The recent decision of the United States Supreme Court in Murphy v. National Collegiate Athletic Association that overturned the federal law that makes sports gambling illegal will have far-reaching impacts on the sports wagering marketplace. While the decision has led to the legalization of sports wagering in several states with efforts to legalize in many more, this still does not change some of the issues facing offshore sportsbooks that cater to U.S. players. It remains to be seen where gambling volume will go, but regulation will make wagering in states safer.
Federal Law and Offshore Betting
Murphy did not legalize sports betting nationwide, nor did it permit offshore entities to accept bets from American gamblers. The same prohibitions that caused federal law enforcement to crack down on online poker during Black Friday still remain in place with respect to offshore betting. Specifically, the Unlawful Internet Gambling Enforcement Act, which provided the legal underpinnings for Black Friday, still remains in place. Also, the WIRE Act is still valid federal law. In other words, unless there is a state law making wagering legal, it is still illegal to accept wagers.
Competition with States
Given that offshore betting entities will be in competition with taxpaying entities that are licensed to operate in various states, there is a potential for a crackdown on these entities in the future. The reality is that there are high stakes associated with sports wagering revenues, and after Murphy, states will have a vested interest in keeping sports betting onshore. It is projected that sports betting revenues will surpass $6 billion by 2023. Although it is difficult to estimate the total revenues of offshore sports betting, a rough estimate of their profits is between $2.5 billion and $3 billion. There are currently between 12 and 15 million sports bettors who wager through unregulated betting venues.
While winnings from offshore sportsbooks are taxable, the reality is that few taxes are paid on these winnings, giving the government a motive to curtail these operations. Although individual players are not at risk, the offshore operators are.
Tools for a Legal Crackdown on Offshore Betting
There are various mechanisms that law enforcement can employ in a crackdown against an offshore gambling operator. These methods are tried and true and have been used by the federal government before in contexts other than gambling.
First, it is important to understand the laws that can provide a framework for legal enforcement. There are two sets of laws that apply to gambling in this country. First, federal law governs some of the interstate elements of wagering, including wire communications and money transfers. Additionally, prior to Murphy, certain categories of betting, such as sports betting, were deemed illegal outside of Nevada. Second, the actual act of gambling itself is covered by state laws. Any enforcement by U.S. Attorneys will be related to federal laws. In addition, states have made various attempts in the past to crack down on online gambling.
The primary federal law that applies is the WIRE Act. This law makes it illegal to use wire communications to transmit bets or wagers or to assist in these activities. This enables the federal government to charge offshore betting operators with a federal crime for their use of the internet, which is considered to be a “wire communication.” Additionally, the Travel Act has also been read to prohibit online sports wagering since it makes illegal the use of interstate commerce to distribute proceeds of unlawful activities. Finally, UIGEA targets, among other things, the money transfers that power offshore sports betting. The UIGEA makes it illegal to accept payments in connection with wagers.
There have been efforts in the past on the state level to pressure internet service providers into ceasing to allow betting entities to operate in their states. For example, in 2009, Minnesota attempted to require ISPs to block state residents from accessing these sites online. This was challenged in a lawsuit and the eventual result was that Minnesota relented. There are other concerns, such as free speech issues, that make going after ISPs a tenuous proposition.
An effective tool that the federal government may deploy against offshore betting is enforcement under the UIGEA. Initially, payment processors sharply curtailed their activities in response to the legislation. Credit card companies exercised extreme vigilance in scrutinizing transactions with an eye towards compliance with the UIGEA. However, payment processors are much less afraid of government enforcement action than they were in the past, in part due to a lack of enforcement since UIGEA. Recently, credit card companies have begun to fund online gaming businesses. All that they require is a letter from the gaming operator’s lawyer that attests to the legality of the contest offered. Should the federal government act against the payment processors, it could effectively cut off the flow of funds to offshore betting.
Benefits of Betting in the U.S.
The recent trend towards the legalization of sports betting may help move some sports betting back onshore. This may have several benefits for sports bettors. First, offshore betting is completely unregulated. Players have no legal or regulatory protections whatsoever, and they assume risk every time that they place a wager in this medium. Consumer protection is an issue because there is nowhere to go to file a complaint in the event that a customer believes that were treated improperly. Further, there are no rules to be upheld other than the offshore operator’s own rules. By placing wagers onshore, through a licensed operator, players receive regulatory protection in the event that they experience an issue. There are established rules that sportsbooks must follow in order to maintain their licenses.
In addition, onshore operators will afford players a higher degree of safety than they would receive when betting offshore. There are numerous horror stories of offshore operators going under and taking their customers’ money down with them. There is less of a risk of this occurring with a licensed onshore casino. As regulated entities, these casinos will be scrutinized and regulatory attention may serve to prevent costly bankruptcies.