WASHINGTON – The Internet gambling business has always been a lucrative one, but federal law has kept states on the sidelines, barred from tapping into an estimated $4 billion that Americans spend every year to gamble online illegally.
Not anymore.
Additional Photos
Now that the U.S. Department of Justice has reversed its outright ban on Internet gambling, states are scrambling to figure out what the decision might mean for them.
“Every state will be asking its AG: Tell us what this opinion means,” says Mark Lipparelli, chairman of the Nevada Gaming Control Board.
California, Illinois, Iowa, New York and New Jersey are among other states that are expected to move quickly to get in on the action. That is precisely what Nevada has done, but Nevada put some pieces in place before the ruling in a way that some of the other states have not done. It has also been in the full-fledged gambling business for more than 70 years.
No one really knows for sure how many Americans gamble online or how much revenue states will be able to collect if it is legal. The American Gaming Association figures that worldwide, online gambling generates $30 billion a year. The group figures that states could collect up to $2 billion in tax revenue if online poker were legalized.
DRAWING THE BOUNDARIES
For years, the federal government has construed the 1961 Federal Wire Act as a prohibition against online gambling. But in a ruling last month, the Justice Department indicated that that law restricts only sports wagering. “It’s a big surprise,” says Keith Whyte, executive director of the National Council on Problem Gambling.
The ruling doesn’t automatically legalize Internet gambling. States still have to pass legislation allowing for it and develop regulations overseeing it. And to many, it’s unclear whether the decision legalizes only online gambling within a state’s borders or also gambling that occurs across state lines.
Some experts interpret the decision to mean that states that pass their own online gambling laws could enter “compacts” with other states that have similar laws to allow online wagering on an interstate basis.
But the uncertainty has state officials like Lipparelli in Nevada worried. “We need Congress to make clear” what is legal, he says.
The American Gaming Association, the commercial casino industry’s trade group, agrees.
It says the December ruling “validates the urgent need for federal legislation to curb what will now be a proliferation of domestic and foreign, unlicensed and unregulated gaming websites without consistent regulatory standards and safeguards against fraud, underage gambling and money laundering.”
The Justice Department’s ruling, drafted last September but not publicly released until late December, came in response to a request from New York and Illinois. Both states had asked whether it would be legal for them to use the Internet and out-of-state vendors to sell lottery tickets to in-state adults.
“We conclude that interstate transmission of wire communications that do not relate to a ‘sporting event or contest’ … fall outside the reach of the Wire Act,” the Justice Department said in the opinion. “Because the proposed New York and Illinois lottery proposals do not involve wagering on sporting events or contests, the Wire Act does not, in our view, prohibit them.”
New York, which has the country’s most profitable lottery, already had online “subscriptions” for its Mega Millions and Lotto games, and the ruling is expected to give the state the green light it was waiting for to do the same for other games.
Illinois state officials had always thought their plan to let the Illinois Lottery offer Mega Millions and Lotto online was legal, and now that the Justice Department has agreed, “we are proceeding as fast as we can,” says Illinois Lottery Superintendent Michael J. Jones. Lottery officials plan to ask legislators to give them authority to also offer Powerball online.
IN NINE MONTHS, NEVADA POKER?
Lotteries provide states with substantially more revenue ($17.9 billion) than commercial casinos ($4.5 billion).
Lucy Dadayan of the Nelson A. Rockefeller Institute of Government, a specialist in state gambling revenue, says the ruling almost guarantees that “most states will consider expanding their lotteries in the hopes of generating more revenue in tough economic times.”
But Dadayan says that “state officials should not jump into legalizing online lotteries and should carefully assess long-term social and financial costs of online lotteries.”
Nevada is one of the few states that doesn’t offer a lottery. But the Justice Department ruling is expected to give the state the final go-ahead that it was awaiting to launch online poker. In fact, the state has had an online gambling law on the books for 10 years, delaying its implementation only out of fear it might be running afoul of federal law.
Last month, Nevada became the first state to adopt online poker regulations. Gamblers could be playing Nevada poker games on the Internet in as few as nine months, with the state taking a cut of the revenue.
Send questions/comments to the editors.
Success. Please wait for the page to reload. If the page does not reload within 5 seconds, please refresh the page.
Enter your email and password to access comments.
Hi, to comment on stories you must . This profile is in addition to your subscription and website login.
Already have a commenting profile? .
Invalid username/password.
Please check your email to confirm and complete your registration.
Only subscribers are eligible to post comments. Please subscribe or login first for digital access. Here’s why.
Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.