After Justice Department Ruling, States Should Legalize Online Gambling

The Justice Department recently handed down a new interpretation of existing U.S. law which appears to give states the legal foothold to offer intrastate online gambling. Previously held to be illegal under the convoluted 1961 Wire Act, the DOJ’s new legal opinion narrows the scope of the Act to sports betting, and allows for states to operate online poker, lotteries, and other casino games. 

It's a decision that is long overdue and one that will put much-needed money into the coffers of cash-strapped states. 

The surprising reinterpretation comes only months after the FBI, with backing from the Justice Department, seized the domains of the largest online poker sites and cut off access to U.S. players. Known as Black Friday in the online poker community, the move came after years of legal threats by the government, which had long held that the offshore companies were in violation of U.S. law. In its wake, the FBI left an estimated 1.8 million U.S. online poker players with nowhere to go (save for our colder neighbor to the north). Now, with their potential competition conveniently eliminated, states are perfectly positioned to swoop in, fill the market, and reap the economic benefits.

But just how much money can states expect to generate through online gambling? Though estimates vary, a recent report by auditing firm KPMG puts the size of the U.S. online gambling market at $12 billion, and estimated that Florida alone could raise an additional $90 million annually in taxes by legalizing just online poker alone. These numbers do not even take into account the increase in revenue that would surely follow from the expansion of the lottery online – an operation that already generates upwards of $17 billion a year in revenue for states.

Giving states to the ability to conduct gambling does not come without its detractors. Opponents argue that legalizing online gambling could lead to a proliferation of minors gambling online, along with an increase in addictive and compulsive gambling. Though impossible to perfectly monitor, states should have the ability to confirm identities through bank account and credit card information (it is worth noting that before Black Friday, all it took was a credit card to play poker online, and even then, there was no explosion of minors gambling online). Additionally, the online arena offers a few tools unavailable to brick and mortar casinos to help curb problem gambling, including the ability to effectively self-exclude oneself from the site, as well as lag time between when funds are deposited and available to play.

The decision by the DOJ is the first step in what I believe to be an inevitable march toward a nationalized online gambling system. In doing so, the U.S. would join countries such as Canada and members of the European Union in legalizing, regulating, and taxing online gambling on a federal level. Large established gaming companies with deep pockets and a strong lobbying presence have an interest in creating a singular national system that they could profit from. In addition, the current pool of poker players from individual states may be too small to effectively run games. 

At a time when the government is in dire need of additional funds, they'd be foolish not to seize upon this opportunity to raise significant revenue without increasing taxes.

Photo Credit: Wikimedia Commons

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Ben Beder

I work as a derivatives trader at a proprietary trading company in Chicago. I'm most interested in fiscal policy and reforms to the financial system. In my free time I play flag football, soccer, and chess.

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