Federal Effort to Ban State-Regulated Online Gambling is a Solution in Search of a Problem

On December 9th, Rep. Jason Chaffetz (R-U.T.) will continue his push for a federal ban on state-regulated online gambling with a hearing in the Chaffetz-chaired House Oversight & Government Reform Committee.

Rep. Chaffetz will use the hearing as a platform to advance H.R. 707, the Restoration of America's Wire Act (RAWA). As voices from across the political spectrum -- including many with a distaste for gambling -- have repeatedly noted, RAWA is fundamentally flawed policy that would obliterate a rapidly-growing, highly-regulated industry while actually weakening the power of law enforcement to target and dismantle illegal gambling operations.

RAWA would immediately outlaw state-regulated online gambling markets in Delaware, Nevada, and New Jersey. To what end? Regulated online gambling has generated over $40mm in tax revenue and hundreds of local jobs for these states. Customers have created nearly a million accounts, and billions of dollars of transactions have flowed through those accounts, yet documented reports of underage play, out-of-state access, or criminal activity have been virtually non-existent. What's more, illegal offshore online gambling sites have by and large exited states with regulated online gambling -- even as they continue to operate in other states.

While RAWA would obliterate by fiat the regulated online gambling markets in Delaware, Nevada, and New Jersey, the bill curiously preserves a broad class of online gambling products:

  • Online betting on horse races gets a pass, despite the fact that the results of races can be used to power slot and bingo-like consumer products.
  • So-called "charitable" gambling (often in reality a for-profit industry) is gifted a loophole that is sure to be exploited.
  • Sen. Lindsey Graham (R-S.C.), who introduced RAWA in the Senate, has suggested that online lottery sales be placed beyond the law's reach.
  • Perhaps most surprising of all is a carve-out for daily fantasy sports, which Rep. Chaffetz included in RAWA despite the intense scrutiny the industry is facing from policy makers and law enforcement on both the federal and state levels.
  • That final carve-out deserves special attention, as it will dramatically weaken the ability of law enforcement to battle illegal sports betting -- the very activity that the Wire Act was introduced to combat.

    How? RAWA alters the definition of "bet or wager" in the Wire Act to exclude a class of activities described in 5362(1)(E) of US. Code Title 31 (the Unlawful Internet Gambling Enforcement Act, or UIGEA).

    That critical edit guts the Wire Act. Post-passage, the Wire Act would apply only to illegal sports betting based on the score or final outcome of a game. Myriad forms of fantasy sports betting and wagering on the hundreds of individual outcomes that make up a sporting event (at-bats, foul shots, even the starting coin flip in a football game) would be completely outside of the reach of the Wire Act following Rep. Chaffetz's restoration.

    As long as would-be bookies stay within this massive, ambiguously-defined safe harbor, they'll have little to fear from the primary weapon in the federal government's arsenal for battling illegal sports betting.

    Rep. Chaffetz's championing of RAWA may be well-intended. But if his goal is to decrease unfettered access to Internet gambling, it is also deeply misguided. RAWA would ultimately have the opposite impact, and would harm consumers, state government, and federal law enforcement in the bargain.