Bet on This: Gambling Will Be Legal in the U.S. by 2020

Forecasting today’s biggest business and tech trends.
March 3 2014 5:13 PM

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Photo by woolzian/iStock/Thinkstock

Ask anyone in Silicon Valley to describe the “gaming industry,” and she’ll tell you about Call of Duty or Candy Crush Saga. Ask someone in Nevada or New Jersey, and you’ll get a very different response. Pretty soon, though, there will be no distinction between these two types of “gaming.”

True to the name of this column, I’m going to place a wager. I predict that gambling will be broadly legal in the United States by the end of this decade. It will start with online poker, which is currently legal only in Nevada, New Jersey, and Delaware. But it will expand from there, both in categories of games and in geographic acceptance. This is already happening, to a certain extent: The wheel’s started spinning, and the ball is in play. When it drops, the video gaming business will win big. The makers of today’s mobile games will build tomorrow’s mobile casinos.

They’ve tried before. Zynga, the granddaddy of social gaming, launched a real-money gambling site in the U.K. last year, calling it Zynga Plus Casino. It collaborated with bwin.party, a Gibraltar-based gambling company that reported nearly 770 million euros in revenues in 2012. (That’s about $1.05 billion in current dollars.) But Zynga has had a tougher time gaining headway in the U.S. Entrenched anti-gambling statutes and complicated interstate regulations are difficult hurdles to clear. Barely a few months after it had opened its casino for business in the U.K., Zynga told analysts that it had given up on plans to let Americans in the door.

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The biggest roadblock facing Zynga, and anyone else, is the Unlawful Internet Gambling Enforcement Act of 2006. Originally drafted as a last-minute rider on a port security bill, the UIGEA has been used to prohibit companies from offering Internet-based poker, sports books, and games of chance to Americans. Its passing put an end to a decade-long gold rush in online gambling in the U.S., led by sites such as Bodog, PokerStars, and Full Tilt Poker. A series of indictments, issued most notably in United States v. Scheinberg, showed that federal authorities were willing to prosecute broadly and aggressively on behalf of the UIGEA. In Scheinberg, U.S. Attorney Preet Bharara alleged that the founders of PokerStars, Full Tilt Poker, and Cereus (Absolute Poker) were guilty of bank fraud and money laundering as a result of transferring funds to and from players online. PokerStars and two other defendants agreed to forfeit over $731 million to settle the case, and PokerStars was permitted to continue business operations.*

Money laundering and bank fraud might seem like unusual charges to levy against online casinos. But the UIGEA focuses primarily on the financial transactions enabling gambling; it focuses to a much lesser degree on the gambling itself. Specifically, the UIGEA “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.”

By attacking a specific aspect of gambling—namely, the transmission of funds—the UIGEA appears to cut off online gambling at the ankles. If no financial company is willing to handle transfers, then online casinos won’t take on American customers.

The law’s specificity, however, leaves wiggle room at its margins. For one thing, the UIGEA does not seem to apply within the boundaries of states that have already legalized various forms of gambling, or that may do so in the future. But logistical troubles remain: Any businesses running legal online casinos or poker tables must operate entirely within a given state. The UIGEA seems to prohibit the transfer of funds for the purposes of gambling across state lines.

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