History of Online Sports Betting in the United States
The bookmaking industry has changed a lot from the smoke-filled rooms of bookies across the country and the legalized sports betting market in Nevada. The internet has changed the betting industry forever, making it a global entity.
Online sports betting is almost two decades old, but a lot has happened since the first sportsbooks came online. The US market has had a particularly tumultuous history in that timeframe.
The First Online Sportsbook
Offshore sports betting got its start, before the internet became widely available, through toll-free phone lines. Many shops operated via phone from the mid-1980s until the industry began to move online.
Many sportsbooks claim that they “accepted the first online sports wager.” To the best of our knowledge, this honor goes to Intertops Sportsbook.
This still operating sportsbook accepted its first online wager all the way back in 1996. On January 16, 1996, a Finnish gambler named Jukka Honkavaara wagered $50 on Tottenham Hotspur to defeat Hereford United. Honkavaara won his bet, and online sports betting was born.
Growth and Legal Questions
At the turn of the century and into the new millennium, online gambling in all forms was growing at an exponential rate. This wasn’t limited to sportsbooks, but online poker and casinos as well.
The US government hadn’t yet gone after offshore online poker and casino operators but indicted just fewer than two dozen sportsbook operators in 1998. The crimes levied against these operators were centered on the 1961 Wire Act, which prohibited interstate sports bet transactions from being communicated over telephone lines.
Many of the defendants named in this indictment opted to accept a plea deal which allowed them to walk away with a fine and a misdemeanor. Some chose to remain fugitives and never answered for their alleged crimes.
One man, in particular, Jay Cohen, who was the co-owner of WSEX Sportsbook, took his case to US courts.
Cohen and his co-founder Steve Schillinger (who opted to remain a fugitive) believed that they committed no crime by servicing US players because their operations remained outside the United States.
Cohen’s decision to take his case to the Fed’s doorstep was a gamble itself. If he had won, it would have been a victory for the entire offshore gambling industry. It would have also provided WSEX with an endless amount of publicity as the sportsbook which took on the federal government – and won.
Unfortunately, he lost.
Cohen was sentenced to 21 months in prison, a $5,000 fine and walked away with a felony on his record. He requested an appeal with the Supreme Court but was rejected.
The case had little effect on the day-to-day operations of online sportsbooks, but scared many involved in the industry. Many of these operators were from the United States and regularly traveled there to visit family. Some scrambled to sell their offshore entities for fear of future jail time after.
Despite the threat of prison time for operators traveling within US borders, the online betting market flourished not only in the United States but worldwide.
Dozens of sportsbooks were opening up each month, and online sports betting grew into a multi-billion dollar business. Players could easily deposit money through a variety of methods, including online e-wallets. At this time, fees for depositing and withdrawing from online gambling sites were rare.
The years of 2003-2006 were known as the “Poker Boom” due to the rise in the number of people playing online poker worldwide. Player pools were more than doubling in each successive year. This runaway growth spread to online sportsbooks, many of which also offered online poker. Essentially, these years were the golden age for all forms of online gambling.
Passage of the UIGEA
In late September 2013, the United States Congress passed the Safe Port Act, which in its final hours added an attached rider called the Unlawful Internet Gambling Enforcement Act. The Safe Port Act was a lock to pass and be signed by the president and was targeted by congressmen Bill Frist and Jon Kyl as a vehicle to criminalize online gambling.
The bill itself didn’t go after the act of gambling online from an individual perspective, but instead criminalized banks that processed gambling transactions and further put the target on operators offering online gambling transactions to US players.
Some sites almost instantly pulled out of the US market, but many opted to hang around despite the Department of Justice’s new enforcement strategy. Betting sites that were publicly traded were mostly forced out because their shareholders could be held criminally liable.
When the UIGEA was initially passed, the regulations and details of the bill were not yet written. Many wondered how serious the government was about clamping down on online gambling. They would soon find out.
Neteller and Other Seizures
During the prime years of online betting in the US, e-wallets were the most popular way to deposit and withdraw funds. Neteller, a company that is still in business today, was the leader in the US market until shortly after the UIGEA.
In January 2007, the DOJ indicted the owners of Neteller while freezing the accounts of US players. Neteller and the government worked out an agreement six months later that secured the return of players’ funds and with a provision that they had to cooperate with US officials.
At the time, the company worked with 85 percent of all online gambling sites. Part of the deal that would keep Neteller’s owners out of prison was that they had to turn over all information relating to online gambling processing to the US government.
Of course, this was terrible news to the online gambling industry, which was now assuredly in the crosshairs of the federal government. The Feds would now be privy to the trade secrets of online gambling payment processing, valuable information for their coming crackdown.
Other processors were also hit with the government’s enforcement. Most notably was eWallet Express.
They seemed to fill the void after Neteller left the US market, but were seized by the DOJ in November 2010. The company went bankrupt shortly after and players lost millions of dollars in funds.
While the events of “Black Friday” are focused on online poker, the case shows the resolve of the federal government and the lengths they are willing to go to take down foreign gambling operators.
On Friday, April 11, 2011, the District Court for the Southern District of New York unsealed an indictment which targeted executives at top online poker sites and online gambling payment processors for UIGEA violations. PokerStars and Full Tilt led the indictments, but the Cereus Network (Absolute Poker and Ultimate Bet) also had charges filed against their owners.
Black Friday sent waves throughout the online gambling industry, and though PokerStars paid their players within several weeks, Full Tilt Poker was essentially insolvent.
PokerStars ultimately bought them through a deal brokered via the U.S. Department of Justice, but players didn’t receive their funds till nearly three years after Black Friday. The amount initially frozen by the Feds was more than $500 million.
Reinterpretation of the Wire Act
Later in 2011, the DOJ issued a statement in December that the Wire Act of 1961 was now only applicable to “a sporting event or contest.” This paved the way for legal intrastate online poker, lotteries, and even casino games, but not for sports betting. In fact, it gave the government even more power to stamp out online sports betting.
Despite all the potential legal problems surrounding US-facing online sportsbooks, the industry still offers a plethora of deposit and withdrawal options, along with excellent bonuses. We go over more of these options in our payment processor guide for the US market.
The number of people gambling online in the US today is much smaller than it was ten years ago but that doesn’t mean the technology hasn’t improved. Betting software, live betting or in-play markets are all comparable to international bookmakers. Mobile betting, which has become the wave of the future, is also readily available at the vast majority of US-facing sportsbooks.
A regulated sports betting climate seems far from the minds of regulators at this point, but it may not be too far off. Online poker and casino gaming have been passed at the intrastate level, but it could take longer for sports.
Regardless of the lack of a regulated climate, the offshore industry still has plenty to offer bettors, whether they are recreational sports bettors or the professional type. The risks of fund seizure and shutdown by the federal government will always be there, but the sites have taken significant measures in recent years to make sure that is less likely to happen.