Is Internet Gambling Legal?

The answer to the question asked above depends on where you live.

If you live in the United States, there are a plethora of answers. None of these answers are very clear and most are complicated. What kind of gambling—sports bets? Horse racing? Blackjack? Lotteries? Poker? Where is the player? Where is the server? Where does Internet gambling take place? Does it cross state lines? Is it interstate commerce? Uncertainties abound. For over five years, these questions have existed, have gone unanswered and multiply daily.

If you live in Nevada, these questions are of more than passing interest. For all its efforts to diversify its economy, the Silver State is still a company town, the company being gaming. Last year Nevada's legislature passed Assembly Bill 466 (Act of June 14, 2001, ch. 593, § 2, 2001 Nev. Stat. 3075), which enables the Nevada Gaming Commission to adopt regulations and issue licenses for Interactive gaming. Before doing so, however, the Legislature instructed, the Commission must first determine, among other things, whether "interactive gambling" is legal.

The Commission put that question to Nevada's attorney general. The attorney general answered in the form of a review of federal law affecting AB 466. This review, by Jeffrey R. Roderer, assistant chief deputy attorney general for the Nevada attorney general's office, gaming division, is well worth reading.

In 37 carefully written pages, Mr. Roderer summarizes federal statutes that bear on interactive gambling and their relevant interpretation by judges and legal commentators. The amount of material he has covered, particularly judicial opinion, is large, and Mr. Roderer presents it in a clear and well-organized fashion. He comes to some interesting and reasoned conclusions. Among them:

For most of American history gambling "has historically been a creature of state regulation governed by the powers reserved to the states under the Tenth Amendment (p. 2)." Earlier commentators, notably President Nixon's Commission on the Review of the National Policy Toward Gambling, which reported in 1975, came to the same conclusion. They also thought this was a good idea.

Sporadically, Congress has entered this area, addressed some specific matter, and lapsed back into silence. Congress did do in the 1890s (prohibiting lotteries); 1961 (a series of laws aimed at organized crime, among them 18 U.S.C. § 1084, the Wire Act); 1970 (the RICO act, also aimed at organized crime); 1978 (the Interstate Horseracing Act, regulating interstate pari-mutuel wagering on horse races); 1988 (the Indian Gaming Regulatory Act, or IGRA). In all of these laws Congress exercised its power to regulate interstate commerce. In only one, the Interstate Horseracing Act of 1978, was it primarily concerned with the regulation of a form of gambling authorized and regulated by the states.

There is, consequently, no general federal framework for gambling other than gambling conducted, pursuant to IGRA, on Indian land. Adding more language to existing statutes through the Internet Gambling Prohibition Act (by extending the Wire Act sanctions to the Internet), would not provide this framework. Because the Wire Act is criminal law, it would certainly do nothing to further Nevada's purpose, in AB 466, of creating a regulatory regime for interactive gambling. Quite the opposite: Federal prohibition would frustrate this purpose.

In gambling industries, the attempts to extend the Wire Act or prohibit the use of credit cards in interactive gambling have gotten all the attention, but Mr. Roderer perceptively notes that by enacting the Jurisdictional Certainty Over Digital Commerce Act (June 28, 2001) or a similar statute, Congress would "completely pre-empt state regulation of e-commerce, including gaming (p. 3)." Congress hasn't done this yet, and may not, but the jurisdictional questions raised by the Internet go far beyond gambling.

In many other areas of the economy, perhaps in most of them, a body of Federal law sets ground rules for discussing these questions, if not, in all cases, deciding them. Not in gambling. Each time the Internet poses some new variation on the question of "where does the bet take place?" It tends to cycle back into the courts for an answer. The answers aren't consistent--how can they be?--and this process could continue indefinitely. Mr. Roderer notes some important cases that have dealt with this issue and moves on, to the Wire Act.

The Wire Act "prohibits the use of the Internet for transmission of sports bets or wagers or information assisting in the placement of such bets or wagers (p. 6)"--so much is clear, to Mr. Roderer and to most judges. But what about other kinds of gambling? What about casinos, Nevada's company? Mr. Roderer concludes that "the case law seem to strongly suggest that the Wire Act should be narrowly construed to sporting events and similar contests [but not horse races, because of the Interstate Horseracing Act and its clarification in the last days of the Clinton Administration], rather than a broader view that would encompass traditional casino games or games of chance (p. 6)." This is a conclusion that one of the authors reached over five years ago in the first Internet Gambling Report.

Casino gaming, in Mr. Roderer's and Mr. Cabot's construction of the Wire Act, was, if inadvertently, granted a special dispensation: Wire Act sanctions don't apply, in cyberspace or (irrelevantly?) in the physical world. As Mr. Roderer observes, the Bush Administration, perhaps preoccupied by more pressing concerns, has not (yet?) announced its policy on Internet gambling, and the Justice Department has been uncharacteristically quiet about the subject, at least in comparison to the previous Administration. But Mr. Bush may be in office for quite a while, and at some point a Bush Internet gambling policy may be forthcoming.

In the meantime where interactive gambling is concerned the states will have to make do. They are making do at an increasing pace. Louisiana has authorized one of its racetracks, Fair Grounds, to offer (intrastate) wagering on an Internet platform, as have Ohio and California. TVG, an interactive television horse race betting service owned by Gemstar/TV Guide, is trying to take interactive horse racing through the Interstate Horseracing Act window to the next level, the next level being making profits out of it. In Mr. Roderer's State, at least two gaming license holders, MGM Mirage and Station, appear unwilling to wait on Carson City and Washington to clarify matters, are pursuing online gambling through licenses issued by the Isle of Man; MGM Mirage directly and Station through an investment Sun International, another license holder. (Station is also pursuing an intrastate interactive venture in Nevada.) A lot is going on online.

But is Internet gambling legal? Can the State of Nevada proceed to license this activity and regulate it? "Absent Congressional guidance," Mr. Roderer concludes, "these questions will remain unanswered (p. 37)."

Christiansen Capital Advisors, LLC is a gambling and entertainment industry research and consulting firm. The company's Web site, www.cca-i.com, offers a large selection of research items on an array of gambling industry topics, including Internet gambling, riverboat gambling and fantasy sports, as well as charts and tables from the report "The Gross Annual Wager of The United States," a comprehensive account of all forms of wagering in the United States that has been published annually since 1982. To subscribe to CCA News, their free daily e-mail newsletter, send a blank email to subscribe@grossannualwager.com.