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Monday, November 19, 2012

Remote Gambling: Industry Trends and Federal Policy

Michaela D. Platzer
Specialist in Industrial Organization and Business

Gambling, once widely outlawed, is now 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. Since passage of the Unlawful Internet Gambling Enforcement Act (UIGEA; P.L. 109-347) in 2006, congressional focus has moved to remote gambling. As used in this report, remote gambling refers to gambling that does not occur in a casino, a bingo hall, or a store selling lottery tickets. Remote gambling includes gambling over the Internet as well as gambling using devices that may communicate by other means, such as by telephone or direct satellite links.

UIGEA, while preventing payments to illegal gambling-related businesses, does not outlaw any form of remote gambling. It allows states and Indian tribes to offer remote gaming within their territory if certain conditions are met. A majority of states already allow remote betting on horse racing, and a number use the web for lottery promotions. A number of Indian tribes and gaming companies have created entities to develop remote gaming and seem likely to expand them rapidly if the legal issues are clarified.

While UIGEA did not outlaw remote gambling, it also did not clarify the scope of long-standing laws that the U.S. Department of Justice (DOJ) has used to prosecute Internet gambling, such as the Wire Act, 18 U.S.C. 1084. With wide-ranging implications, a recent DOJ interpretation of the Wire Act authorizes states to allow online gambling, except for sports betting. Currently, Delaware and Nevada are the only two states to permit some form of Internet gaming, but several others are debating legislation to legalize online poker or other games. The global market for Internet gaming is currently estimated at more than $30 billion a year. If the United States passes federal online gambling legislation and all states opt in, H2 Gambling Capital, a consulting firm, predicts a national online gaming market of some $20 billion five years after enactment.

Gambling companies hold divergent views on the desirability of allowing remote gambling. Some casino operators, particularly the larger ones, foresee new opportunities for profit. On the other hand, many operators of smaller casinos are concerned that remote gambling could draw customers away. Complicating matters, total gambling revenues are only now recovering from declines in 2009 and 2010, and many established casinos are struggling due to increased competition as more states legalize casino gambling.

Several lawmakers have introduced legislation to allow, regulate, and tax remote gaming, and House and Senate committees have held hearings and roundtable discussions on the issue. Those favoring expanded remote gaming cite potential federal revenue from taxes and registration fees, as well as the need for comprehensive national 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.

Date of Report: November 8, 2012
Number of Pages: 30
Order Number: R42820
Price: $29.95

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