Remote gambling

Types

Is remote gambling permitted and, if so, what types?

Congress enacted the Unlawful Internet Gambling Enforcement Act to tackle the perceived problem of internet gambling by targeting the processing of financial transactions necessary for the gambling to take place. ‘Unlawful internet gambling’ means a ‘bet or wager [that] is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made’ (31 USC section 5362(10)(A)).

The Unlawful Internet Gambling Enforcement Act created a federal crime – the knowing receipt by a person ‘in the business of betting or wagering’ of monies in connection with the participation of another person in unlawful internet gambling (31 USC section 5363). The statute specifically exempts intra-state wagering if authorised by state law and horse racing wagering that is consistent with another federal statute, the Interstate Horse Racing Act (IHRA). See IHRA, 15 USC section 3001 et seq. It also does not prohibit wagering between states that each authorise that activity.

Only seven states – Connecticut, Delaware, New Jersey, Michigan, Pennsylvania, Nevada and West Virginia – permit and license internet gambling (poker or casino). See Conn Gen Stat Ann section 12-850 et seq; Del Code Ann Title 29, section 4826; New Jersey Statutes Ann section 5:12-95.17 et seq; Mich Comp Laws section 432.301 et seq; 4 Pa Cons Stat et seq; Nev Rev Stat section 463.745 et seq; and W Va Code section 29-22E-1 et seq. Three of those states (Delaware, New Jersey and Nevada) have entered into an agreement to share liquidity by allowing gambling between the states. Connecticut, Michigan and West Virginia are the most recent entrants.

In Delaware, only the state lottery commission is authorised to conduct internet gambling, and it has contracted with suppliers to that end. In New Jersey and Nevada, licences are restricted to brick-and-mortar casino licensees who obtain permission to offer wagers online, and Nevada – unlike Connecticut, Delaware, New Jersey and Pennsylvania – only permits internet poker.

The following states have each authorised mobile sports betting operations, although some are still in the process of writing regulations or otherwise have not yet commenced activity, namely Arizona, Arkansas, Colorado, Connecticut, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Virginia, West Virginia and Wyoming.

Montana, Mississippi and South Dakota allow mobile sports betting, but only on gaming premises. Mobile sports betting is legal in Washington, but only on tribal land. In Florida, a recent tribal gaming compact authorised the Seminole Tribe to conduct mobile and retail sports betting. Mobile sports betting went live in November 2021 but was suspended a few weeks later following a federal court ruling that vacated the gaming compact. Litigation surrounding the ruling remains ongoing.

The remaining 20 states do not allow online gambling, although a few states offer some form of online lottery (either sale of online tickets or the play of online lottery games). In the wake of the invalidation of the Professional and Amateur Sports Protection Act, several other states have indicated plans to move ahead with sports betting, which in many cases may include mobile or other remote activity. However, several states have experienced setbacks. In 2022, two competing California referenda to legalise sports wagering both failed, following the most expensive ballot initiative campaign in US history. Georgia failed to advance sports wagering legislation in 2023. There is a push to legalise sports wagering in Texas in 2023; if it fails, proponents will need to wait until the next legislative session in 2025.

In addition, many states permit off-track telephonic or internet pari-mutuel wagering on horse racing. The IHRA sets out the conditions under which such wagering can be offered across state lines. Among other requirements, the wagering activity must comply with the laws of the states in which the race and wagerer are located. The US Department of Justice has historically taken the position that interstate internet horse racing wagering violates the Wire Act, notwithstanding its authorisation under the IHRA. That proposition has not been tested and is widely disregarded, with numerous advance deposit wagering operators offering the service in many states across the country.

Licensing

What are the criteria for obtaining a licence to operate remote gambling?

The licensing criteria to operate remote gambling are largely the same as for land-based gambling. The licensing regime varies from state to state, but is typically intrusive and requires deep scrutiny of the licensee applicant and its key employees. Even certain categories of service providers are subject to scrutiny, although typically at a lesser degree of intensity.

How do the licensing criteria for remote gambling operators differ from those applicable to land-based operators?

The licensing criteria are not materially different from those applicable to land-based operators. States limit the number of available licences, either expressly or by requiring that the remote operator be a land-based licensee.

Cross-border gambling

May operators located in other countries offer internet gambling to consumers in your jurisdiction without obtaining a licence there?

No, but US licensees may contract with service providers from other countries to support their activities. Those service providers, in turn, may obtain licences to provide that support.

May operators licensed in your jurisdiction offer internet gambling to consumers in other countries?

This issue is unresolved. State laws in certain states that have licensed internet gambling do contemplate this type of activity, but no jurisdiction that has legalised remote gambling has yet authorised the offering of remote gambling by its licensees to consumers in other countries.

Taxes

What tax rate applies to each form of remote gambling?

Remote gambling tax rates vary among relevant jurisdictions. For example, in New Jersey, there is a 15 per cent annual tax on internet gross gaming revenue (GGR) plus an investment alternative tax of 5 per cent (or, instead of that investment alternative tax, actual investment of 2.5 per cent). See New Jersey Statutes Ann section 5:12-95.19. Nevada taxes internet gaming based on GGR at the same rates as it does land-based gaming. See Nev Rev Stat section 463.770. Pennsylvania has three tax rates for internet gaming, as follows:

  • 14 per cent of daily gross interactive gaming revenue from peer-to-peer interactive games;
  • 14 per cent of its daily gross gaming revenue from non-peer-to-peer interactive games that simulate table games; and
  • 52 per cent of its daily gross interactive gaming revenue from non-peer-to-peer interactive games that simulate slot machines. See 4 Pa Cons Stat section 13B52(a). In Delaware, internet gambling is operated by the state lottery, so no tax is applied.

 

New York sets the high-water mark, assessing a 51 per cent tax on gross gaming revenue for mobile sports wagering. Operators claim that the rate is too high, precluding profitability. However, as at 2023, nine operators remain active in the New York market, including the largest US operators. Industry advocates are pressing for legislation either to legalise online casino gaming (a more profitable activity than sports betting) or to lower the tax rate, or both.