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Tuesday, November 29, 2011

Remote Gaming and the Gambling Industry

Suzanne M. Kirchhoff
Analyst in Industrial Organization and Business

Gambling, once widely outlawed, is today a regulated, taxed activity that is legal in some form— bingo, card games, slot machines, state-run lotteries, casinos—in all but two states. State governments have the main responsibility for overseeing gambling, but Congress historically has played a significant role in shaping the industry, most recently by passing the Unlawful Internet Gambling Enforcement Act (UIGEA; P.L. 109-347) in 2006.

UIGEA, while preventing payments to illegal gambling-related businesses, does not outlaw any form of remote gaming. To the contrary, the law allows states and Indian tribes to offer remote gaming within their territory so long as certain conditions are met. Already a majority of states allow remote betting on horse racing, and a number use the web for lottery promotions. Several states are debating legislation to legalize online poker or other games. Indian tribes are using cutting-edge computer gambling technology at tribal casinos. U.S. gaming companies have created subsidiaries to focus on remote gaming and seem likely to expand rapidly if the legal issues are clarified.

While UIGEA did not outlaw remote gaming, it also did not clarify the scope of long-standing laws that the Department of Justice has used to prosecute illegal Internet gambling, such as the Wire Act, 18 U.S.C. 1084. In April 2011 the Justice Department announced it had indicted executives of three online poker websites that were located outside the United States, but accepted wagers from U.S. bettors, on charges of money laundering, fraud, and illegal gambling, citing the Wire Act and the UIGEA among other statutes. The Justice Department in August 2011 filed a civil suit accusing Full Tilt Poker, one of the targeted sites, of defrauding bettors. The cases, which remain pending, appear to have dampened U.S. betting in the for-profit online poker market, and have generated new interest in federal legislation to more precisely define what types of online gaming are legal.

During the 112th Congress, lawmakers have introduced legislation to allow, regulate, and tax online gaming—from narrow bills covering only poker, to broader bills that would allow a range of interstate online gaming. House and Senate committees have held hearings and roundtable discussions on the issue. Those in favor of allowing expanded online gaming cite potential federal revenue from taxing and registering online gambling operations, as well as the need for comprehensive regulation. Opponents question whether it is possible to have stringent regulation of online gambling, which they say holds the potential for increased fraud and money laundering. Among other issues Congress faces are the proper balance of federal and state regulation and the possible social costs of expanded gaming, including problem gambling.

Legalization of additional forms of remote gaming could pose a challenge to many existing types of gambling, from lotteries to casinos to racetracks with slot machines. The industry has been going through a difficult stretch, with receipts falling in 2009 for the first time in more than three decades, and many brick-and-mortar casinos and racetracks experiencing revenue declines. Revenues did begin to rebound in 2010, but were still below 2008 levels. Even if it leads to the growth of employment and gambling revenues at the national level, federal remote gaming legislation has the potential to affect particular locations, especially venues that cater to day trippers rather than vacationers. These effects are likely to depend upon the details of whatever legislation Congress passes and the specific actions taken by individual states in response.

Date of Report: November 16, 2011
Number of Pages: 29
Order Number: R41614
Price: $29.95

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