Turning Internet Gambling Back to the States

27 May 2002

On May 15, 2002 the American Gaming Association (AGA) announced it would support a modified version of the Goodlatte bill (the "Combating Illegal Gambling Reform and Modernization Act", Robert Goodlatte, R-Virginia, sponsor), the current version of the Internet Gambling Prohibition Act that has been circulating in Congress since 1997. From published reports (we haven't seen a copy of the amended bill) the AGA asked Goodlatte to make two important changes:

  • If a state legalizes Internet gambling, it or its licensed operators would be allowed to accept bets over the Internet from residents in other States that also permit online gambling. In effect, this extends the framework for interstate pari-mutuel wagering on horse racing established in the Interstate Horseracing Act of 1978 (15 U.S.C. § 3001(b)) to other forms of gambling, including casino table and machine gaming.

  • The other modification would allow Nevada books to take bets and combine pools across state lines.

The AGA added that as a matter of policy, it feels that with respect to gambling each state should have the right to determine what happens within its borders. For those with long memories, this was the policy recommended by the Federal Commission on the Review of the National Policy toward Gambling, which reported in 1976.

The AGA's announcement is an interesting turn of events. Were Goodlatte's bill enacted in this form it would effectively turn the decision as to whether and how gambling may be conducted online back to the States. This is not at all what the supporters of a Federal Internet gambling prohibition have in mind, nor is it what the National Gambling Impact Study Commission had in mind when it recommended in its 1999 Final Report (p. 5-12) that the Federal government preempt the states in this matter and prohibit Internet gambling. The AGA's version of Goodlatte's bill would amount to a Congressional repudiation of the National Gambling Impact Study Commission's recommendation and a return to the policy recommended in 1976 by the Commission on the Review of the National Policy Toward Gambling.

It would also bring U.S. policy toward gambling online into line with U.S. policy toward gambling in general. For most of U.S. history, and for that matter for all of America's Colonial history, gambling has been tacitly reserved to the states. The states, not Congress, have decided what kinds of gambling (if any) should be allowed within their borders, who should conduct those forms of gambling that are allowed pursuant to state licensing, how gambling should be taxed and so forth. Exceptions to this policy in the form of direct Federal intervention have been sporadic, unsystematic, and as a consequence inconsistent: Federal gambling statutes are a patchwork, not a policy.

Two relatively recent cases in point are the Wire Act (18 U.S.C. §1084) and the Indian Gaming Regulatory Act (IGRA, 25 U.S.C. § 2702 [1] [1988]).

The Wire Act was enacted in 1961, for the purpose of putting a weapon against organized crime, a popular bugbear of the day, into the hands of the Justice Department. The Internet Gambling Prohibition Act would amend the Wire Act, making it perfectly clear to inattentive judges that the Wire Act applies to all forms of gambling transmitted by whatever means across state lines as Justice Department attorneys say--not just to the sports bets transmitted across state lines by wires the Act actually mentions. The Wire Act and its proposed online extension are, then, criminal law aimed at Johnny Two Fingers, not regulatory law directed toward licensed businesses.

IGRA, conversely, is not criminal law but regulatory law intended by Congress to "provide a statutory basis for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency, and strong tribal governments." To a degree unusual for acts of Congress IGRA has accomplished all of its purposes: It has provided Indian tribes with the most powerful economic engine most of them have ever had; it has made these tribes self-sufficient and given them the means to protect their people; and it has strengthened tribal governments especially in their relations with state governments. All three accomplishments are direct consequences of the Class II and Class III gambling IGRA authorizes, which generated gross revenue of $10.4 billion in 2000.

The Wire Act may or may not have put Johnny Two Fingers behind bars, but it has manifestly failed to curb or measurably reduce sports betting in the United States. As law enforcement officers enjoy telling reporters writing annual "How Much Is Bet On the Super Bowl" stories, betting on football and basketball and baseball games with the neighborhood bookmaker is a national pastime . There is no unsatisfied demand for sports betting in the U.S. today, 40 odd years after the Wire Act was added to the United States Code. In economic terms, all the Wire Act has accomplished is to erect a Federal shelter for Johnny Two Fingers's sports books, placing this illegal industry beyond the reach of gaming licensing and control while providing, as a kind of fringe benefit, headline-getting employment for Federal law enforcers who target public enemies like World Sports Exchange's Jay Cohen.

Will the AGA's version of the Combating Illegal Gambling Reform and Modernization Act be enacted? Who knows? Combat-minded reformers will probably not be delighted to find their blow against online casinos transformed into a Federal green light for state and tribal Internet gambling laws. Will they resurrect an Internet Gambling Prohibition Act? Would this Congress pass it if they do?

Stay tuned. We are a long way from adjournment.

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.