The “State” of Online Gambling in the U.S.

Online gaming regulation has been a hot topic over the course of the past few years, especially since the passage of the 2006 Unlawful Internet Gambling Enforcement Act, which prohibited banks from transferring funds to and from online gaming websites.  Online gamblers have heard plenty of political speak regarding new online gambling regulations in the United States.  While online gambling made unprecedented legislative progress in 2010, very little movement, if any, has been made at the federal level.

But not for lack of effort…

In 2009, the federal government “raised the stakes” by taking the first step toward legalizing online gambling.  Rep. Barney Frank, a longtime supporter of legalized gaming, introduced the Internet Gambling Regulation, Consumer Protection and Enforcement Act.  Frank took the bill that would allow Internet gaming to be offered by companies licensed by the Treasury Department into a hearing in the House Financial Services Committee.  However, nothing came of it in the months that followed.

In early 2010, another hearing took place and was met with mixed reactions and opposition.  Nevertheless, the  House Financial Services Committee (the “Committee”) subsequently considered potential amendments to the bill, and the following provisions were added to the legislation; (1) online gaming sites that accepted U.S. customers would be prohibited from obtaining licenses, (2) sports betting would be exempt, (3) horse racing could be included, (4) advertising to minors and addicts would be prohibited, (5) licensees must be located in the United States, (6) states and tribes would have equal authority, (7) customers must be 21, with age and residence verified before customers can play, (8) gaming odds must be posted with loss limits imposed on customers, (9) states will have an opt-out, (10) bettors will only be able to deposit funds via prepaid or debit cards, (11) people delinquent on child support payments will be forbidden from playing, (12) intrastate and tribal lotteries will be exempt from the licensing process.

With these provisions, the Committee voted on Frank’s bill and it passed by a surprising margin of two-to-one.  It appeared that progress had, indeed, finally been made at the federal level.  Despite Rep. Frank’s efforts to navigate online gambling legislation through the Committee last year, it was ultimately never voted on by the full House.  Senate Majority Leader Harry Reid also failed in his efforts to pass an online poker bill.  However, Reid coming out publicly in favor of regulating Internet poker may prove to be quite positive as we carry over into 2011.  At the federal level, gambling is obviously still a significant ideological, moral and ethical issue.  The federal government certainly does not look at the issue through “we need the revenue to balance our budgets” colored glasses.  Now that the Committee is chaired by Spencer Bachus (R-Ala.), the staunchest opponent to Internet gambling in the House, it would appear that the push for legislation has become even more difficult.

It cannot be disputed that many states are looking to gaming taxes to help offset budget deficits created by the recession.  On the state level, it gradually appears that Texas will play a key role as to whether or not the laws are changed.  In fact, the temperature in Texas has gradually moved toward one of warmth to the idea of casinos.  Why?  Lawmakers are beginning to show a willingness to accept new globally held views of acceptance on casinos.  This represents a significant shift in the balance of power on the issue. The next logical step would be to expand to online gambling regulations.  States like Washington banned online poker years ago.  However, states such as New Jersey, Delaware and California have already tried to get the ball rolling on this issue.  In fact, New Jersey lawmakers made history this month when its legislature became the first American legislative body to approve licensed and regulated online gambling in the United States (through Atlantic City casinos).  If Gov. Chris Christie signs the bill into law, New Jersey will become the first state to license and regulate online gambling in the U.S.

California attempted to pass online gambling legislation in 2010 – it went nowhere.  Florida and Iowa have considered the issue – they have made no progress.  This begs the question.  Why did the New Jersey Legislature succeed while the California and federal efforts failed?  Simple.  There were fewer obstacles to success in New Jersey than there are in other states.  For example, in California, and other states with Indian gaming interests, online gambling legislation hasn’t happened because stakeholders in the gambling industry can’t agree on how to proceed.  Some commercial casinos and card rooms want to offer online gaming but many Native American tribes don’t want any online gambling to be allowed at all. They believe online gambling will keep customers out of their casinos.  Some of the California tribes also believe they have the exclusive right to offer online gambling to Californians based on the compacts they signed with the state, and the state can’t authorize anyone else to offer it.  In short, with so many legal issues to be resolved, state legislators have decided to play it safe and not do anything, regardless of how much the revenue is needed.

Although California remains one of the most liberal states in the county, its lawmakers are still pushing for online poker regulation.   It is not outside the realm of possibility that California could pass a bill sometime soon.  Despite forward movement on the issue in California and, most notably, New Jersey, it appears that ultra-conservative Texas is the state that possesses the potential to swing the issue on a federal level.

Online gambling is likely to become legalized in select states in the near future.  New Jersey is leading the way.  As for federally backed legalization, with the federal level looking a like challenging road over the next few years, New Jersey is likely to be the start of a more state-oriented focus for Internet poker.