Legal Gambling: Looking Back, And Forward

© Copyright 2009, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, www.GamblingAndTheLaw.com

“The more things change, the more they remain the same.”
Proverb, attributed to Alphonse Karr

Even before inauguration day January 20, 2009 in the U.S., it looked like everything was going to change for internet gaming. Long before the November 2008 general elections, it was clear that the disastrous presidency of George W. Bush would result in a rout of Republicans. Democrats had already taken over control of both the House of Representatives and the Senate two years earlier.
And, in fact, a rout is what did indeed happen. Not only did Barack Obama win the presidency, but the Democrats increased their majorities in both houses of Congress, eventually getting an unstoppable 60 votes in the U.S. Senate.
Professional bureaucrats, like the regulators at the U.S. Treasury, Federal Reserve Board and Department of Justice (DoJ), know how to count votes. For example, the former Senate Majority Leader, Bill Frist, had used the last, fading power of the then- Republican majorities to ram through his Unlawful Internet Gambling Enforcement Act in 2006. Although it was a horrible mess of a bill, cobbled together by a failed politician in a vain attempt to gain support for a presidential bid, it did become an Act of Congress. It was therefore a matter of federal law that these agencies issue regulations requiring banks and other financial institutions to identify and block payments for illegal online bets. But the agencies pulled their proposed regulations, and appeared ready to wait to see if the incoming Democrats would change the law.
Criminal prosecutions, or, more accurately, the sporadic threat of prosecutions, of foreign licensed operators faded. If Congress was going to make internet gaming legal, it made little sense to file charges against current or past operators. U.S. Attorneys and their assistants know that it may be legal to go after someone who has violated the law for an act that was a crime, but is no longer prohibited, but that juries would be reluctant to convict. Worst, the prosecutor might become the subject of editorials or the butt of late night TV jokes.
A new President meant a new DoJ, from the top down, including new U.S. Attorneys around the country. Gone were the right-wing religious fanatics and other “Bushies,” who were the leaders of the crusade to frighten internet gaming into submission. Federal prosecutors shifted their focus to looking at the financial crimes involved with the economic meltdown, and potential war crimes charges against former Vice President Dick Cheney’s associates.
Representative Barney Frank (D.-MA) enjoyed the attention he received for standing up for reforming the UIGEA. He fell only one vote short in his first major attempt in the Summer of 2008, before the Democrats increased their margin and he, his power in the House. Frank began to find co-sponsors for his bills, even including Shelley Berkley (D.-Nev.), the former national director for the American Hotel-Motel Association, who represents the city of Las Vegas and the adjacent Las Vegas Strip. He eventually found an ally in the Senate in Robert Menedez (D.-NJ), from another state known for its landbased casinos.
Optimism ran so high that proposals for government study commissions, a way of getting political cover for controversial ideas, were dropped in favor of the real thing: bills to make internet gaming legal in the U.S.
It has not happened. And it looks less and less likely to occur on a national basis in the near future.
Bowing to political pressure from the Bush White House, Treasury and the Federal Reserve Board issued the final regulations required by the UIGEA, the day before Obama was sworn in. The rumors that an anti-internet gambling task force in the U.S. Attorney’s office in New York was being disbanded were shattered when those federal prosecutors seized millions of dollars in online poker players’ funds. And hearings on Franks’ bills in Congress were postponed.
Similar inactivity took place at the state level. The UIGEA, designed to outlaw online gaming, was so poorly written that it accidentally boosted some efforts at legalization. For example, it expressly exempted fantasy games and intra-state gambling. Although technically not amending state laws, or even other federal statutes, the UIGEA and regulations were read as legitimizing these and other forms of gaming.
This led to a lot of talk, but in the end, little action. The one successful bill: a formal study on internet poker ordered by state of Florida.
California was the greatest missed opportunity. The largest poker playing state, with a population greater than Canada’s, California’s state government was, and still is, nearly bankrupt. This gave the state’s many licensed card clubs and Indian casinos the opportunity they had been looking for, to argue that intra-state poker should be made legal, and taxed. But, ironically, the financial crisis itself proved to be the barrier. Governor Arnold Schwarzenegger and the State Legislature were obsessed with finding ways to raise money. But even estimates that the state could raise $1 billion a year from online poker were too small to attract attention with projected deficits 40 times that size.
Proponents in California greatly weakened their case by asking for the politically unpalatable and legally impossible. One activist wanted the state to, in effect, give him a monopoly on sports betting, which would require an act of Congress.
Optimism has given way to cynicism. At the EiG in Copenhagen in September 2009, political activist Jim Tabilio opined that Barney Frank might be able to milk the proponents of legalization of internet gaming for another ten years of political contributions.
This is all a reminder that in the U.S., laws are made by men, women and committees, and that the process is almost purely political, not scientific.
Of course, there have been real-world problems that have had to take priority: the Great Recession, two wars and Islamist terrorism. But those of us who are involved with internet gaming on a daily basis have to keep reminding ourselves that, basically, nobody else cares about the issue.
The main opposition is religious conservatives. But even liberals often feel uneasy about the idea of gambling entering the home, if they happen to think about the issue at all. And gaming cuts across party lines: When Trent Lott, conservative Republican from Mississippi, was Majority Leader of the U.S. Senate, the land-based casino industry had as much political influence as it has now under Harry Reid, Democrat from Nevada, because Mississippi is the third largest casino state.
This does not mean the situation is hopeless. I disagree with Jim Tabilio – I think there is a good chance Congress will approve legalizing internet gaming, or at least poker, on a state’s rights basis, as early as next year. Barney Frank is an extremely powerful, and smart, legislator. The bills he and Sen. Menendez wrote were carefully crafted to deflect the major political opponent, the professional and college sports organizations, by expressly prohibiting all sports wagers and excluding from licensing anyone who ever took a sports bet from the U.S. More importantly, the proposals are written to make the Nevada landbased casino operators happy, by allowing that state’s industry-friendly regulators to be the real power behind the federal licensing scheme.
Despite a few headline-grabbing events, federal prosecutors really are not much interested in going after internet gaming operators, with a few exceptions: They hate people who thumb their noses at law enforcement, say, by going on national television and bragging that they can’t be arrested. The DOJ has long memories when it comes to organized crime and consumer fraud; prosecutors occasionally have to make an example of someone, especially for things like not paying taxes.
And a separate movement is developing, of courts ruling that poker is a game of skill, and therefore not gambling. Successes and partial successes, like a judge declaring poker predominantly skill but still illegal, have been obtained in only a handful of states. But this is a handful more than existed only a few years ago. And some of these were jury trials.
The evidence is thus only anecdotal, but it does appear that a trend is spreading among the general population that poker should not be lumped in with more dangerous forms of gaming, like slot machines. And once the general public supports at least partial legalization, legislators will follow.
So the future of internet gaming in the U.S. will probably be as follows:

Skill games, fantasy sports and free alternative means of entry – These are legally not gambling in the overwhelming majority of states and under federal law. The UIGEA acted as a big boost for this part of the gaming industry, and there is no real movement to cut it down.
Horseracing – The industry is mature. It has known for decades how to use the political systems. It is struggling to survive, in part because it took horsemen and women so long to understand that people go to tracks to bet, not just to look at the races. Horseracing has already locked in its right to use the internet. With a new administration, and in light of the World Trade Organization’s decision in favor of Antigua and the fact that racing is already international, legal wagering on horseraces will continue to expand across state and national borders.
Dogracing & jai alai – Although also mature, these forms of parimutuel wagering are much smaller and do not have the cache of horseracing. They have not been as successful in making it clear under federal and state laws that bets can be made interstate and internationally, though they are. They are more likely to die from competition from other forms of gambling than from prosecutions for technical violations of bans on cross-border betting.
State lotteries – Also mature, they do not have the practical experience horseracing has had in dealing with lawmakers, especially on the federal level. More and more of them are going to be taking bets on the internet. Sales will be mostly intra-state, though multi-state lotteries allow even the smallest states to offer life-changing prizes.
Bingo – Most of the games that are now offered on the internet are not true gambling, because they are free to enter. It is difficult to envision the enormous changes in state and federal laws that would be required to allow true bingo to operate online. Most landbased games are run by charities, which are extremely restricted in their rights to offer gambling online.
Indian gaming – Tribes with landbased casinos and large, high-stakes bingo halls have become powerful political players. But they are split on whether they should go online. They are also continuously opposed by the states, which view them as under-regulated, under-taxed competitors. On the other hand, their unique legal status, as domestic nations, means that any expansion of internet gambling will be shared by federally recognized tribes.
Casinos – Privately owned casinos are also split. Many are too busy keeping one step ahead of Chapter 11 to worry about expanding onto the internet. Others are regional operators, who are concerned with landbased competition. A few big players are opposed, like Steve Wynn. But others, especially Harrah’s, understands that, like Indian gaming 20 years ago, internet gambling is not going to just go away. Therefore, it would be better to jump in and help it get set up legally, so that they can run the games. Still, most people, and politicians, don’t really like casino gambling, and especially don’t want it entering homes and being played by minors.
Poker – This is the area for greatest growth, as the game becomes an increasingly accepted part of American mainstream culture. Most people view it as basically harmless, and lawmakers see it as a way to raise revenue.
So, despite the many setbacks, there is a future for internet gaming, and its name is poker.
END
© Copyright 2009, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose. Harvard Law School educated, Prof. Rose is recognized as one of the world’s leading experts on gambling law. He is an internationally known public speaker and a consultant and expert witness for governments and industry. His latest books, Internet Gaming Law (1st & 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.