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Monday, January 31, 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 that would 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. However, UIGEA 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.

During the 111
th Congress, lawmakers considered proposals to allow federally regulated interstate online gambling or, more narrowly, poker and other games of skill. Such bills may be reintroduced in the 112th Congress. Those in favor of such legislation cite the potential revenue gains from legalizing Internet poker and other gambling activities, as well as the need for more comprehensive federal regulation of online gaming. 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 will confront as it considers expanded remote gaming are the proper balance of federal and state regulation; potential federal revenues from taxing and registering online gambling operations; 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 forms 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 have experienced revenue declines. 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: January 26, 2011
Number of Pages: 27
Order Number: R41614
Price: $29.95

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