We reached this week the 15th anniversary of the Unlawful Internet Gambling Enforcement Act (UIGEA.) in the United States.
In the last 15 years, a lot has changed in the world of online gambling. We now have not only legal online sports betting available in more than 20 states, but growing numbers of states are exploring legalizing broader forms of online gambling.
Much of the recent discussion around UIGEA has been focused on the statute’s daily fantasy sports carve-out, which allowed DFS to grow into a nationwide phenomenon that in some ways tested the waters for legalized sports gambling in the years before the Supreme Court issued its decision in the Murphy case.
How did we get UIGEA?
UIGEA was a reactionary response to the growth of online gambling following the rise of household access to the internet.
Efforts to ban internet gambling began in the mid-to-late 1990s when the Internet existed in something of a regulatory black hole, with uncertainty over how and who should regulate the space. Never one to shy away from regulating a space it does not fully understand, Congress tried initially to ban online gambling outright. However, the votes were not there to pass an outright ban.
While the impetus for UIGEA has been tied to a variety of factors, including uncertainty as to whether other federal gambling statutes like the Wire Act incorporated the Internet and speculation that some terrorist organizations were using online gambling sites to launder money, the reality is that a number of different factors probably combined to push for a ban on Internet gambling.
A bridge too far
The statute makes reference to Internet gambling causing debt-collection problems and uncertainty over existing laws applying to the Internet as the findings justifying enactment.
However, a ban would not prove feasible. Instead, Congress concluded its near-decade-long effort to “ban” online gambling with a statute riddled with exceptions that did not even define illegal internet gambling. It instead made it illegal for payment processors or operators to knowingly allow for or accept funding of unlawful internet gambling operations. UIGEA effectively made it illegal to transmit or accept money in association with an illegal gambling operation.
UIGEA came into being only as a legislative rider to the unrelated SAFE Port Act.
The birth of daily fantasy sports
Recently, UIGEA has been associated with the rise of daily fantasy sports. The statute, amongst its many carve-outs, held harmless fantasy sports contests that meet certain criteria from its definition of bets and wagers, or the activities that are prohibited.
Of course, in the late 90’s and early 2000’s, virtually no one conceived of the idea of playing fantasy sports over a shorter time horizon than a full season. But leave it to online gamblers to find a workaround, and they did.
Shortly, after the passage of UIGEA, daily fantasy sports would be created out of the mind of Kevin Bonnet, a poker blogger, who was forced to shift gears when UIGEA shut down the world of legal online poker in the United States.
The carve-out for fantasy sports would not really gain traction until FanDuel and DraftKings made big advertising strides on the scene beginning in 2014. With popularity growing in daily fantasy, lawmakers began to take notice, but the train had largely left the station on putting daily fantasy sports back in the box.
Even when some daily fantasy sports companies departed from the UIGEA carve-out’s language, there did not appear to be much interest from the Department of Justice (though there were rumored grand juries in Florida, we still do not know what was the scope of those federal investigations.)
Despite being around for 15 years (though passed in 2006, the bill was not effective for several years), the statute has not generated a lengthy history of application against online gambling operations.
Indeed, the most prominent prosecutions under the statute came following the April 2011 indictments of the operators of several prominent poker sites. The sites ran into trouble because they were allegedly attempting to disguise deposits as other types of commercial transactions in order to thwart banking systems, which would automatically block payments to gambling sites.
Despite a few high-profile applications of the law, like other federal gambling laws, UIGEA prosecutions appear to be low priorities for the federal government.
What about the next 15 years?
Even before UIGEA came into effect, there were efforts to undo what the statute was about to do and replace it with sensible restrictions. However, the legislation introduced by then-Rep. Barney Frank went nowhere.
If history is any predictor of the future, we are likely to see one or two high-profile prosecutions under UIGEA over the next 15 years. However, the statute is so riddled with exceptions that it may be a less-desirable weapon for prosecutors than other federal statutes.
For all its deficiencies, UIGEA does a few things well. Most prominently, the statute clarifies the question of intermediate routing (where data passes through a state en route to a state where the activity is permissible.) However, even where UIGEA provides a useful clarification, the statute’s rule of construction limits that interpretation to UIGEA alone, leaving the question open for other federal laws including the Wire Act.
Times have changed since UIGEA was passed. While deficient, the statute could be a useful tool to protect the legal and regulated market by targeting those who violate the statute and threaten to undermine the regulated operators in the emerging U.S. market.
Editor’s note: The views expressed reflect those of the author and not necessarily those of Legal Sports Report.