Is online gambling legal in the U.S.?

with special attention to advertising issues

Asking whether online gambling is legal is like whether it's legal to have a gun. Sometimes it is, and sometimes it isn't -- the answer depends on the circumstances. There's a difference between making bets, taking bets, facilitating payments to casinos, accepting advertising for it, or buying advertising for it, and even then there's a difference between casino wagering and sports betting. So let's look at these things individually. But first, some caveats:

• We'll consider only the United States, and even there we'll look at only federal law, not individual state laws.
• The law and the enforcement are constantly changing, and what's true today could be different tomorrow.
• I don't guarantee to have heard of every relevant case.
• I'm a layperson, not a lawyer, and god help you if you rely on this article instead of seeking appropriate legal counsel for your situation.

Instead of making you read the whole article, here's a summary:

• Players have little to fear from the feds. There is no federal law against playing online. U.S. Attorney Catherine Hanaway admitted in a 2007 House hearing that just placing wagers online isn't against federal law. Players might run afoul of state laws, but even that is rare. The one case we know of is Jeffrey Trauman, of North Dakota, who paid a $500 fine on what was probably over $100,000 in sports bet winnings. (Gambling & the Law)
• Small publishers taking ads have little to fear.
  • The only publishers to face penalties were some huge publishers (Google, Yahoo, and Microsoft, in 2007), and a mid-size publisher in 2006 (The Sporting News). Each simply paid a fine, and faced no criminal charges. The Sporting News' fine was equal to the money they'd collected from gambling ads. Google's penalty was only about a third of a single day's profit for them. (Point-Spreads.com)
  • Other publishers who took ads (like Esquire, who ran Bodog's poker ads) were warned by the DoJ not to take them any more, stopped doing so, and faced no penalties.
  • Smaller publishers have never been warned by the feds to stop taking online gambling ads, so far as we know.
• Advertisers (operators) who promote their sportsbooks in traditional media (magazines, billboards) can face scrutiny as operators. But sportsbooks have never been scrutinized for advertising online. Also, online casinos, poker rooms, and affiliates (vs. sportsbooks) have never faced heat for the act of buying ads, in any medium.
• Operators have had no trouble as long as they're based outside the U.S., stay outside the U.S. and deal only with casino / poker wagers. Offshore sportsbooks might face action if they're blatant (advertising on billboards), and/or take bets over the phone.

That's the summary. Here are the details.

Rather than just considering the law, it's maybe more useful to look at the potential risk of each activity. That is, which activities are more likely to result in a fine or maybe even jail time? Here's how things stack up, from most risky to least risky:

Taking bets on a server located in the U.S. (Risk Level: 9/9)

Taking bets (i.e., operating a casino, sportsbook, or racebook) on a website located in the U.S. is assumed to be illegal, and nobody does this in the U.S. for that reason. All Internet gaming websites are located in other countries where it's legal for them to operate. (The U.S. government maintains that it's not legal for them to serve U.S. players, but that's another story.)

Taking sports bets over the phone. (Risk Level: 9/9)

While taking bets over the Internet is a gray area, taking sporting bets over the phone is not: It's clearly illegal. As BusinessWeek said on July 19, 2006:

Though the U.S. Justice Dept. considers most types of online betting illegal, wagering on sports is more clearly outlawed by the 1961 Wire Act. Until the House bill or similar legislation becomes law, online casino betting is in a gray area legally.

"The Department of Justice has said all online gambling is illegal; however, the only ones they have prosecuted are sports betting organizations," says Frank Catania, president of New Jersey-based Catania Consultancy, which specializes in gaming.

Business Week notes that the gray area for casino gambling "has existed since November, 2002, when the U.S. 5th Circuit Court of Appeals ruled the 1961 Wire Act only applied to 'sporting events or contests' and not wagers in general." (BusinessWeek)

BetOnSports took bets over the phone, and were blatant about it, buying big billboards in the U.S. advertising their phone number. They were also really big potatoes, taking in $4.6 billion wagers from 2001 to 2005. In July 2006, their then-CEO, David Carruthers, was arrested while changing planes in Texas on the way to Costa Rica from the U.K. In April 2009 he pleaded guilty to federal racketeering charges, and in January 2010 was sentenced to 33 months in prison. The company's founder, Gary Kaplan, was arrested in the Puerto Rico in March 2007 and in November 2009 was sentenced to four years in prison and ordered to forfeit $44 million in revenue. Kaplan's brother and sister pleaded guilty in June 2009 to two felony conspiracy charges and agreed to turn over more than $6 million held in Swiss bank accounts. They were also sentenced to 10 months of house arrest. In December 2009, the company itself was fined $28.2 million. (GPWA, USA Today, Financial Times, St. Louis Post-Dispatch, The Register )

Taking sports bets on an offshore server and then visiting the U.S. (Risk Level: 8/9)

World Sports Exchange. American Jay Cohen located his sportsbook offshore in Antigua, but when he returned to the U.S. but when he returned to the U.S. he was arrested, and in 2000 he was convicted, fined $5000, and sentenced to 21 months in prison, of which he served one year. (Winner Online, USA Today)

Sportingbet. While federal law is murky, some new state laws are not. In September 2006, the chairman of London-based Sportingbet was arrested in New York by the request of Louisana authorities for violating Louisiana's ban on Internet gambling. One wonders why Peter Dicks thought it would be a good idea for a chairman of a UK-based Internet gambling operation to visit the U.S. right after the CEO of another UK-based Internet gambling operation just got arrested after visiting the U.S. (David Carruthers of BetOnSports, above). Perhaps he thought he'd be safe because unlike BetOnSports, Sportingbet wasn't pushing the envelope on phone-based bets. He also probably had no idea that an individual U.S. state would consider his company to be breaking the law and would have him arrested over it. (iGamingNews)

But not every sportsbook operator gets nabbed when they visit the U.S. As Forbes said: "[S]ome American offshore operators haven't been touched, even though they sometimes return to the States. Among them: Ruth Parasol and J. Russell DeLeon, a married couple who, along with Indian partner Anurag Dikshit, got very rich when they took PartyGaming, a Gibraltar company, public in London last June."

Facilitating the transfer of funds to online gambling operators (payment processing), and then visiting the U.S. (Risk Level: 8/9)

Gamblers used to get money into online casinos with a service called Neteller, which is kind of like PayPal. But January 2007 the founders of Neteller were arrested in the U.S. and charged with money laundering. (Creator.com) A few days later Neteller stopped serving U.S. customers. (iGamingNews, GPWA ) Neteller eventually paid a big fine. Players are now using other services similar to Neteller, who are continuing to serve U.S. customers undaunted.

Facilitating the transfer of funds to online gambling operators (payment processing), and not visiting the U.S. (Risk Level: 7/9)

In August 2009 Douglas Rennick of Canada was indicted in the U.S. for processing payments for online casinos through U.S. banks. The UIGEA specifically forbids moving online gambling money through the U.S. banking system. But even though a conviction could mean decades in prison and millions of dollars in fines, they have to arrest him first. As I write this in November 2009, the U.S. has not yet requested that Canada extradite him to the U.S., and it's not even clear that Canada would honor such a request.

Taking casino / poker bets from U.S. players on a website outside the U.S. (Risk Level: 7/9)

Offshore companies taking bets from Americans for poker and casino games isn't against the law. In 2002 the U.S. 5th Circuit Court of Appeals ruled that the 1961 Wire Act applies only to "sporting events and contests" and not gambling in general. (BusinessWeek, Wikipedia, "the Wire Act 'in plain language' does not prohibit Internet gambling on a game of chance") But that hasn't stopped the feds from prosecuting offshore gambling companies anyway. In the Bush era, ignoring the law is all the fashion. In December 2008 Party Gaming co-founder Anurang Dikshit pleaded guilty to violating the 1961 Wire Act and was ordered to pay $300 million, and possibly spend up to two years in prison. His company didn't accept sports bets, it specialized in poker, and then later added casino games. It's a sad world when you're forced to plead guilty to breaking a law that doesn't exist.

In April 2009, Party Gaming itself agreed to $105 million to avoid prosecution. (GPWA)

Helping people make bets on a website (Risk Level: 6/9)

The webmaster of the portal InternationalNetCasino.com was indicted by New Jersey authorities in Nov. 2004 for facilitating gambling. The affiliate apparently took money from would-be players directly in order to help them place bets. It seems that if he had simply advertised the gambling operations and not gotten directly involved he probably would have been okay. Even so, his sentence was light: the eight days he'd already served in jail, $1330 in fines, and 90 days of community service. (more from Gambling 911, iGamingNews)

Accepting advertising for Internet gambling, in the major media (Risk Level: 5/9)

In 2003 the U.S. Dept. of Justice sent letters to some major media outlets (e.g., Google, Yahoo, Microsoft, The Sporting News) warning them that accepting ads for online gambling could be illegal. So they all stopped accepting ads.

The Sporting News (TSN) took its time in stopping the ads (six months), which pissed off the government, which three years later fined them $7.2 million, in January 2006. The settlement represents TSN's profits on the ads for the three years it accepted them (2000-2003), and was paid with $4.2 million in cash, and $3 million in public service ads in its own publications explaining how online gambling is illegal. (more from the Corporate Crime Reporter, the Olympian, and Media Buyer Planner)

In December 2007 the three big Internet giants paid a fine for accepting ads for online gaming. It's not even clear that that was illegal, but the companies evidently felt it was simpler just to settle. Google's fine was only about a third of a single day's profit. (Point-Spreads.com) The three companies had actually ceased taking online gambling ads about four years before the settlement, when they got the warning, but the feds fined them anyway -- years later.

Esquire, 2005. In April 2005 the feds subpoenaed Esquire magazine for taking ads in its March issue for online poker operator Bodog.

The Dot-Net Workaround. Many online operators found a way around ad restrictions years ago: They advertise the .net version of their website, which is a play-for-free space. Of course, they're hoping that players will click from there over to the .com version and wager for real money, or that players will just type in .com out of habit. (Wall Street Journal)

Accepting advertising for Internet gambling, in the smaller media (Risk Level: 3/9)

It's only the major media players who have gotten heat from the government for accepting gambling ads, and the only penalty has been fines, not criminal charges. All of the minor media has been spared so far. Even Casino City, the largest website on the Internet devoted to online gambling, hasn't received a cease and desist notice from the government. But that didn't stop Casino City from pre-emptively fighting back anyway.

Casino City case. In August 2004 Casino City sued the DoJ to establish its right to accept ads for Internet gambling. A judge dismissed the case, saying Casino City didn't have standing because it hadn't received one of the cease & desist letters. Casino City filed an appeal, but before it could be heard, Casino City withdrew from the case in February 2006, apparently because they felt that they'd made their point: If the government ever tells Casino City that it can't accept gambling ads, Casino City will fight. (Online-Casinos.com)

State Law. Even if one doesn't run afoul of the feds, there's a chance that state government will come calling. In June 2006 the state of Washington shut down the gambling portal IntegrityCasinoGuide.com, which like so many other sites just carried reviews of online casinos along with affiliate links. However, it appears that the site owner faced no penalty, other than having his site shut down. (The Online Wire)

The Future. If history is any indicator, websites covering online gaming have little to worry about. In the unlikely event they get a warning letter, they will likely be able to simply stop accepting ads without facing penalties (assuming they don't choose to fight).

Buying advertising as a casino, poker room, or affiliate (Risk Level: 2/9)

The only buyers of advertising who have been targeted have been offshore sportsbooks. Casino and poker operators haven't faced any action. While the DoJ waved a finger at Esquire for taking Bodog's poker ads, their attention was directed at Esquire, not the operator, Bodog. Affiliates and portals have never received attention from the government, so far as we know.

Making bets on the internet (as a player) (Risk Level: 1/9)

Playing online seems to be relatively safe. Even a U.S. Attorney admitted in 2007 that placing wagers online doesn't violate federal law. So far as we know, no U.S. citizen has ever faced federal charges for gambling online. There is no federal law that says specifically, "You may not gamble on the Internet." There are some who claim that the Wire Act (which prohibits making bets over the telephone) applies to the Internet, but until a court rules on that specifically, it's a gray area.

Now, one player, Jeffrey Trauman, was charged under his state law (North Dakota) for making sports bets online, but he likely attracted attention since his winnings seemed to be over $100,000. And yet again, notice that this was for sports betting, not casino or poker. And of course, Trauman is the only person we know of to be charged with gambling online, out of the hundreds of thousands of others who continue to do so with impunity. (Gambling & the Law) 

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Timeline of legal events for online gambling

2000. American Jay Cohen runs a sportsbook in Antigua, but when he returns to the U.S. he is arrested, convicted, and sentenced to 21 months. prison. (WinnerOnline)

2002. The U.S. 5th Circuit Court of Appeals rules that the Wire Act applies only to bets on sporting events or contests, not wagers in general. (BusinessWeek)

2003

The tiny island nation of Antigua, home to many Internet gambling companies, sues in the World Trade Organisation court, challenging the U.S. ban on gambling ads, saying it violated free trade agreements. (It would eventually win.)

The U.S. Dept. of Justice sends letters to some major media outlets (e.g., Google, Yahoo, Esquire, The Sporting News) warning them that accepting ads for online gambling could be illegal. The recipients all stopped accepting ads. None of them ever faced any legal action, but The Sporting News did get fined, for not ceasing the ads quickly enough. (See Jan. 2006.)

2004

The webmaster of the portal InternationalNetCasino.com is indicted by New Jersey authorities, since he took money from would-be players directly in order to help them place bets. It seems that if he had simply advertised the gambling operations and not gotten directly involved he probably would have been okay. Even so, his sentence was light: the eight days he'd already served in jail, $1330 in fines, and 90 days of community service. (more from Gambling 911, iGamingNews)

The website CasinoCity.com sues the DoJ to establish its right to accept ads for Internet gambling. A judge dismisses the case, saying Casino City doesn't have standing because it hadn't received one of the cease & desist letters. Casino City files an appeal,

November. Antigua wins the WTO case against the U.S., but the U.S. vows to appeal. (arstechnica, MSNBC) (The U.S. would eventually lose all appeals.)

2005

April. Ignoring the WTO ruling, the Department of Justice subpoenas Esquire magazine for taking ads for online gambling.

April. Antigua wins its appeal in the WTO case. The new victory weakens the original one, but is still a victory nevertheless. Typically, the U.S. ignores the ruling and continues to act as though it didn't happen. Newsweek (Sept. 2007) has a good article about the case and its implications. (also Casino City, CNET )

2006

January. The Sporting News (TSN) took its time in dropping gambling ads (six months) after receiving the warning from the DoJ, which pissed off the government, which three years later fines them $7.2 million. The settlement represents TSN's profits on the ads for the three years it accepted them (2000-2003), and is paid with $4.2 million in cash, and $3 million in public service ads in its own publications explaining how online gambling is illegal. (more from the Corporate Crime Reporter, the Olympian, and Media Buyer Planner)

February. Before Casino City's appeal can be heard (see 2004), it withdraws from the case, saying it thinks it made its point. It intends to fight if it ever gets charged with accepting gambling ads.

April. The U.S. ignores the deadline for complying with the WTO ruling. (Online Gambling Insider)

May. There's an attempt to ban Internet gambling in every legislative session, and this one is no different. As of this writing, two bills have cleared committees and are proceeding to the full House of Representatives. (River City Group)

May. The U.S. charges the operators of an offshore sportsbook with soliciting bets from U.S. players. They've actually been fugitives since receiving charges in a separate case in 1998. The primary target, William Scott, renounced his U.S. citizenship in 2004 and moved from Ohio to his homes on the Caribbean islands of Antigua and St. Maarten in the Netherlands Antilles. Most of the media coverage of this comes straight from the U.S. government press release, so it's highly biased and uses lots of negative words to describe the pair: fugitive, illegal, money laundering, etc. Nary a mention is made that the U.S.' actions itself is illegal, violating the finding of the World Trade Organisation court that the U.S. may not prohibit gambling advertising. (Die is Cast, PC World)

June. Washington state officials shut down the web portal IntegrityCasinoGuide.com, but the site owner apparently faces no penalties. (The Online Wire)

July. David Carruthers, CEO of UK-based BetOnSports, is arrested by U.S. authorities while changing planes in Texas on the way from the U.K. to Costa Rica. (USA Today)

July. The U.S. House of Representatives passes HR 4411, the Internet Gambling Prohibition and Enforcement Act, by a vote of 317-93. It now goes to the Senate. (iGamingNews)

September. Peter Dicks, chairman of UK-based Sportingbet, is arrested while visiting New York, at the request of Louisiana authorities who said Sportingbet violated Louisiana's ban on Internet gambling. (iGamingNews)

October. Republicans slip in an anti-Internet gambling amendment into the unrelated Safe Ports bill. It prohibits U.S. banks from processing online gambling transactions, which doesn't change things much because U.S. banks have been largerly out of that business for years. It also allows the government to direct webhosts to disable a website's links to online gaming sites, though it seems that webmasters can easily get around this by simply locating their websites outside the U.S. Attorney Nelson Rose believes that webmasters who advertise online gambling sites on a revenue-share basis (vs. CPA, PPC, or flat monthly rate) could be charged with aiding & abetting illegal online gambling, but his analysis is far from clear. More:

• Analysis of the UIGEA by iGamingLaw
• Analysis of the UIGEA Card Player (Allyn Jaffrey Shulman)
• Analysis of the UIGEA I. Nelson Rose
• Excerpt and mini-analysis by VegasClick

2007

January. U.S. authorities arrest the founders of Neteller, a service that allowed U.S. players to get money into an online casino / poker room / sportsbook. Neteller stops serving U.S. players within days. (Creator.com, Covers.com, iGamingNews, GPWA)

January. The Department of Justice subpoenas four foreign investment banks which had underwritten some online casinos. (Casino City, GPWA)

February. The FBI seizes customers' Neteller funds as evidence. (UISA Today)

March

• Neteller announces a deal with the FBI to return players' funds to the players within 75 days. Neteller stops serving Canadian customers.
• WTO rules yet again that the U.S. is not in compliance. The U.S. continues to ignore the rulings of the international court. (Beta News, Poker News)
• BetOnSports founder Gary Kaplan is arrested in Puerto Rico.

April. Rep. Barney Frank files a bill which would take much of the sting out of the UIGEA, and take the first steps towards U.S. regulation of online gambling. Most doubt that the bill has any chance of passing. (GPWA)

November. The House of Representatives holds a hearing about online gambling. The U.S. attorney admits that's it's not against the law for players to gamble online. (See our full report about the hearing.)

December. Google, Yahoo, and Microsoft pay a fine for accepting ads for online gambling, in a case dating back to 2003. It's not even clear that such advertising is illegal, but the companies apparently felt it was easier to settle. Google's fine amounted to only about 1/3 of its profits for a single day. (NY Times, Point-Spreads.com)

December. After losing the WTO case, the U.S. had three choices: (1) Specifically legalize online gambling, (2) pay huge compensation to its trading partners, or (3) give them huge concessions. The U.S. chose door #3, granting trade concessions to the complaining countries. (L.A. Times, GPWA) Antigua, which brought the case in the frist place, had requested $3.4 billion in annual damages, but was awarded only $21 million. Antigua is now allowed to suspend copyright on American movies and music. (SF Gate)

2008

June. Barney Frank and Ron Paul's HR5767 bill to legalize and regulate Internet gambling failed to make it out of the House Financial Services Committee. Even an attempt to simply define "unlawful Internet gambling" to provide clarity to banks and policing agencies also failed. (iGamingNews)

September. A Kentucky judge agrees to allow Kentucky seize 141 gambling-related domain names, since online gambling violates Kentucky law. This is plainly absurd -- by that logic any country could seize any domain anywhere in the world if the website happened to violate local law. The Kentucky Court of Appeals quickly overturns the action. (EFF)

December. Anurang Dikshit, co-founder of Party Gaming, pleaded guilty to violating the 1961 Wire Act by his company taking poker and casino bets from Americans, and was ordered to pay $300 million, and possibly spend up to two years behind bars. (Never mind that the Wire Act doesn't specifically criminalize taking poker and casino bets over the Internet, but in the Bush era, ignoring the law is all the rage.) (Times Online)

2009

April. David Caruthers, CEO of U.K.'s BetOnSports, pleads guilty to federal racketeering charges for running on online sports betting service.

April. Party Gaming agrees to pay $105 million to avoid prosecution. (GPWA)

June. The feds freeze over $30 million in payouts to online poker players. The poker rooms paid their payment processors, who was supposed to pay the players, but the feds froze the processors' accounts before the players could be paid. (Washington Post)

August 2009. Douglas Rennick of Canada is indicted in the U.S. for processing payments for online casinos through U.S. banks. But they have to arrest him first. As I write this in November 2009, the U.S. has not yet requested that Canada extradite him to the U.S., and it's not even clear that Canada would honor such a request were it to be made.

September. Feds seize ten U.S. bank accounts between June and September they said were related to online gaming (likely accounts of payment processors who were trying to pay winning patrons). (GPWA)

November. BetOnSports founder Gary Kaplan is sentenced to four years in prison and ordered to forfeit $44 million in revenue.

November. FirePay (aka Optimal Group), a payment processor, settles with the U.S. DoJ for $19 million for processing payments for online gambling sites between 2004 and 2006...before the UIGEA made that activity clearly illegal. In exchange, the DoJ won't pursue criminal prosecution. (Reuters)

December. BetOnSports is fined $28.2 million.

2010

January. David Caruthers, CEO of U.K.'s BetOnSports, pleads guilty to federal racketeering charges for running on online sports betting service, and is sentenced to 33 months in prison. ( The Register)

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WTO Timeline

2003. The tiny island nation of Antigua, home to many Internet gambling companies, sues in the World Trade Organisation court, challenging the U.S. ban on gambling ads, saying it violated free trade agreements.

November 2004. Antigua wins the WTO case against the U.S., but the U.S. vows to appeal. (arstechnica, MSNBC) (The U.S. would eventually lose all appeals.)

April 2005. Antigua wins its appeal in the WTO case. The new victory weakens the original one, but is still a victory nevertheless. Typically, the U.S. ignores the ruling and continues to act as though it didn't happen. Newsweek (Oct. 2007) has a good article about the case and its implications. (also Casino City, CNET )

April 2006. The U.S. ignores the deadline for complying with the WTO ruling. (Online Gambling Insider)

March 2007. WTO rules yet again that the U.S. is not in compliance. The U.S. continues to ignore the rulings of the international court. (Beta News, Poker News)

December 2007. After losing the WTO case, the U.S. had three choices: (1) Specifically legalize online gambling, (2) pay huge compensation to its trading partners, or (3) give them huge concessions. The U.S. chose door #3, granting trade concessions to the complaining countries. (L.A. Times, GPWA) Antigua, which brought the case in the frist place, had requested $3.4 billion in annual damages, but was awarded only $21 million. Antigua is now allowed to suspend copyright on American movies and music. (SF Gate)

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Other resources 

A good overview of the U.S. situation is this Jan. 2007 article from Covers.com.

  

 

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