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Blogs from March, 2018

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By some estimates, Americans spend as much as $150 billion each year betting on sports through online gambling establishments. Is online sports betting legal? The answer is not always clear.

State and federal laws both play a role in sports betting, and those laws are sometimes in conflict. Laws also draw an elusive distinction between gaming (online poker, for instance) and gambling (on sporting contest outcomes, for instance) that makes the legality of sports betting even more complex.

In addition, there is a distinction between placing a bet and receiving a bet. Betting is much less likely to be prosecuted than accepting bets, which is generally regarded as illegal bookmaking.

Unlawful Internet Gambling Enforcement Act

The federal Wire Act prohibits using the telephone to place a bet. A 2002 federal court decision concluded that the Wire Act does not apply to internet betting.

Congress responded to that decision by enacting the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). The UIGEA prohibits any gambling business from accepting money from a U.S. citizen or resident in the form of a bet or wager placed by using the internet, if accepting the bet would be illegal under any state or federal law. Accepting bets on sporting events is illegal in nearly every state.

The same law requires banks, credit card companies, and other financial institutions to create procedures that prevent customers from using their debit or credit cards to pay for bets. In other words, your credit card company should prevent you from using your credit card to place an online bet. However, the law does not require banks to block electronic funds transfers that might be used to fund a betting account.

The UIGEA does not necessarily deter online gambling, but Americans who place an online bet may need fund their wagers without using U.S. credit or debit cards. In addition, while some foreign gambling sites (typically those that are publicly traded) have stopped taking bets from Americans, many other sites continue to accept bets. The Justice Department has pursued moderately successful civil suits against some foreign businesses (primarily owners of online poker websites) who have accepted bets from American players, but they are a drop in the bucket compared to all the online gambling sites that continue to accept bets from Americans.

Notably, the UIGEA regulates website owners and financial institutions. It does not prohibit individuals from placing bets. Whether an online bet on a sporting event can be placed legally is determined by other laws.

Professional and Amateur Sports Protection Act

The Professional and Amateur Sports Protection Act of 1992 (PASPA) is a federal law that prohibits most states from enacting laws that would permit betting on most sports competitions. The law does not apply to licensed betting establishments in Nevada or to sports lotteries in Oregon, Montana, and Delaware. The law does not apply to bets placed on horse or dog racing, or on jai alai.

PASPA is an odd law because it does not make sports betting illegal. Rather, it prohibits states from making sports betting legal under state law.

The State of New Jersey has challenged PASPA, arguing that it unconstitutionally interferes with the right of states to decide for themselves whether to legalize sports betting. The U.S. government has taken the position that sports betting is a national problem, not a states’ rights issue. The government cites gambling addiction and corruption in sports as justifications for a federal law addressing sports betting.

New Jersey, on the other hand, wants to allow sports betting within the State of New Jersey. It argues that what it does within its own borders is a question of states’ rights. New Jersey contends that Congress could have passed a federal law outlawing sports betting, but since it did not do so, it is powerless to tell states that they cannot legalize sports betting under state law.

The Supreme Court is expected to decide the case within the next several months. The Justices appeared to be sympathetic to New Jersey when the case was argued, but that does not necessarily signal how the state will decide the case. Unless it overturns PASPA, however, sports betting will continue to be illegal in most states.

California Law

Other than racetrack betting, most betting is illegal in California. It is illegal in California to place a bet on card or dice games, roulette, or similar games, subject to exceptions for games offered by Indian Casinos and certain charitable organizations.

California’s gaming law, however, does not make it illegal to place a bet on a sporting contest. Accepting a bet, on the other hand, violates section 337a PC, California’s law against bookmaking.

If you look at online gambling sites, they’ll tell you that no California law prohibits online gambling. The law isn’t quite that clear, but it’s probably true that betting on the March Madness pool won’t get you prosecuted in California. Running the pool, on the other hand, could result in a prosecution.

Still, the law is murky and it may soon change. Many California legislators have indicated they would like to create (and tax) a regulated system of sports betting as a way to raise revenue. However, unless PASPA is overturned or repealed, the legislature has no authority to do so.

Operating an Online Sports Betting Website

In many countries, it is legal to operating a sports betting website. Some Americans have tried to take advantage of those laws to operate sports betting websites through offshore companies. Many Americans who have done so have been surprised to find themselves under federal indictment.

Federal law clearly prohibits the operation of sports betting websites. California law prohibits bookmaking, which would apply to the operation of a sports betting website in California.

The bottom line is that placing an online bet on a sporting contest (as opposed to playing online poker) might be legal in California, but accepting a bet or operating a sports betting site is not legal. Of course, if you place a bet, you run the risk that the website might be shut down before you are paid your winnings, but accepting risk is part of gambling.