Published online in Wiley Online Library (wileyonlinelibrary.com)
© 2011 Wiley Periodicals, Inc. • DOI: 10.1002/tie.20450
Over time, the US sports gaming industry has progressed dramatically beyond what the US antigaming law drafters envisioned. The result is a system of mostly antiquated laws controlling modern industry causing confusion across the board. This discussion, therefore, intends to shed light on the US sports gaming legal framework, including analysis of the preeminent US laws that regulate the sports gaming industry and a brief review of various sports gaming businesses that fall within the US legal rubric.
The US market for sports gaming activities is established and growing. In 2009 alone, the legal horserace parimutuel pools took in gross US bets of US $12.3 billion (Angst, 2010). The state of Nevada has race betting as well, but also is the only state with virtually unrestricted legalized sports betting similar to that commonly found outside the United States. In 2009 and 2010, Nevada gross legal sports bets amounted to $2.6 billion and $2.8 billion, respectively, and gross legal race bets amounted to $400 million and $381 million, respectively (State of Nevada, 2009, 2010). Yet, as large as these industry numbers are, they do not include the overwhelming amount of illegal betting conducted in the United States each year. While it is difficult to accurately quantify the size of the illegal betting market since, at the very least, its illegality tends toward nondisclosure, a recent investigative news report estimated the three sports that garner the majority of illegal US bets are football (US version), basketball, and baseball, with approximately $255–$300 billion bet annually (“Top Sports for Illegal Wagers,” 2009). Although the accuracy of this estimate is indeterminable, it is fair to say that the illegal gambling market is indeed quite significant. These figures also do not include gaming revenues from sports-related games not traditionally considered gambling, such as fantasy sports, which alone in 2009 accounted for additional annual revenues of $1.5 billion in the United States (Ankeny, 2009; Dahle, 2008; Spaeder, 2009).
It is understandable that given the enormity of these figures and the success of interactive gaming companies with their recent billion-dollar valuations, companies want to participate in the US sports gaming market (Levy & Satariano, 2009). However, it may not be readily apparent which activities are permissible under US law or how those activities must be structured to comply with US law.
At times, the legality of sports gaming in the United States can appear to be in a constant state of flux. Courts and companies continually grapple with interpreting antiquated anti-gaming laws for a modern gaming industry. Special interests, such as political conservatives, regularly seek to enact additional anti-gaming laws and diminish gaming opportunities while others, such as gaming operators, simultaneously seek to test the limits of, modify, and expand the same. Moreover, the myriad of US laws, court decisions, US Department of Justice (DOJ) legal stances (and eventual prosecutions), and sports gaming operations create divergent views and arguments as to which forms of sports gaming are legal in the United States.
This state of confusion and concern regarding the legality of sports gaming activities has led some US- and EU-based businesses to operate in the United States only later to find they are defending prosecution or negotiating settlements with the Department of Justice (“BetOnSports Fined $28 Million,” 2009; Richtel, 2004; Ryan, 2007; United States v. $6,976,934.56, 2006; United States v. BetOnSports PLC, 2006; United States v. John David Lefebvre, 2007; United States v. Stephen Eric Lawrence, 2007). Such confusion has been amplified by the recent World Trade Organization (WTO) dispute challenging the US position on horserace betting, but as we illustrate later, each side of this dispute was, in fact or in effect, arguing in error. Consequently, the ultimate rulings in the WTO dispute arose from an incorrect understanding of the US anti-gaming laws.
The purpose of this review, therefore, is to explain the framework of US sports gaming laws and set forth forms of sports gaming activities that are permitted in the
US LEGAL SYSTEM
Before embarking on an analysis of US sports gaming laws, a brief review of the US legal system is beneficial. The United States has a two-tier structured government divided between the federal and state governments (Chemerinsky, 2002). Federal law is enacted by the US Congress—the legislative arm of the federal government— and is supreme to law enacted by each state. The federal government, however, can only pass laws if it has clear authority to do so. Otherwise, governance is left to the states (Chemerinsky, 2002).
Correspondingly, there are two court systems split between the federal and state jurisdictions. The federal and state court systems are divided regionally and operate on a vertical hierarchy within each region. At the federal level, the highest court is the US Supreme Court, followed by the 13 regional US Circuit Courts of Appeal, and then the regional US District Courts that fall within one of the 13 federal appellate circuits. A similar system exists at the state level, wherein most commonly each state has a supreme court, followed by a court of appeals, and then district courts (Burnham, 2002).
Not all court decisions are binding on all courts. The US Supreme Court decisions are binding on all federal and state courts. However, within each regional federal and state court system, the decisions of higher courts are binding on the lower courts, but the decisions of courts outside each respective region are only persuasive, not binding (Chemerinsky, 2002). The federal courts only hear certain cases, most commonly involving questions of federal law but also may include state law. In interpreting federal law, the federal courts follow precedent within their respective region up to the US Supreme Court and may look to other federal regions for interpretations of the law that are persuasive but do not require mandatory compliance (Chemerinsky, 2002). The state courts hear almost any type of case other than cases that are heard exclusively by the federal courts. Similarly, in interpreting state law, the state courts follow precedent within their respective region up to the US Supreme Court and may look to other state regions for persuasive interpretations (Burnham, 2002). Additionally, the state courts may interpret federal law if applicable to the case before the state court, which is subject to review by the federal courts.
FEDERAL GAMING REGULATION
With some exceptions, the federal government has not traditionally played a major role in regulating the gaming industry (Gottfried, 2004). Instead, gaming regulation and enforcement has been viewed as most appropriate for states—that is, to allow each state to decide which gaming activities are legal. One of the first instances of federal regulation can be traced back to 1890, when Congress passed a law prohibiting the sale of lottery tickets through the mail. Congress passed the law in response to the Louisiana lottery, a notorious lottery that was run by a New York syndicate to promote bribery. Following the introduction of the federal law, the state legislature shut down the lottery two years later (Thompson, 1994). Then, in 1951 Congress passed the Gambling Devices Act of 1951. This Act, as amended by the Gambling Devices Act of 1962, supplements state law by prohibiting the interstate transportation of gambling devices into jurisdictions where their manufacture or possession is not specifically legal, and imposing registration and recordkeeping requirements on those who manufacture and distribute the devices for public use (Cabot, 1998). Similar to the 1890 legislation, the Gambling Devices Act of 1951 was introduced to combat organized crime associated with the proliferation of gambling in the United States. Specifically, the Gambling Devices Act of 1951 was the result of a report published by the US Senate Special Committee on Investigative Organized Crime in Interstate Commerce that concluded “organized criminal gangs operating in interstate commerce are firmly entrenched in our large cities in the operation of many different gambling enterprises . . . as well as other rackets. . . .” (Kefauver, 1951, p. 1). Moreover, beginning in the 1960s, the federal government determined the states needed assistance in enforcing their laws against unlawful gaming activities, particularly organized crime, and proceeded to pass a series of federal anti-gaming laws.
Most of these more recent federal laws merely prohibit the offering of gaming activities in states where such activities are already illegal under state law (Gottfried, 2004). Consequently, federal gaming laws, in general, do not replace state laws; rather, they protect them from circumvention in interstate and foreign commerce (Shaker, 2007). The DOJ is the chief law enforcement agency of the United States and plays a prominent role in preventing circumvention in interstate and foreign commerce by enforcing US federal gaming laws and prosecuting persons violating those laws.
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