US online gambling legislation: the past, present and future
If there is one country that could be picked out for having a love-hate relationship with gambling, it’s the United States. While a large percentage of countries all across the globe are happy to allow their citizens to gamble with impunity, the United States has taken a stand – particularly with online gambling – which at times may seem illogical, or even perverse. While the Federal Government is happy to allow Americans to buy as many lottery tickets as they want, it’s not so accepting of its citizens who wish to gamble their earnings at an online poker table.
This article will provide a chronological break down of the US’s long and complicated relationship with gambling, and in particular online gambling legislation.
As the fledgling ‘new world’ continues to develop, a proportion of the funds needed for building and trading is derived from lotteries. The British crown places restrictions on such lotteries, fuelling tensions between Britain and the colonies, contributing to the eventual outbreak of the American Revolution.
A growing moralistic movement against gambling begins to sweep across the country. Five ‘professional’ gamblers are lynched in Mississippi, causing pro-gamblers to move away from the land and onto riverboats, or away from gambling hotbeds such as New Orleans and towards the flourishing ‘Gold Rush State’ of California.
Between 1833 and 1860 all states aside from Delaware, Missouri and Kentucky ban lotteries.
Gambling is now illegal across most of the US. The last state to pass legislation is California, where it becomes illegal to provide or partake in any form of gambling activity.
Slot machines, which were first developed in San Francisco, are banned.
Following the Wall Street Crash of 1929, which saw $30 billion (nearly $410 billion in today’s money) wiped off the value of US stocks in under two days, the United States becomes desperate to consider any method of stimulating the economy, including gambling. Massachusetts decriminalises bingo in 1931, and several states legalise parimutuel and horse race betting in 1933.
Nevada legalises most forms of gambling in 1931 to build on the tourism boom it enjoys following the completion of the Boulder (now Hoover) Dam. Gamblers begin to drift to Nevada from other “hot” gambling states such as California, where gambling remains illegal.
Mobster Bugsy Siegel obtains a gambling license and opens the Flamingo casino in Las Vegas, helping to establish Las Vegas as the gambling capital of the US.
The US passes the ‘Interstate Wire Act’ which makes it illegal to use “a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest.” This act is passed to stop the common practice of bookies receiving information on sporting events ahead of punters, while still allowing punters to place losing bets on events that have already concluded.
New Hampshire becomes the first state to introduce a state-run lottery, followed by New York in 1967 and New Jersey in 1971.
New Jersey becomes the second state to legalise casino gambling to help revitalize the ailing resort area of Atlantic City.
The tiny Caribbean island of Antigua and Barbuda passes the ‘Free Trade and Processing Zone Act’, allowing licenses to be granted to internet operations wanting to open online casinos.
The first online casino is opened by Internet Casinos, Inc. The company operates out of the Turks and Caicos Island in the Caribbean. They offer eighteen casino games and access via the internet to the National Indian Lottery.
InterCasino is launched, and swiftly gains an excellent reputation for its reliability and security. The internet gaming companies Microgaming (online casino software) and Cryptologic (secure internet payments) are launched.
PartyGaming is founded. They initially just offer casino games, but then in 2001 they launch PartyPoker, their flagship poker room.
Microgaming launches ‘Cash Splash’, the first online slot with a progressive jackpot. A survey by the global growth consulting firm Frost and Sullivan reports that world-wide online gambling generates annual revenues in excess of $834.5 million. Around $600 million of this amount originates from the United States.
The US Federal Government makes its first attempt to ban internet gambling, by introducing the ‘Internet Gambling Prohibition Act (IGPA)’ to the US Senate. The bill fails to pass, mainly thanks to the lobbying efforts of businessman ‘Casino’ Jack Abramoff.
Online casino revenue tops $8 billion worldwide, with $3.5 billion coming from the United States.
The online poker room PokerStars begins life as a play-money-only site in September, and begins offering real money wagering in 2002.
Chris Moneymaker wins the 2003 World Series of Poker. Moneymaker had won a seat at the WSOP by entering a $39 satellite tournament at PokerStars.com. By winning the event, Moneymaker takes home a cool $2.5 million, and causes what becomes known as the ‘Moneymaker effect’, in which hundreds of thousands of players flock to the online version of poker in the hope of emulating their new hero.
Full Tilt Poker opens as an online poker card room with the help of a team of poker pros including Phil Ivey, Howard Lederer, Jennifer Harman and Chris Ferguson.
The CEO of online gambling company BetOnSports, David Carruthers, is arrested and charged with racketeering conspiracy. He pleads guilty and is sentenced to thirty-three months in prison. He was charged initially under the 1961 Wire Act.
In October, the US Senate passes the ‘Unlawful Internet Gambling Enforcement Act 2006 (UIGEA)’, prohibiting financial institutions from transferring money to or from online casinos. The act is created in response to the terrorist attacks on the US on 11 September 2001, in an attempt to prevent ‘terror’ organisations from using online casinos as a front for money-laundering operations.
This legislation effectively outlaws US players from playing at online casinos, and has a devastating effect on the world online casino market. PartyGaming loses 57 percent of its value in one day. Sportingbet, which owns Paradise Poker, falls 60 percent. 888 loses 33 percent and bwin.com 24 percent.
The vast majority of online casinos close their doors to US-based online gamblers, including Party Poker, Paradise Poker and 888’s Pacific Poker. PokerStars, Full Tilt Poker and Absolute Poker continue to admit US players.
NETeller, the online payments service provider, pulls out of the US market completely.
Microgaming pulls out of the US.
The New Jersey Senate becomes the first US body to pass a bill that expressly legalises certain forms of online gambling. The bill allows New Jersey companies to take bets on poker and casino games.
On April 15, 2011, the FBI seizes the domains of PokerStars, Full Tilt Poker and Absolute Poker in tandem with indictments made against eleven individuals, including Isai Scheiburg, the founder of PokerStars, and Raymond Bitar, the CEO of TiltWare, Full Tilt Poker’s software company. The FBI are seeking jail sentences for those indicted and $3 billion in compensation from the companies whose domains were seized. All the charges relate to violations of the UIGEA.
Five days later the domains are returned to PokerStars and Full Tilt Poker to enable US players to withdraw funds held in accounts at these poker rooms. PokerStars and Full Tilt Poker close the doors to US-based poker players. Absolute Poker is declared insolvent.
The US department of justice issues a letter that states that the 1961 Wire Act, which is often used to crack down on online gambling, only applies to sports betting.
The US government dismisses all civil complaints against PokerStars and Full Tilt Poker. An undisclosed settlement is reached with the companies, which includes PokerStars purchasing Full Tilt Poker.
A man is convicted of operating an illegal underground poker club on Staten Island, holding Texas Hold’em games in the back room of a warehouse. However, on appeal his conviction is overturned by a NY federal judge – Judge Jack Weinstein – who declares “poker … is not predominantly a game of chance, it is not gambling”. This decision fuels hope among US poker players that poker will be ‘decriminalised’ in the US.
Delaware announces plans to fully legalise all forms of online, casino-based gambling, including roulette, poker and blackjack.
The state of Nevada legalises online gambling. Nevada-based online companies can provide online gambling for Nevada-based players as long as they pay a one-off $500,000 fee, and an annual renewal fee of $250,000.
New Jersey legalises online gambling, with companies offering such facilities to New Jersey players paying a tax rate of seventeen percent.
Nevada and Delaware sign a deal allowing Nevada-based players to play at online casino operations based in Delaware, and vice versa.
It is reported that seven states in the US are consider legalising online gamble – California, Illinois, Massachusetts, Mississippi, New York, Pennsylvania and Washington. None of the bills presented got off the floor.
New bills presented by California, Pennsylvania, New York and Michigan advance further than ever before, but all except Michigan eventually fail. The Michigan bill carries on into 2017.
A big blow to the future of online gambling and poker in the USA – anti-gambling politician Mike Pence is elected vice-president to the newly-incumbant Donald Trump.
Back in 2014, the American Gaming Association commissioned an assessment report on the gambling industry’s contribution to the US economy. Some of the figures released were astounding:
- Gambling involves the direct employment of 570,000 people, with 1.7 million jobs being impacted by the industry in some way
- Annual revenues of over $80 billion
- $38 billion in tax dollars
- $102 billion in direct economic impact
- $240 billion in total economic impact
These figures are numbers that the Federal Government is in no position to ignore, especially as it continues to rebuild the US economy after the 2008 banking crisis. It therefore seems likely that the pioneering moves introduced by Delaware, Las Vegas and New Jersey will soon be repeated state-by-state, establishing a network of US online gambling.
Objections to gambling in the US have always been raised on either moral or anti-criminal grounds. The increasing global acceptance of online gambling is helping to sway public opinion on the former, while successful government-led legislation across numerous counties is helping quell fears concerning the latter.
All this of course is sweet music to the ears of US-based casino aficionados. It’s surely only a matter of a handful of years before the majority of US-based online gamblers finally receive a legal invite to the global online gambling party.
Image Credit: The Game Hunter
Originally published on 25/11/15. Updated 06/07/17.