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Online Sports Betting in the United States

Though sports betting is a multi-billion dollar industry in the United States, the vast majority of bets placed in the country are done illegally. For every $100 wagered on sports in US, $99 is bet illegally. Much of that amount is wagered at online bookmakers.

In recent years, the US government has softened their position on some forms of online gambling, such as casino gambling and poker. However, online sports betting continues to remain the red-headed stepchild. If you are interested in more details, we have an in-depth article that reviews that history of online sports betting in the United States.

UIGEA and Reinterpretation of the Wire Act

After the UIGEA was passed in 2006, no one was completely sure how much of a priority the US Department of Justice would put on stopping online gambling operators. Though the regulations weren’t passed until 2009, it turns out the DOJ was quite serious about attacking offshore operators. They had gone after sportsbooks for a number of years before the passage of the UIGEA, but their aggression wasn’t enough to truly impact the industry.

On April 11, 2011, the DOJ unsealed an indictment against three of the largest online poker sites servicing the US market. These sites were Full Tilt Poker, PokerStars, and Cereus (Absolute Poker and UltimateBet). The date was dubbed as “Black Friday” by the online poker community.

This devastated the online poker industry in the US, and immediately put offshore operators on notice that the federal government wasn’t playing around. They indicted owners of each site, along with payment processors and froze several hundred million in assets, including player deposits.

Fast-forward to the Dec. 2011, and the Justice Department issues a statement that their legal opinion on the Wire Act of 1961 has changed. This law (justly or not) has been used to criminalize online gambling until the passage of the UIGEA. The long-held opinion was that the federal Wire Act asserted that all forms of internet gambling, including poker and casino gambling were illegal.

The Dec. 2011 decision stated that the law only applied to sports betting and that online poker and casino games were legal, provided that the activity was licensed on the state level. This reversal of opinion spawned several states to legalize online poker and casino games.

As of January 2015, Nevada, New Jersey and Delaware have some form of internet poker and casino gambling legalized within their borders. For now, the games are only available on the intrastate level, but there are agreements for interstate compacts that would allow player pool sharing.

Sportsbooks cannot be licensed outside of the state of Nevada, where they can also accept online wagers from citizens in the state. At this time, there is no federal law that allows licensing of any gambling site (poker, sports, and casino) nationwide.

Is it illegal to bet sports online as an individual?

In the vast majority of cases, no. There is no federal law that criminalizes online gambling as an individual. The UIGEA and Wire Act pertain to bookmakers or other online gambling sites that accept wagers from US citizens, whether they are inside the US or foreign operators.

The best analogy for the prohibition of online gambling is a typical state law against bookmaking. Taking bets and acting as a bookie is the crime, but placing bets and collecting your winnings is not. This isn’t the case in every state, but it is for the vast majority.

In the online world, the neighborhood bookie acts as the offshore bookmaker. The laws on the books related to online gambling criminalize payment processing related to online gambling and foreign operators – they do not criminalize the individual who is placing bets online. There’s no legal precedent to go after the individual bettor and it’s not a priority of the federal government.

However, there are several states that do have laws that outlaw online gambling on the books. Currently, Utah, Florida, and Washington State all have laws that criminalize the act of betting online. In Washington, it’s a Class C felony, where violators may get up to five years in prison.

That sure sounds scary for citizens in those states if they want a bet online, but that’s not the reality. Even these draconian state laws aren’t enforced. No one in Washington, Florida, or Utah has ever charged with a crime for gambling online.

Except in the few states where online poker and casino gambling is legal, there is no expressly written law that legalizes online gambling. By default, that doesn’t make it legal, but it certainly doesn’t make it a crime.

Individual who bet sports online the United States have nothing to worry about from a legal perspective.

Taxes

Profits from online sports betting or any other form of gambling are taxable income under US law. The percentage paid depends on your status as a taxpayer, (if that’s your main income) but your gambling income should be included in your IRS tax returns. This differs greatly from countries like the United Kingdom and Australia, where gambling income is not taxed at all.

 Future Outlook

The tide is turning in the US when it comes to online gambling. Several states have legalized online poker and casino gambling and while sports betting still remains the one area where legislators won’t budge, that could change as well.

Several states have challenged the legality of PAPSA. The state of New Jersey passed laws to legalize sports betting within their borders, but was stopped by an injunction by the federal government. The state is appealing to the higher court, which is expected to hear arguments and rule on a decision by late 2015, early 2016.

The ruling in the case will be paramount in determining the spread of sports betting in the United States.