Passage of the UIGEA in 2006

Passage of the UIGEA in 2006, and sub- sequent actions to implement the Act, had a significant impact on the online gambling indus- try in the United States. The law prohibited

U.S. financial institutions from processing pay- ments to gambling sites, thereby raising sub- stantial barriers to online gambling by U.S. cit- izens, with the result that most of the largest internet casinos and poker rooms either ceased to operate in the United States or were forced to close.

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We have examined empirically the main fac- tors determining congressional roll call votes on internet gambling legislation, focusing our atten- tion on the 2006 Internet Gambling Prohibition and Enforcement Act, H.R. 4411, a precursor to the UIGEA which passed in the House but was not voted on in the Senate. H.R. 4411 had very similar provisions to the UIGEA but, unlike the UIGEA, was not attached to unrelated leg- islation at the time it was voted on. A main purpose of our study has been to separate out the effects of representatives’ ideologies and those of their constituents, as reflected in party affilia- tion and religious beliefs, from economic condi- tions, such as the presence in a district of other gambling industries, in driving a representative’s vote on H.R. 4411.

Our results indicate that party affiliation is a prominent influence on representatives’ votes on H.R. 4411, with Republicans significantly more likely to vote for the legislation than Democrats. In addition, we find that the larger the per- centage of a state’s population that is associ- ated with an evangelical Christian denomination, the more likely a representative from that state would be to vote for H.R. 4411. The presence of gambling establishments in a district is also associated with a higher probability of voting for the legislation, suggesting that politicians responded to local political pressure to protect land-based casinos and jobs within their dis- tricts from the threat of competition from online gambling. However, at the margin, political con- tributions from the gambling industry diminish legislator support for H.R. 4411. National indus- try groups would have an interest in promoting gambling in general and might view online casi- nos as providing exposure to gambling expe- riences that could ultimately attract customers to land-based outlets too. Our findings of the importance of party affiliation, campaign con- tributions, and economic variables, such as in this case the presence of land-based gambling establishments within a politician’s district, are consistent with the literature on the determi- nants of congressional roll call voting discussed in Section I, e.g., Kahane (1996), Facchini and Steinhardt (2011), and Couch et al. (2011).

 

 

26 CONTEMPORARY ECONOMIC POLICY

Despite the passage of the UIGEA, a consid- erable number of Americans continue to gam- ble online. According to the Poker Players’ Alliance, even though transactions are compli- cated by the UIGEA’s prohibition on finan- cial institutions’ acceptance of payments, some 10 million people in the United States play poker online (Berzon 2011a).19 In 2010, the online poker industry in the United States com- prised $18 billion in wagers (Berzon and Alber- gotti 2012). The global online gaming indus- try’s revenues have risen steadily in recent years and are now close to $30 billion a year (Economist, April 23, 2011, p.68). In 2007, and again in 2009, Massachusetts Representa- tive Barney Frank sponsored a bill to legalize online gambling at the federal level by pro- viding for the licensing of gaming websites by the Treasury Department (Library of Congress, accessed March 3, 2011; Longino 2009). Frank also sought legislation to halt enforcement of the UIGEA (Longino 2009). In March 2011 Frank, together with California Representative John Campbell, again introduced a bill to reg- ulate and tax online gaming. So far, however, none of these bills has reached the floor of either the House or the Senate, despite some favorable votes in the House Committee on Financial Ser- vices (Masnick 2010; Popper and Hsu 2011).

Nevertheless, lobbying efforts to repeal the UIGEA have intensified as land-based casinos join forces with online gaming companies to press for legalization and to form strategic part- nerships to operate gambling sites in the event of an end to prohibition.20 The situation changed rather dramatically on April 15, 2011, when the U.S. Attorney in Manhattan indicted three

19. See also Popper and Hsu (2011) and Economist (April 23, 2011, p. 68).

20. Thus Caesars Entertainment, Inc. teamed up with 888 Holdings Plc., an online poker site operating outside the United States, and Wynn Resorts partnered with Isle of Man- based PokerStars with the specific intent of lobbying for federal legalization and then, if successful, jointly operating new online sites for U.S. customers (Berzon 2011b). Shortly thereafter, Fertitta Interactive, a company established by the owners of Station Casino, teamed up with Ireland-based Full Tilt Poker, again with the intention of lobbying for a change in the federal regulatory regime and of preparing to jointly operate future online sites (Berzon 2011c; Economist, April 23, 2011, p. 68). Both Wynn Resorts and Fertitta Interactive supported a Nevada bill that provided for the state’s gaming commission to draft regulations for online gambling, to take effect on approval from Congress or the Justice Department (Economist, April 23, 2011, p. 68). Such approval was forthcoming with the Justice Department’s December 2011 finding, and shortly thereafter Nevada’s gaming commission proceeded to authorize companies within the state to offer online poker (Berzon 2012).

of the largest online poker sites on charges of bank fraud, money laundering, and violat- ing gambling laws (Rose 2011), whereupon the land-based casinos immediately dissolved the partnerships they had previously forged with their online counterparts (Popper and Hsu 2011; Economist, April 23, 2011, p.68).21 Still, the U.S. casino industry as a whole, represented by the American Gaming Association, continues to lobby for federal, as opposed to state-level, reg- ulation of online gambling and for legalization of online poker specifically (American Gaming Association, accessed August 2, 2013).

That large land-based gambling companies clearly have aspirations to enter the online mar- ket themselves has important implications for the future of internet gambling policy in the United States. Our empirical analysis indicates that political contributions from the gambling industry have the effect of diminishing legisla- tor support for prohibition of online gambling, no doubt in part due to the interests of land- based casinos in establishing their own online presence. This finding suggests that ultimate repeal of the UIGEA and liberalization of fed- eral gambling policy more generally, including legalization of online sports betting, becomes more probable as the political efforts of industry groups gain momentum.

DATA APPENDIX

Data sources are listed below. AYE: Govtrack, http://www.govtrack.us/congress/vote.

xpd?vote=h2006-363. REPUBLICAN: Govtrack, http://www.govtrack.us/cong

ress/vote.xpd?vote=h2006-363. GAMBLE_CONTRIB: Center for Responsive Politics

reported by www.maplight.org. This variable consists of contributions by commercial casinos, tribal casinos, race- tracks, racinos, and other pro-gambling interest groups and their employees.

21. Prosecutors alleged that, after passage of the UIGEA, the three indicted companies — PokerStars, Full Tilt Poker, and Absolute Poker — disguised their customers’ deposits as payments to fictional merchants for products such as jewelry and golf balls (Economist, April 23, 2011, p. 68). When some banks started to balk at this practice, the accused companies, in an “elaborate criminal fraud scheme,” allegedly tricked or bribed small struggling banks to pro- cess payments (Popper and Hsu 2011; Economist, April 23, 2011, p. 68). The Justice Department seized and shut down the three indicted companies’ websites and filed a civil suit against them for penalties of $3 billion. Within hours of the indictments being handed down, Wynn Resorts and Fer- titta Interactive ended their partnerships with PokerStars and Full Tilt Poker, respectively (Economist, April 23, 2011, p. 68).

 

 

HALCOUSSIS & LOWENBERG: INTERNET GAMBLING 27

RELIGIOUS_CONTRIB: Center for Responsive Politics reported by www.maplight.org. This variable consists of contributions made by religious groups and their employees.

SPORTS_CONTRIB: Center for Responsive Politics reported by www.maplight.org. This variable consists of contributions made by professional sports teams, leagues, arenas, and related equipment and service groups, and their employees.

GAMBLE_NUM: For commercial casinos, racinos, and tribal casinos, state-level data are from State of the States, American Gaming Association, 2006. http://www.american gaming.org/files/aga/uploads/docs/sos/aga-sos-2006.pdf.

For dog tracks, tracks existing in 2006 and their addresses are from The American Greyhound Track Opera- tors, 2006. http://www.agtoa.com/PDF/06/06%20AGTOA% 20National%20Report.pdf.

For horseracing, tracks existing in 2006 and their cities or towns are from Official USA, http://www.officialusa.com/ stateguides/horseracingtracks/index.html.

These data were then used along with Google Maps and various other internet sites belonging to casinos and gam- bling organizations to identify the addresses of the appro- priate establishments that existed in 2006. The mapping site www.nationalatlas.gov was then used to sort the estab- lishments into the appropriate congressional districts (from 2006) so that the number of such establishments in each district could be determined.

EVANGELICAL: U.S. Religious Landscape Survey, 2008. http://religions.pewforum.org/pdf/report-religious-lan dscape-study-full.pdf.

INCOME: 109th Congressional District 2006 Demo- graphics, http://proximityone.com.

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