07/18/2013 1:19PM

Online gambling gets slow but steady push in U.S.


To supporters of efforts to repeal a federal ban on most types of Internet gambling, the question is not if the government will roll back at least some of its prohibitions. The question is when.

Already this year, a New York representative has introduced a bill that would allow the federal government to sanction online gambling operations that accept bets from customers in multiple states. While the bill is not expected to go anywhere in this year’s congress, most horse racing lobbyists expect similar bills to surface each and every year until a ban on online poker, at the very least, is rescinded.

The legalization of online gambling could have serious a impact on racing. Under a federal exemption to the online betting ban, horse racing is the only legal form of Internet betting, and the sport has enjoyed a monopoly of sorts on the practice for more than a decade. While handle overall on U.S. horse racing has long been in decline, the availability of online betting has served to stanch the bleeding. Additional competition in the marketplace is not expected to work to horse racing’s benefit.

“There’s always going to be people pushing [for Internet gambling], and there’s always going to be states looking for money,” said Chris Scherf, the executive vice president of the Thoroughbred Racing Associations, a racetrack trade group. “That additional competition is going to have an impact on racing, no question, but it all depends on what types of gambling are legalized.”

Even without a change in federal law, horse racing’s monopoly on legal online betting will probably end this year. Three states – Delaware, Nevada, and New Jersey – have passed legislation allowing for online gambling by in-state customers. In addition, 10 states considered bills this year to authorize online poker, signaling that many cash-starved states see Internet gambling in their futures.

The flurry of state legislation was a result of a 2011 opinion issued by the Justice Department that said states were free to legalize Internet gambling as long as betting was restricted to people in the state and as long as the operations did not run afoul of federal limits on sports betting. The opinion cleared up what had previously been a murky area of federal law, which contains a broad ban on Internet betting across state lines, with the exception of horse racing.

This year’s federal legislation was introduced by Rep. Peter King, a Republican from New York, on June 6, one day before the Belmont Stakes. It would create an Office of Internet Gambling Oversight in the Treasury Department, a new agency that would be assigned “licensing and enforcement responsibility” for state Internet gambling operations. Under the bill, states or Native American tribes could choose to ban Internet gambling, and they could also choose to cooperate with each other to allow interstate gambling, thereby leading to what the gambling community calls “liquidity,” a reference to creating larger pools of bettors.

“Rather than cede the regulation of Internet gambling to state lawmakers, Congress should ensure there is consistent oversight of this industry and move to generate significant new revenues without having to raise taxes or cut programs,” King said in a prepared statement.

King’s office added that “the horse racing industry would also be treated equally” under the bill, which would seem to suggest its existing practices – the acceptance of interstate wagers by online operators in commingled pools – would be allowed to continue. A representative of King’s office did not respond to requests for comment, but Jay Hickey, the president of the American Horse Council, a Washington D.C. lobbying group for all breeds of horses, said the bill’s language would “finally make it clear that interstate simulcasting is legal,” in reference to concerns raised in the past by the Justice Department that betting over state lines by horse racing is not explicitly legal in current federal law and violates the Federal Wire Act of 1961.

Despite intense lobbying by Internet poker companies, King’s bill is not expected to find any traction this year, in large part because of opposition to expanded online gambling by the chairmen of committees that would need to approve the bill before a floor vote, according to lobbyists. But the general consensus among supporters is that as more and more states approve online gambling, the federal government will want to get in on the action in order to reap a share of the tax revenue.

Among the states to have already passed bills, Nevada limited online betting to poker, in large part because its bricks-and-mortar casinos opposed any wider authorization, in fear that new online operations would cannibalize their businesses. But in New Jersey and Delaware, the laws allow for online gambling on any betting game already legal in the state. Casino gambling is legal in New Jersey, and Delaware allows slot-machine gambling and a limited number of sports parlays.

So far, Nevada is the only state to have issued a license to an online poker company. At the urging of Gov. Chris Christie – who has made the rather dubious claim that the state can reap $160 million in tax revenue from online gambling this year alone – New Jersey is expected to issue several licenses this fall, if not sooner. Last week, Delaware released draft regulations governing online betting, with a public comment period to follow. On-line gambling will technically become legal in the state on Sept. 30.

Elsewhere, the Illinois state legislature this year considered a bill that would have authorized all forms of Internet gambling, but the bill failed to pass. Provisions in a version of the bill, which would have also allowed for slot machines at racetracks, led to a rift between Illinois racetracks and the state’s horsemen, who feared that racing companies would open Internet gambling sites without providing any revenue from the operations to purses. That’s a concern that many horsemen’s groups might share, even if the rationale for a cut of the revenue remains debatable.

Illinois’s most prominent racetrack, Arlington Park, is owned by Churchill Downs Inc., which has already made inroads in Internet gambling aside from its horse race account-wagering business, twinspires.com, the largest online racing site in the U.S. The company was one of dozens of firms to apply for an online poker license in Nevada, and last year it launched a gambling site, luckity.com, that uses the pari-mutuel results of horse races to determine the payouts on games that are designed to look like mini-lotteries.

A spokesperson for Churchill, Courtney Yopp Norris, said the company’s Internet poker license is still being considered by Nevada regulators. She declined to comment on whether the company planned to launch a site if the application was approved. 

Whatever the outcome of federal and state efforts, it’s already clear that racing will have more competition in the future for the online gambling dollar, and it’s possible that the competition could stretch from coast-to-coast if the federal ban is lifted. For a sport that is currently struggling to maintain its current level of handle, that might be a perilous development.

“I don’t see why it would be any different than land-based casinos,” Scherf said, referring to the proliferation of casino gambling that started in the 1990s. “They have certainly had a significant impact on racing. And all of this is inevitable.”