Legislative Sausage Making: How We Got UIGEA

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UIGEA sausage making

This is the third article in the Legislative Sausage Making series for Legal Sports Report. In this series, we will break down how federal gaming statutes evolved.

As there have been continued calls for the federal government to step in and establish some uniformity out of the ashes of PASPA, we have produced this series to take a look at just how difficult and time consuming it has been historically to pass gaming legislation in Congress. (A hearing is scheduled for next week.)

While federal hearings are often regarded as exciting for those of us who follow the industry, excitement should be tempered. Hearings, especially initial hearings, frequently never result in any additional action. For instance, the May 2016 House Subcommittee on Commerce, Manufacturing, and Trade hearing has resulted in next to no new movement from DC legislators.

In this third article in the series, we examine the process for passing the Unlawful Internet Gambling Enforcement Act (UIGEA). That law makes it illegal to process payments for online gambling sites that are operating illegally in the US or a state.

At the same, the UIGEA exempts fantasy sports and some other forms of gaming. It does not apply to any form of wagering that a state explicitly legalizes.

The early internet gambling hearings

The first internet gambling hearings took place in 1997, under the hearing title Internet Crime Affecting Consumers.

The hearing marked the first testimony by a number of staunch internet gambling opponents. Sen. Jon Kyl opened the hearing by noting that legislation was necessary so that school children could be protected from accessing gambling sites.

Kyl was followed by Sen. Dianne Feinstein of California who testified about the pervasiveness of “pornography, bomb-making recipes, [and] recipes for manufacturing methamphetamine,” on the internet. This first hearing also featured the introduction of a pervasive theme: Internet crime is international, and attempting to combat crime internationally using US law enforcement is difficult.

A second hearing on UIGEA

In a second hearing later that year, Kyl once again testified and noted that legislation was necessary because the presumption was that non-sports related gambling was presumed legal when conducted online at the time.

Kyl noted that the proposed regulations, which would have modified the Wire Act, were widely supported by diverse groups, including “[the] Christian coalition and Ralph Nader’s consumer protection group, which probably agree on very little, support this legislation.”

During this same hearing, NFL lawyer Jeff Pash likened sports betting to a gateway drug that would lead to more severe gambling problems. The hearing also marked the first time that Congress heard calls to regulate online gambling. Those calls came from World Sports Exchange CEO Jay Cohen. (Unfortunately for Cohen, Congress did not heed his recommendation).

And even more hearings, fantasy sports too

In a series of hearings during the late 1990s, the introduction of the idea that fantasy sports should be separated from other types of betting emerged.

The idea of exempting fantasy sports was first proposed by Major League Baseball union lawyer Marianne McGettigan, who in addition to introducing the idea of exempting fantasy sports suggested that the legislation being debated would go so far in criminalizing activity under the Wire Act that a NASA essay contest for children would violate the proposed statute.

In 1999, NCAA representative Bill Saum testified that internet sports betting was sweeping across college campuses and that the easy access to online wagering increased the likelihood that there would be an attempt by an athlete to manipulate a game that they had wagered on.

The millennium closed without any internet gaming legislation, but Congress remained undeterred, pressing on in the 2000s with new bills.

The bills that would become UIGEA

The first hearing of the 2000s, related to bills that would become UIGEA, was one of the only hearings to feature testimony from an actual gambler, identified as John Doe.

He testified that if online gambling had been illegal, he may have been deterred from accessing sites. He also testified his belief that “fantasy sports betting,” could devolve into a serious problem for some individuals.

An athletic director from an NCAA school noted that point-shaving scandals ruin many lives including arrested players, coaches and teammates, and that there was a potential proclivity amongst male student athletes to wager on games they were participating in.

Months later, Sen. Edward Markey of Massachusetts highlighted that the proposed bills had become so riddled with exemptions that maybe his fellow lawmakers should spin a roulette wheel to determine which activities will be illegal. The inconsistency was also highlighted by other groups who cited exemptions for horse and dog racing and fantasy sports.

In a hearing on June 15, 2000, a lawyer testifying on behalf of the NFL endorsed most of the proposed legislation, but wanted the legislation to contain a provision that would require internet service providers to disconnect internet gambling websites.

The hearings in the 2000s also featured extensive testimony from various stakeholders testifying to Congress that the cat was already out of the bag by this point (in the early 2000s). It was noted that it was additionally problematic because, at the time, many of the gambling websites accepting US customers in this time of uncertain legality were in countries such as Australia and the United Kingdom.

Kyl, quoting a Harvard doctor, stated that “[a]s smoking crack cocaine changed the cocaine experience, I think electronics is going to change the way gambling is experienced.”

As the number of exemptions continued to pile up in the proposed bills, many who had not received an exemption began to speak up, including the National Indian Gaming Association, which articulated their desire that Indian gaming interests should be exempt.

After September 11th

The first UIGEA-related hearing of the post 9/11-era featured testimony from Rep. Jim Leach, who testified that more than one million Americans gamble on a daily basis and that this money is leaving the US economy and going offshore, occasionally to websites run by Russian organized crime and terrorist networks.

An NCAA representative argued that because the internet is widely available, internet gambling should be outlawed, stating that the internet “is fueling the growth of illegal sports gambling on college campuses across our country.”

By 2003, the gaming industry had begun to push back, with the COO of the Mirage Online Casino testifying that placing a prohibition on online wagering will not stop the practice; it will continue to exist as was the case in other prohibition eras.

By 2006, there were hopes that new legislation would clarify questions about whether the Wire Act applies to mobile and internet wagering.

One last hearing

The final hearing on legislation that would become UIGEA took place on April 5, 2006. The bill would pass months later as a rider to the Security and Accountability For Every Port Act. While UIGEA was attached as a last-minute rider to a bill certain to pass, suggestions that internet gambling legislation had not been vetted in Congress is not entirely accurate. In fact, there were more than 25 hearings that can be traced directly to the passage of UIGEA.

UIGEA did undergo extensive changes over the years, including numerous exemptions. Additionally, UIGEA evolved from a modification and modernization of the Wire Act into a quasi-criminal statute that has a primary impact on banking and financing institutions.

UIGEA remains a topic of conversation, as the exemptions peppered throughout the statute have had disparate effects across the gaming industry, despite several efforts to amend the statute, UIGEA remains as written when it passed in 2006.