California Gov. Gray Davis recently authorized what may be the second
largest expansion of legal gambling in the history of the United States.
At the same time, he brought legal Internet gambling to a significant
percentage of the country's population.
Of course, nothing can compare to Gov. Davis's campaign for Prop. 1A and
the dozens of tribal-state compacts he signed. Within ten years,
California will surpass all other states, including Nevada, as the
nation's largest casino market.
Gov. Davis's legalization of Internet gambling may be not as big, but it
is big news, even if it has not yet been recognized by the press.
Gov. Davis signed a bill permitting everyone in California to bet on
authorized horse races from their homes, offices, schools, etc., by
phone and computer. The new law also allows California licensed
operators to accept bets from anyone in any state.
This new form of gambling is called Advance Deposit Wagering (ADW).
Bettors are required to set up accounts and deposit money in advance
before they can make their long-distance bets.
The law went into effect on January 1, 2002. (It will expire on January
1, 2008, unless the State Legislature extends it - a near certainty.)
The statute requires the California Racing Board to make regulations and
to approve all arrangements involving ADW.
Last year, Gov. Davis vetoed an identical bill. He issued a news release
at the time, saying it "would open the door to children and teenagers
placing bets using their parents' accounts over the Internet. . . I
cannot support provisions lifting the state ban on Internet and
telephone wagering. It would expand the scope of gambling by allowing
Internet and telephone betting on out-of-state and out-of-country horse
This year he said he could sign the proposal for ADW because there had
been a change in federal law, so this time it would not be an expansion
Legalizing Internet and phone betting for 34 million Californians and
millions more in other states is a massive expansion of gambling. And
the change in federal law did not require states to authorize interstate
at-home wagering on horse races.
In December 2000, Congress amended the Interstate Horseracing Act,
expanding the definition of "interstate off-track wager" to include
parimutuel wagers across state lines by phone or "other electronic
media." But it is still up to the lawmakers of each state to decide
whether they want to allow interstate betting.
A bet which violates the laws of a state also violates federal law.
Federal law now allows an individual to make a bet with an Off-Track
Betting (OTB) operator in another state, but only if both the state
where the bettor is and the state where the OTB is have passed laws
making interstate betting legal.
The amendment was necessary because it was unclear whether the federal
Wire Act prohibited gamblers sitting in their homes in one state from
using telephones or computers to make wagers with licensed OTB operators
in other states.
The Wire Act makes it a crime for anyone in the business of gambling,
even legal gaming, to send wagering information by wire across a state
or national boundary. There has always been an explicit exception for
bets placed in person at an OTB outlet under the Interstate Horseracing
Act. But federal prosecutors in the Department of Justice had indicated
they believed the Wire Act did not allow at-home interstate wagers. So
the law was changed to make it clear that horseracing bets, legal under
state law, do not violate federal law.
California is home to some of the leading tracks: Hollywood Park, Santa
Anita, Del Mar and more. The bill signed by Gov. Davis also allows bets
to be placed on races taking place at tracks in California, even if both
the bettor and the OTB (which has to be approved by the California
Racing Board) are in other states.
Bettors in other countries make up approximately 60% of the world
Internet gaming market. The Interstate Horseracing Act seems to only
allow wagering information to be transmitted from one state within the
U.S. to another. However, racing signals have been sent internationally
for decades: American OTBs accept bets on races taking place in Hong
Kong and Canadian OTBs accept bets on the Kentucky Derby. In fact, the
Canadian federal Agricultural Code lays out what a Canadian OTB has to
do to be able to take bets on American races.
The new California law expressly allows Californians to place bets with
an approved OTB outside the state, and it does not restrict those OTBs
to the United States.
Once the regs. are in place, Californians will be able to make bets by
phone to approved OTBs in California and in other states which allow
out-of-state telephone wagers, like New York, Connecticut, Oregon and
Pennsylvania. The last two, like California, also allow out-of-state
California is such a major market that other states will soon also allow
out-of-state bettors to wager online.
What about other countries? Canada has so far prohibited its OTBs from
taking computer bets from outside their provinces. But California is
larger and has more potential bettors than all of Canada.
Perhaps the new California law will be the breakthrough to true licensed
international Internet gaming.
©Copyright 2001. All rights reserved worldwide. GAMBLING AND THE LAW® is
a registered trademark of Professor I. Nelson Rose, Whittier Law School,
Costa Mesa, CA.
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