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.
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.
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.
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.
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.
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.
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. (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.”
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.
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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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