US Gambling Laws and Online Regulation

United States gambling law is governed by three sets of gaming regulations, one each for local, state, and federal entities. Some states have gaming regulations that go back more than two centuries; other states have yet to address major aspects of the industry at all. Our modern laws on gambling are complex in part because they’ve been developed over the course of several decades. Over that time, technology and society have changed, while our gaming laws (for the most part) have not.

In some ways, American gaming law is liberal. The following are good examples of this.

• State-run lotteries are available in 44 US states.
• Tribal casinos operate in more than half of American states, with a dozen large-scale venues under construction as we put this article together.
• Small-scale game and card rooms can be found in most major cities, and plenty of small towns, too.
• The government allows a few forms of betting (for charity, or for the elderly) with little regulation.

But in other areas, such as online gambling, our laws are not quite so progressive.

The legality of online gambling in America is subject to at least four layers of legal tradition. Some cities are moving to ban the practice, as are county governments, state lawmakers, and (in some cases) the federal government.

Below is a guide to every category of relevant US law, along with links to longer discussions. Also, you can find information on each individual state further down this page.

Three significant federal laws apply to the practice of gambling in general and online gambling in particular.

Let’s take a look at each one of these laws in detail

The Interstate Wire Act makes it illegal to place bets “using a wire communication facility.” Until recently, the Department of Justice interpreted that to include all wagers made online. Though the Interstate Wire Act has been re-interpreted to allow some forms of online gambling, the DoJ still claims that the Wire Act makes Internet sports gambling illegal.

Passed in 1961, the Interstate Wire Act continues to have a massive impact on the US gambling market more than fifty years later. The long title of this act reveals its sole intent – “… to amend chapter 50 of title 18, United States Code, with respect to the transmission of bets, wagers, and related information.” The goal was to make the transmission of bets and/or related information a crime. Technically, that means even discussing point spreads over the telephone is a criminal act.

The Interstate Wire Act has almost nothing to do with the legality or morality of gambling itself. It was used to tighten the noose around the neck of a few major organized crime bosses. US Attorney General Robert Kennedy built a name for himself fighting organized crime. The Interstate Wire Act of 1961 was the first piece of legislation inspired by Kennedy’s anti-mobster sentiment.

This law was designed not to prevent Americans from gambling, but to cut into the profits of organized crime families. At the time, these gangs were generating revenue by offering sports betting “by wire,” meaning over a telephone line. Bettors used the telephone to communicate with bookies in Las Vegas, which was the only place where you can place legal sports bets in America at the time. Since most sports bets were made by telephone (“by wire”), it made sense for the DoJ to go after phone wagers. After all, the bad guys they were after were at the heart of the bet-by-wire business.

What the Wire Act really did was create a new penalty for the Justice Department to use against crime bosses. And it worked well for the federal government. Unfortunately, it also restricted access to bets by wire for all Americans, regardless of their criminal intent.

Over the years, the Wire Act’s language has become its biggest enemy. The language in the bill lacks specificity – a layman reading the bill might easily be confused about which wagers are legal and which aren’t. Throw in the expansion of the Internet as a betting tool, and this law’s weaknesses are exposed. In 1961, it was impossible to imagine the possibility of wagering over an Internet connection. Until recently, lawmakers have been confused over how to apply the Interstate Wire Act to online gambling.

When the US Department of Justice clarified the Interstate Wire Act in 2011, the legal status of certain types of betting became crystal clear. In a statement, the DoJ decided that “… interstate transmissions of wire communications that do not relate to a ‘sporting event or contest’ fall outside the reach of the Wire Act.” That’s remarkable news for online poker and casino game players but still troublesome to sports bettors. In an appeal, the US Fifth Circuit Court of Appeals agreed with the DoJ that the Wire Act prohibits the transmission of sports wagers but not any other type of online gambling.

Before 2011, you could safely assume that the Wire Act could be used to prosecute online gamblers. Now, that’s only true for people who place bets on sports. Then, thirty years later, as if the Wire Act weren’t a tough enough restriction for sports gamblers, the government acted again.

Passed in 1992, PASPA is the least-known of American gaming regulations, and the one with the smallest impact on Americans’ everyday online gambling activity. Some of its lack of authority stems from the fact that it was largely an unnecessary law. The Wire Act does a grand job of outlawing sports gambling.

The Professional and Amateur Sports Protection Act is sometimes called “the Bradley Act” after Senator Bill Bradley. Bradley had been a pro basketball player and was concerned about the influence of gambling on sports. The full title of this bill is as follows.

It was an attempt to have sports betting declared specifically illegal, across the country, regardless of the method used. The intent was to create a law that goes a step further than the vague language in the Interstate Wire Act.

The Bradley Act was considered necessary because of panic in the legislative branch over reports of game fixing in pro and college sports. The bill was passed after a massive federal investigation into sports gambling, triggered by Senator Bradley’s personal agenda.

About the problem of sports gambling in America, one lawmaker famously said: “The harms (sports betting) inflicts are felt beyond the borders of those States that sanction it.”

The Senate Judiciary Committee acted on testimony from David Stern, then-commissioner of the NBA, that “… the interstate ramifications of sports betting are a compelling reason for federal legislation.”

Essentially, it was much ado about nothing. No new wave of organized crime involvement in sports betting was afoot, and there were no signs of an increase in problem sports gambling or cheating scandals traced back to sports betting interests.

What does PASPA say?

It’s long-winded, but in terms of the modern online gambling debate, the most important part is Section 3702.

In this section, PASPA pretty clearly disallows any “governmental entity” (translation – state) from allowing bets on amateur or professional athletics. This language goes so far as to outlaw bets on fantasy sports, the results of which are tied directly to the individual performances of athletes. States where daily fantasy sites are explicitly legal, such as Iowa and Maryland, may already be in direct violation of PASPA.

PASPA has been used recently to shut down New Jersey’s attempt to legalize sports betting in Atlantic City. A referendum on the issue passed with a strong majority before the Department of Justice swooped in and invalidated the law based on a claim from PASPA’s language.

This isn’t the first time that PASPA has caused controversy. The Bradley Act was ultimately too limited in its scope by the existence of a few state sports betting markets. Specifically, existing sports betting markets in Oregon, Delaware, Montana, and Nevada were outside the scope of the law. An exception was made allowing the state of New Jersey to pass a law making sports wagers legal within one year. The state government of New Jersey failed to do so, and lost the right to offer legal bets on sports. That’s a failure we’re sure they’re kicking themselves for now, having failed to pass a recent legalization effort due to federal intervention.

PASPA has its fair share of detractors. The main complaint against it is that it’s unconstitutional since the US constitution gives the states “all rights not explicitly granted to the Federal government.” That would appear to include the regulation of gambling. Since PASPA is a federal law that prohibits states from creating their own legal sports betting marketplace, opponents argue that it stands in the way of a major tenet of our nation’s founding document. Proponents of the bill say that Congress had every right to pass this law under the Commerce Clause.

The UIGEA has had a bigger impact on the actual practice of online gambling than any of the other pieces of legislation on this list. The UIGEA was passed in 2006 as part of an omnibus national defense bill. Because legislators couldn’t get the bill passed of its own accord, they tacked it on to the SAFE Ports Act, a law which they knew would pass. These four or five pages were added to the SAFE Ports Act at the eleventh hour – so late that most lawmakers said they didn’t get a chance to read it.

The UIGEA was an attempt on the part of a conservative branch of the American government to outlaw online betting. It was designed to shut down access to online gambling by making it illegal for banks and other financial groups to process gambling payments.

Here was the theory:

If you can’t send or receive money, you can’t gamble.

In its own words, the UIGEA

The act excludes a few markets explicitly – certain fantasy sports bets are excluded, as are a number of skill games and any existing legal intrastate and inter-tribal gaming markets.

Plenty of people think the UIGEA makes it illegal for Americans to bet online.

That’s not true.

It simply makes it hard for them to send or receive money from a known gambling site.

The UIGEA has some pretty serious flaws. For starters, it contains loopholes large enough to drive a bus through. Some big names in the online betting business (mostly poker and casino sites) pulled out of the US market, and some bettors lost access to their favorite Web-based casino or poker site. But plenty of Americans are still processing payments back and forth with a known gambling provider.

Another big problem – it doesn’t regulate transactions for all forms of online gambling. The law does not mention some important gaming markets – state lotteries don’t come up at all, nor do inter-state bets on horse and dog racing. While some have interpreted this to mean that these activities are essentially unregulated, the UIGEA defers to the Wire Act and other existing federal law in these matters. In other words, it’s a pick and choose kind of a law that hasn’t accomplished its goal of shutting down illegal gaming at all.

The UIGEA has had an impact on American online gambling, just not in the way lawmakers intended. The most famous case of enforcement (so far) came in April 2011, when the founders of PokerStars, Absolute Poker, and Full Tilt Poker were indicted for violating conventions in the UIGEA. It came out in court that these organizations were attempting to skirt the UIGEA’s rules through the use of third-party payment processors and outright fraudulent accounting.

The three laws above interact in some strange ways. Reports of impropriety and the existing language of PASPA and the UIGEA have led the FBI and Justice Department to investigate the practice of daily fantasy sports. At this point, the federal government is only investigating DraftKings, but the assumption is that all DFS activity is under investigation.

Daily fantasy came under the scrutiny of the federal government after a much-publicized incident in which an employee of DraftKings released data about the site’s biggest contest. Think of this as “insider trading” in the DFS world. This information could be used to influence the outcome of a contest.

Lo and behold, that employee won $350,000 in a contest on rival site FanDuel. The implication is that the player used his insider information to influence the outcome in his favor. Though the DFS sites involved say that the leak was an accident, and they’ve both decided to ban their employees from participating in DFS contests, the government wants to take a second look.

So now the federal government is probing the overall legality of daily fantasy sports. In DFS, customers pay entry fees to participate in fantasy contests based on virtual drafts. Customers compete for prize money based on their ability to put together a lineup that posts the best real-world performances. Now that you’re familiar with the fine print in PASPA and the Wire Act, you can probably tell what the government’s angle in this investigation is.

The investigation will likely hinge on the question of whether or not DFS is a game of skill. The UIGEA explicitly allows wagers on fantasy games that are based on competitor skill. Up to this point, DraftKings, FanDuel, and the other DFS sites have existed under the assumption that they provide skill-based gaming.

The hardest set of gaming laws to navigate in America is state law. For starters, you have to consider the law books of 50 states, two territories, and the District of Columbia. You also have to consider that some states defer to county or even municipal laws when it comes to gaming regulations.

The first modern state gaming laws appeared immediately after World War II. Conservative politics were all the rage, and some states moved to outlaw gaming in light of casino development in Nevada. In fact, outside of Nevada, only Maryland offered any form of regulated gambling in the middle 20thcentury, legalizing slot machines in certain southern counties as early as 1949. The next major reforms to state gaming regulations occurred in the 1970s, as a budget crisis hit every state in the union. Relaxed lottery, pari-mutuel, and casino laws swept the country, from the new gambling Mecca of Atlantic City to tribal gaming’s origins at the end of that decade.

Since that time, state law related to gambling has continued to evolve. Some US states have gone so far as to outlaw online gambling outright. The states of New Jersey and Nevada, for example, have declared that all non-state regulated online gambling is illegal. The other anti-online gaming states outlaw Internet betting in all forms.

The states of Washington and Maryland represent a disturbing recent trend – a new movement to ban online gambling in light of confusing evidence about its popularity and impact on health and society.

Here is a breakdown of three US states and their gaming law. They’re provided as an example of the kind of regulations common in American states.

ALABAMA

Alabama gaming law depends on outdated definitions of gambling and old cultural traditions against betting. Alabamans can place bets at four different pari-mutuel facilities that include e-bingo games, even though state law makes these activities illegal. The state is also home to three tribal venues that operate slot and video poker games. Alabama has a draconian approach to social gambling, every instance of which is illegal within state lines. The state legislature has yet to address the issue of the legality of online gambling.

INDIANA

For an example of a US state with hardcore anti-gaming laws, look no further than Indiana. Not only is this one of very few states to explicitly outlaw online betting, it’s also one of just five that outlaw all forms of private gambling. Some regulated wagering is available in the state, in the form of one commercial casino, several riverboat casinos, and racinos at the state’s licensed horse and dog racing tracks. Still, with restrictions on two of the most popular forms of betting in America, Indiana is not a gambler-friendly state.

MASSACHUSETTS

The state of Massachusetts has a generally liberal approach to gambling law. Massachusetts citizens can place legal wagers in a number of markets – the state is home to tribal and commercial casinos, state and regional lottery sales, dog and horse racing, and plentiful charity bingo and poker games. Social gambling (private games of chance and skill among friends) is essentially unregulated in the Old Line State. Massachusetts law makes no mention of the practice of online gambling.

There’s good news – as is true at the federal level, state gaming laws are mostly aimed at providers of betting, and not individual bettors. You may have a hard time registering for an online gambling account if you live in one of the states on that list, but it’s unlikely that you’ll have the cops at your front door for placing a World Series prop bet.

If you’re concerned about the legality of US sports bets, it’s important that you understand the gaming laws in the state, county, or city you live in. Our guides to the gaming laws of the 50 US states is designed to get you up to speed about the legality of online gambling where you live in a short amount of time.

The United States is a huge country, so it’s impossible to give you a survey of the complete landscape of local gaming laws. By “local,” we mean both municipal and county laws. Gaming legislation at this level tends to focus on specific problems that affect a community. We couldn’t find any instances of a city government actively banning online gambling – though some counties in states with legal Web-based betting have chosen to opt out of that policy.

Here are three examples of local gaming law in America. We chose these three because they do a good job of representing what’s going on in the US at the city and county level.

Confusion about the legality of online gambling in America is understandable. Just look at the jumble of legalese and confusing laws discussed above. If we include the state gambling regulations in our assessment, the legal landscape becomes even murkier. But you don’t have to hold a law degree to see that the legal status of online gambling in the USA is questionable. Though we don’t believe that it is absolutely illegal in every case, we’ve shown you plenty of evidence that the federal government (not to mention state and local lawmakers) are concerned about it.

Gaming regulations in America are changing. States like Maine, Delaware, and Iowa are moving to increase access to commercial and tribal gaming. Atlantic City wants legal sports betting to compete with new casinos in Pennsylvania. The state of Maryland is close to legalizing online gambling and regulating online bets. At the same time, Nevada has moved to restrict access to daily fantasy sports sites while states like Washington and Louisiana have doubled down on their anti-Internet gambling positions. Keep your eyes on the headlines – American online gambling law is going to be going through some big changes in the next few years.