The prohibition on online gambling in the U.S. ended on June 6, 2013. The Internet Gambling Regulation, Enforcement, and Consumer Protect Act legalized all forms of online gambling except betting on sports. (American Gaming Association, 2013) 37 companies have already submitted applications various state authorities to participate in the newly forming industry, which is going to “go live” on November, 23. (Stradbrooke, 2013) Also, WSoP has recently introduced its website, which is now accepting players for online Satellite tournaments to WSoP live events. Is the liberation of online gaming in US a good thing or a horrible mistake to be paid for in the future?

Since the inception of Internet, online gambling has been controversial issue in U.S. The initial legislation applied to online gambling was the U.S. Wire Act of 1961, which prohibited gambling over the “wires”, and thus – it was generally held – made online gambling illegal. (American Gaming Association, 2013) But vague nature of the law (predating the Internet) led to numerous legal disputes regarding its applicability. To resolve those disputes, the Unlawful Internet Gambling Enforcement Act (UIGEA) was passed in 2006. It made it illegal for banks, credit card companies, and similar institutions to collect on a debt incurred on an online gambling site. (American Gaming Association, 2013)

The UIGEA was motivated by more than confusion from previous legislation – it was a response to a changing world. Between 1997 and 2001, the online casino industry (worldwide) grew significantly, from less than a million gamblers to over 40 million. Online gambling revenue increased from just over $1 billion to more than $7 billion. (Alijani et al.)

Such growth was seen as a problem. In 2001 the generally held view was that online gambling did not provide economic benefits such as increased employment and tax revenues, unlike conventional casinos, but still contributed to crime, homelessness, and other social problems. (Hammer, 2001) Further, undeveloped online security mechanisms made online transactions susceptible to fraud and opened the possibility for money laundering, underage gambling, and various forms of cheating on part of gambling websites. And there were major concerns about the safety of personal data. (Hammer, 2001)

The UIGEA became law in 2006 for other reasons. Companies outside the U.S. who offer online gambling do not pay U.S. taxes on the revenues – player losses – from Americans. Online gambling impacted the credit card industry: banks make money when credit cards are used for gambling (particularly if players carry a balance from month to month), but a large number of individuals refused to pay their gambling debts. Many of such cases end up in court. (Hammer, 2001) And, of course, the UIGEA also influenced by the established conventional gambling industry in the U.S., who wanted to reduce competition.

More recent research on online gambling suggests that legalization in U.S. could have a significant positive impact on the economy. Regulated online gambling could create between 16,000 and 32,000 jobs and bring an additional $57 billion in domestic taxation in the first five years, according to one economic assessment in 2010. (Holliday et al., 2010)  Such arguments, combined with the experience from all over the world, led to legalization and regulation of the U.S. online gambling market.

The U.S. is finally on the right track regarding the legalization of online gambling. That makes today an excellent time to start an online casino in U.S. Though most of the companies currently entering the industry are already established in the land-based casino business, there is still room for new start-ups. But the online casino business is a complicated endeavor, impossible to run from a bedroom or garage. Getting a license, setting up servers and casino software, and establishing a safe money transfer infrastructure takes time, a minimum investment in the range of $400,000 – $500,000. But the potential for profits in about nine months is high. (Yorktown Ventures, 2010)

References

Alijani, G.S., Braden, B., Omar, A., Eweni, S. Economic Impacts of Commercial Casinos and On-Line Gambling.

American Gaming Association. (2013). Background on Online Gambling.

American Gaming Association. (2013). Online Gambling.

Hammer, R.D. (2001). Does Internet Gambling Strengthen the U.S. Economy? Don’t Bet On It.

Holliday, S., Kelleher, G., Bradbury, M., Keeble, J. (2010). United States: Regulated Internet Gambling Economic Impact Assessment.

Stradbrooke, S. (2013). 37 Apply in New Jersey as 2up Gaming Plays Coy on Asian Backer.

Yorktown Ventures, Inc. (2010). Start Casino. Independent Information Site on Starting an Internet Casino Business.

Artur Loss has a degree in Economics and Management from Aberdeen University. The gambling industry fascinates him, especially its latest developments in US. Artur enjoys swimming in his free time.