Is Online Gambling a Bad Bet?

Courtesy of en.wikipedia.org
By Carl Weiss

Since its inception, the US government has tried to put a stop to online gambling. Yet it has failed to slow, much less stop its spread. With the emergence of paid fantasy football sites, which advertise their games on TV, not to mention New Jersey offering legalized online casino games, is it any wonder that this industry is anything but a bad bet to developers and operators alike? Still, the feds persist in doing everything in their power to put the brakes on one of the most lucrative online industries ever created. In today’s blog we will look at the evolution of the online gambling industry.

Courtesy of  en.wikipedia.org
The birth of the Internet and online gambling occurred at nearly the same time.  In 1994, the Caribbean nation of Antigua passed what was called the Free Trade & Processing Act, which provided licenses for online casino operators.   While providing a safe haven for online casinos, the industry did not exactly start with a bang.  In fact, by 1996 there were only 15 sites offering online casino games.  But as other countries began to bet big by legalizing, regulating and taxing Internet casinos, the tide was bound to turn.  As a result, by the end of 1998 there were more than 200 online casinos generating some $830 million in revenue. 

Curiously, none of these were based in the United States.  That’s due to the fact that while other countries were busy legislating online casinos, the US was doing everything it could to stamp them out.  Granted, in the US in the 1990’s there were land-based casinos in two dozen States, plus an assortment of gambling cruises plying the high seas, not to mention horse racing, dog racing and lotteries galore.  Still, the feds decided that the best way to deal with online casinos was simply to make them illegal. 
Courtesy of  www.flickr.com

That’s not to say that everyone from US based search engines to advertising agencies, magazines, newspapers and online payment portals like PayPal weren’t able to cash in on the online gambling craze.  It also didn’t mean that US citizens weren’t able to play for cash at online casinos.  They could and did in droves.  By 1999, online gambling was so prevalent that it caused the feds to put the first shot across the bows of the online gambling industry when the Internet Gambling Prohibition Act (IGPA) was floated in Congress.  While the bill worked its way through Capitol Hill, it puts casino operators on notice.

A Washington political insider also took notice.  Lobbyist Jack Abramoff was being paid $100,000 per month by a company called eLottery that wanted to sell state lottery tickets online.  The company was founded in 1993, betting that it would be able to create an online business that could be worth billions.  The problem was that no sooner had eLottery inked its first deal with an Idaho Indian tribe to begin selling lottery tickets, when the Justice Department invoked existing gambling laws to shut them down.

To make matters worse, by late 1999, the Senate had passed the IGPA and it was up for a House vote to become law.  If that happened, eLottery would be history.  Arrayed against the online gambling industry was virtually everyone on the religious right, from the Moral Majority to the Christian Coalition.  If Abramoff was going to save the day he was going to have to pull the legislative rabbit out of his hat.  Searching for some leverage in the language of the bill that would allow him to turn the tide, he seized on exceptions in the bill for jai alai and horse racing.  What happened next was Machiavellian politics at its best.

Courtesy of  commons.wikimedia.org
To quote the Washington Post, “To reach the House conservatives, Abramoff turned to Sheldon, leader of the Orange County, Calif. - based Traditional Values Coalition, a politically potent group that publicly opposed gambling and said it represented 43,000 churches. Abramoff asked eLottery to write a check in June 2000 to Sheldon's Traditional Values Coalition (TVC).  He also routed eLottery money to Ralph Reed, former head of the Christian Coalition, along with a number of other organizations, including Americans for Tax Reform; Traditional Values Coalition, and a Seattle Orthodox Jewish foundation, Toward Tradition.

Abramoff had previously paid Reed's consulting firms to whip up Christian opposition to Indian casinos and a proposed Alabama state lottery that would compete with the gambling business of Abramoff's tribal clients.  Abramoff's plan: argues that the legislation and its exemptions would actually expand legalized gambling.

On July 17, 2000, the Internet Gambling Prohibition Act went down to defeat, to the astonishment of supporters who included many anti-gambling groups and Christian conservatives.”

Of course, when it came to eLottery, it was a case of winning the battle and losing the war, since it never sold another lottery ticket again.  As for the warriors, Abramoff and several other players would eventually be prosecuted for their activities, including Speaker of the House Tom Delay who was indicted on September 28, 2005.  After his indictment, DeLay stepped down from his position as Majority Leader. He was the first congressional leader ever to be indicted. 
Courtesy of  en.wikipedia.org

You Can’t Tell the Players without a Scorecard

But the game goes on as they say and by 2001 an estimated 8 million Americans were partaking in
online gambling.  Despite the mostly ruthless legislation the online gaming industry would continue to flourish.  As well as Antigua and a number of other Caribbean nations, other countries that legalized online gambling include Australia, France, and the UK.  In Germany, online gambling is illegal with the exception of Schleswig-Holstein, which is the only German state where operators can apply for an online gaming license.  In some provinces of Canada online gambling is illegal, while in others it is not. In India, where online operators are forbidden, the Central Board of Direct Taxes in 2015 directed online poker players in the country to declare their money on foreign gambling sites.

Courtesy of  en.wikipedia.org
The problem with having so many players in the game with different rules is that legal confusion was bound to occur.  In 2004, after being threatened by the Department of Justice, whose broad interpretation of the Federal Wire Act contradicted the US Court of Appeals, the world’s two most popular search engines opted to remove gambling advertising from their sites.  In July 2006, the CEO of BetonSports, a company that is publicly traded on the London Stock Exchange, was detained in Texas while changing planes in route from London to Costa Rica, having been previously charged in a sealed indictment with violations of US federal laws relating to illegal gambling. That same year, Sporting bet chairman Jay Cohen was detained in New York City on a Louisiana warrant while traveling in the US.  Even though the US Appeals court stated that the Wire Act doesn’t apply to non-sports betting, the US Supreme Court refused to hear an appeal of Jay Cohen’s conviction since his company offered sports bets to US citizens.

Later that same year, both the House and Senate upped the ante by passing the Unlawful Internet Gambling Enforcement Act of 2006, which made it illegal for banks or other financial institutions to make transactions with online gambling sites.  In response to the enactment of the UIGEA, a number of online gambling operators opted to suspend real-money gambling with US citizens.  Others, including such sites as PokerStars, Full Tilt Poker, and Bodog vowed to continue serving customers in the US.

Courtesy of  en.wikipedia.org
In June 2009, the Department of Justice seized more than $34 million belonging to over 27,000 online poker players. This represented the first time that the DoJ had specifically targeted players as opposed to online gambling operators.  Less than a year later, on November 22, 2010, the New Jersey State Senate became the first state to legalize online gambling.  While the legally licensed operators are allowed to provide the public with online poker, casino games and slots, they were prohibited from accepting online sports bets.  They were also restricted to dealing with players who resided in New Jersey.  Are you confused yet?

If it Looks Like a Duck

Apparently at least three online poker operators were confused.  Especially when they were indicted in 2011 for accepting wagers from US citizens.  Furthermore, the indictment alleges the companies that were indicted sought to evade US law by disguising online gambling payments as purchases of merchandise. On July 31, 2012, two of the three companies indicted settled with the US Attorney for $731 million without any admission of guilt.
Logo of the Fantasy Sports Association.
Logo of the Fantasy Sports Association. (Photo credit: Wikipedia)

That being said, as of the writing of this blog, there is one chink in the government’s armor that several wily operators are currently exploiting.  I’m talking about fantasy sports where a number of popular operators are cleaning up at present.  To quote a Frontline blog,

“At the time, fantasy sports were a low-key competition in which bettors assembled their own teams, then watched how their players performed over an entire season. The legal exemption for fantasy sports was based on its definition not as gambling but as a game of skill. Today, fantasy sites offer daily contests, million-dollar prizes and bets on individual sports such as golf, mixed martial arts and Nascar races, magnifying the element of chance and making the exemption tougher to defend… The businesses of fantasy sports and online gambling are increasingly intertwined. Operators of online gambling sites have begun investing in fantasy sports, and some of DraftKings’ senior managers came from online gambling companies or were professional poker players. Some of fantasy sports’ most successful players are former poker players, too.”
Courtesy of en.wikipedia.org

Not only have fantasy sports operators like FanDuel and DraftKings become wildly popular and profitable online, you can see their TV spots airing during many popular sporting events, including NFL Football. It’s a wonder that the DoJ hasn’t gotten interested in an online game that according to the Frontline report grossed $43.6 million in entry fees from 7.1 million US players in a single weekend. 

While fantasy football leagues have to date remained off the government’s anti-gambling radar, the recent revelation that a few fantasy sports insiders had used inside information not available to the public to win big cash payouts has drawn the attention of the NY attorney general along with the FBI.  Whether this multibillion dollar industry will stand the test of time is anybody’s guess.  But I for one wouldn’t bet the farm.

In this article I have discussed how online gambling is trying to make its way back into the US internet arena. In particular I cover the ebbs and flow that has brought us to new online gambling in New Jersey and the latest online market – fantasy sports, like FanDuel and DraftKing. This latest foray will test the government’s resolve for squelching online gambling.

If you found this article useful please share it with your friends, family and co-workers. If you would like to learn more about this subject, visit the notes page on this blog for the BlogTalkRadio show dated 10/20/15. I recommend checking out "Who’s Watching Who In the Surveillance Society?“  You can also search for other related articles by typing in “casinos” in the search box top of this blog.

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Carl Weiss is president of WorkingtheWebtoWin.com a digital marketing agency in Jacksonville, Florida that routinely works with bloggers and other online marketers to grow their businesses. 

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