of legal online gambling beneficiaries – the government.  Supporters of online gambling cite a recent tax revenue analysis prepared by PriceWaterhouseCooper that says federal revenue from regulated internet gambling is estimated to be between $8.7 billion and $42.8 billion over 10 years.

   

  Of course, resources must be set aside to oversee the industry and the laws, but this seems an insignificant cost when compared to the benefits and revenues to be gained from legalizing online gambling.

 

Cons
On the other side of the argument are the cons.  

• There are several online sportsbook and casino operators who have no desire to participate in legalized gaming in the United States.  Legal gaming would mean taxation, and taxation means sharing profits.  

 

 

Legal Gambling: A word in closing 

Online gambling is still considered a legal grey area.  While it is technically illegal in most of the United States, the prosecution and conviction of individual players is very difficult because they're gambling from home.  It is also illegal for a gambling website to operate within the United States, which is why the offices and servers of most online casinos are located in other countries.

 

There are now more than 70 countries that allow online gambling sites within their borders, including Australia, New Zealand, South Korea, Denmark, Finland, Germany, and Canada.

 

When you register for an online casino, you are required to agree to the site's terms and conditions.  Finding out whether or not gambling is legal where you live is your responsibility. You must also abide by any age limits set on gambling in your locality.  If online gambling is illegal in your area and authorities discover that you've won money, your winnings will be revoked.  Check reputable web sources to make sure you benefit from your winnings and are not violating any laws.