US internet gambling campaign stalls

John Lamb | Digital Vision | Getty Images

Efforts to allow internet gambling across the US have stalled, after a campaign backed by casino owners pushed back against industry efforts to allow more widespread wagering on laptops and smartphones.

New Jersey, Delaware and Nevada became the first states to liberalise online betting in 2013, prompting industry executives to predict that longstanding prohibitions on the practice would soon crumble as others followed their example.

"Make no mistake: internet gaming is here to stay," said Geoff Freeman, the new president of the American Gaming Association, told Congress in December 2013, noting that a dozen more states were also considering online play.

Instead, 12 months later, revenues from the three states have failed to come close to lofty expectations, and quarrelling within the industry has shelved hopes for further expansion.

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The momentum began to slow just three months after Mr Freeman's declaration, when casino mogul Sheldon Adelson used his presence on the AGA board to persuade the group to withdraw its support for online betting. Mr Adelson, the billionaire chairman of Las Vegas Sands, pledged to spend "whatever it takes" to stop internet gaming.

The reversal dismayed other AGA members, such as Caesars and MGM Resorts, which had been vigorously pushing for a federal framework for internet gambling.

Mr Adelson and his allies then helped derail attempts to legalise online play in California and Pennsylvania, although they were unsuccessful in pushing for a provision in a Congressional spending bill to restore a blanket federal ban.

The 1961 Wire Act prohibited wagering via electronic transmissions, but in late 2011 the Justice Department reversed its interpretation of the law to allow individual states to establish their own internet betting schemes.

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New Jersey, by far the largest market of the three to do so in 2013, registered just $111.8m in revenues over its first 12 months — well shy of the $1bn projections offered by analysts and state officials at the outset.

Some attribute the poor performance to a miscalculation of consumer demand and technical glitches, while others point out that banks have been reluctant to clear online gambling transactions — a problem that has caused similar headaches for the emerging legal marijuana industry.

The 2006 Unlawful Internet Gambling Enforcement Act, which the Justice Department used to go after offshore poker operators in 2011, has been an important obstacle.

"Under [UIGEA], failing to block restricted transactions could result in liability. But there is no liability for over-blocking or refusing to honour Internet gambling-related transactions. This was a carefully considered provision designed to make it much more difficult for internet casinos to operate," said Michael Borden, an attorney with Sidley Austin and former congressional aide who helped draft the law.

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Proponents of liberalisation in New Jersey point out that its problems have been strictly financial. There were no reported cases of online casinos being used for the nefarious purposes that Mr Adelson has warned about, such as money laundering by terrorists and crime syndicates, nor was there any reported gaming by underage players.

"From a regulatory perspective, our systems are working very well," said David Rebuck, director of New Jersey's Division of Gaming Enforcement. "There have been no systematic failures that would in any way impugn the overall integrity of our operations."

Advocates of further US online expansion are now pinning their hopes on a renewed push in California to legalise online poker and an attempt by PokerStars, now owned by Amaya Gaming of Montreal, to obtain a New Jersey license after being denied in 2013 over previous run-ins with the Justice Department.

Should PokerStars be approved, it will operate an online poker platform in conjunction with Resorts Casino in Atlantic City. The success or failure of the world's largest online poker operator is likely to determine whether internet gambling makes any more headway in the US in 2015.