Online casinos in the United States are regulated by a patchwork of federal, state, and local laws. Given the distaste most American states have for online gambling, the legal framework only allows online gambling in 3 states at present.
Morgan Stanley once estimated how many states it believed would have online gambling in the next 5 years and their predictions are much different than the current system, so US gaming laws are evolving. Those estimates were reduced yesterday, but even if Morgan Stanley is right with its latest prediction, then the US online gambling industry should be worth billions of dollars per year by 2020 at the latest.
In this article, I’ll discuss the laws on the federal and state levels. Readers are responsible for learning their local laws and statutes, because it would be beyond the scope of this website to post information for the 10,000+ communities in the United States.
1961 Wire Act
Online sports betting is strictly illegal, due to the 1961 Wire Act and subsequent court decisions. This law explicitly made it illegal to gamble on sports over the telephone lines, which was used to prosecute organized crime figures many times through the years. Since the inception of the Internet, some lawmakers have argued the Wire Act applies to online casinos and poker sites. It would be hard to argue those forms of gambling were prohibited by a law written before they even existed, though some have tried.
The Unlawful Internet Gambling Enforcement Act of 2006 was a law which made it illegal to make electronic money transactions to pay winnings on the online equivalent of gaming activities made illegal under the Wire Act. From the time the law went into effect after December 2006 until late-2011, the UIGEA is interpreted to mean online poker gambling and online casinos. Only three forms of gambling were given specific carve-outs under the UIGEA: lotteries, horse racing, and fantasy sports.
People might think lottery gambling has nothing to do with online casinos, but recent developments have made the lottery gambling industry natural allies of the legal online casino movement in America. The reason has to do with a landmark opinion given by the U.S. Department of Justice.
2011 Justice Department Opinion
In late-2011, the states of New York and Illinois wrote a letter to the U.S. Attorney General, asking whether the AG exactly which types of gambling the UIGEA banned. A few weeks later, the Department of Justice offered an opinion. In the opinion of the Justice Department, online sportsbooks were banned under the UIGEA and the Wire Act. Online casinos and poker sites were not.
That opinion completely changed the way US states looked at the online gambling industry. Suddenly, if a state wanted to make online casinos legal, they could license and regulate them and stay within federal laws. Not long after, several state legislatures agreed to do just that.
Delaware Online Casinos
Delaware was the first US state to legalize online gambling. The three land-based gaming venues–all of the horse racing venues–were allowed to launch online gambling websites. These horsetracks were Dover Downs, Delaware Park, and Harrington Raceway. All three launched websites, though it soon became apparent that online poker would not be sustainable on a small-state, one-state basis. Online casinos for each site existed, but generated only small revenues, given Delaware’s small population (45th in the USA).
Nevada Online Poker
Nevada legalized Internet poker, but iCasinos were banned. That remains the law at present. Nevada did sign an interstate gaming compact with Delaware, to increase the size of their player pools, but that has nothing to do with online casino gambling.
New Jersey Online Casinos
In November 2013, New Jersey launched licensed online casino gambling. Because New Jersey is the 11th-most populous US state, this became the most elaborate and substantial gaming niche in the United States. Atlantic City casinos were allowed to partner with online gambling software companies in building Internet brands.
Borgata Casino is the leading online casino in New Jersey. Borgata Online is associated with Party Poker and Pala Interactive. Caesars Interactive is associated with Harrah’s Casino and WSOP.com. Both are powered by the 888casino software. Golden Nugget is another independent online casino, in this case supported by Betfair software.
The Tropicana is also active in the Garden State and is powered by Virgin Casino software. Finally, Resorts Casino has had a deal in place with PokerStars since June 2013, but the licensing process was suspended in October 2013. For the time being, Resorts Casino is launching a casino website using NYX Interactive software.
Licensed Gambling in US States
Other US states have discussed licensing online casinos. At present, Pennsylvania is closest to legalized online gambling, though their industry is set to be only online poker. California is also considering online gaming, but their Tribal Gaming interests cannot get on the same page about “bad actor” clauses, which would exclude PokerStars and Amaya Gaming from the state. Indiana, Mississippi, and the state of Washington all have had discussions about legalizing and regulating gaming, but those initiatives never got to the “floor vote” stage.
Restore America’s Wire Act
Soon after New Jersey launched iGaming, Sheldon Adelson vowed he would spend whatever it took to ban online gambling throughout the United States. Adelson is the Chairman of the Las Vegas Sands Corporation. Despite making $38 billion off of gambling–literally the most any person in history has made off of gamblers–Adelson claimed he was concerned about problem gamblers and wanted to ban online casinos to protect gamblers. People laughed at his efforts at first, but money buys influence.
In March 2014, US Senator Lindsey Graham of South Carolina and US Representative Jason Chaffetz of Utah introduced Restore America’s Wire Act to the US Congress. The bipartisan bill sought to ban all online gambling in the USA. In December 2014, the RAWA bill was rebuffed in Congress, but that did not deter Graham and Chaffetz. Here in early 2015, both men have redoubled their efforts to pass RAWA.