UIGEA

Since being passed in 2006, the Unlawful Internet Gambling Enforcement Act has had a major impact on the world of online gaming in the U.S. and beyond.

History of the UIGEA

The Unlawful Internet Gambling Enforcement Act is an anti-gambling law that passed Congress on September 30, 2006. It was signed into law by President George W. Bush on October 13, 2006. It is often abbreviated as simply UIGEA.

The UIGEA was one of the most controversial gambling bills in history. That was not the case because of its contents. Many U.S. citizens took issue with the way it was passed in Congress.

It all started in the U.S. House of Representatives on November 18, 2005. That is when Rep. Jim Leach of Iowa introduced the Internet Gambling Prohibition and Gambling Enforcement Act as HR 4411. The original bill would have changed several definitions under the Wire Act of 1961. It would have expanded “communication facility” to mobile and wired networks. It would have also redefined a bet as any game subject to chance, including lotteries.

An attempt was made by Rep. Shelley Berkley of Nevada to amend HR 4411. Berkley wanted to expand the definition of banned online gaming to include games that may have fallen under skill exemptions under state laws. This amendment failed. In July 11, 2006, HR 4411 passed the House of Representatives.

The bill stalled in the U.S. Senate. It was unable to gain traction on its own. Senate Majority Leader Bill Frist fully supported banning online gambling in the country. Frist decided that the only way that the UIGEA could pass the Senate is if it were attached as a rider to must-pass legislation.

The final version of the bill was toned down from the original. It was attached to the Safe Port Act of 2006, which was a funding bill to counter terrorism. It passed Congress nearly unanimously after no debate on September 30, 2006. Lawmakers were anxious to adjourn to hit the campaign trail before the November 2006 elections. President George W. Bush signed the bill into law two weeks later.

Immediate effect of UIGEA

At the time that the UIGEA was enacted, nearly every offshore gaming company accepted U.S. players. Betfair, Ladbrokes and 32Red were notable exceptions to this rule.

Sites serving the U.S. online poker and casino markets immediately began deciding what to do in the wake of UIGEA. It became clear that companies that were publicly traded at the time would drop U.S. players. Cryptologic started the parade of sites withdrawing from the U.S. market by not allowing Americans to claim the monthly poker and casino bonuses that were typical on the network in October 2006. This was done in anticipation that the bill would become law later in the month. This policy was enacted before the UIGEA was signed into law by President Bush.

Other online gaming companies that left the U.S. market included Playtech/iPoker, Ongame, Party Poker, PKR, Lucky 31 Paradise Poker, Entraction, Boss Media and 888.

Paradise Poker permitted existing players in 39 states to play for 30 days after UIGEA became law. Deposits were suspended for these players during that period. Players in the other 11 states were forced to cash out immediately. The states that were not given a temporary reprieve were Illinois, Indiana, Louisiana, Michigan, Nevada, New Jersey, New York, Oregon, South Dakota, Washington, and Wisconsin.

Microgaming took an unusual approach after the UIGEA was signed. It banned the same 11 states that Paradise Poker did, but continued to permit players in the other 39 to give action to its poker and casino sites. Kentucky and Utah were later added to the list of states where players were unwelcome at Microgaming sites.

In 2008, Microgaming stopped accepting new players from any state amid payment processing issues. A year later, it kicked all remaining Americans off the network, even those that already held accounts and had funds on deposit. Microgaming paid all players in a timely manner.

Difficulties faced by sites remaining in U.S. market

The post-UIGEA era proved to be difficult for several sites that stayed in the U.S. market. Planet Poker suspended real money operations in March 2007. Payment processing issues contributed to this decision.

Bugsy’s Club faltered in the post-UIGEA period and closed in 2009. It needed PokerStars to bail out its players.

Jet Set Poker saw UIGEA as a time to run away with deposits. A relatively minor poker site, it catered to mostly freeroll and penny players. There were some big games during prime-time hours. At the stroke of midnight on the eve of President Bush’s expected signing of UIGEA, Jet Set Poker closed the site permanently. It gave players just five minutes’ notice. A message popped up at 11:55pm server time warning players that the site would close at midnight. It never paid out a dime.

Some poker networks never recovered from banning Americans

U.S. players accounted for more than half of the world’s online poker traffic. Many poker networks were subsidiaries of publicly traded companies when UIGEA became law. Publicly traded companies with poker networks banned Americans immediately. This caused an instant loss of traffic.

Tribeca Tables was once a vibrant U.S.-friendly poker network. It was sold to Playtech within days of the UIGEA becoming law. Its traffic collapsed without American traffic. Several skins moved to iPoker, while others moved to the Tain Network, which shuttered in 2007.

GamesGrid was a niche site that catered mostly to Americans until UIGEA. Its traffic collapsed after it banned U.S. players. The handful of players left was sold to Tony G Poker, which was an iPoker skin.

Cryptologic was a network that catered to Americans looking for great poker bonuses. Each site gave players a favorable monthly bonus offer at both its poker and casino platforms. The Cryptologic poker network limped along until January 2009 when it closed permanently. Most of its skins abandoned the network by the time it shuttered. Interpoker, its flagship, moved to the International Poker Network (IPN) at that time. The casino platform continued operations after the poker side failed.

IPN struggled after UIGEA. Its software was subpar; European players had far better options. IPN closed in April 2014; however, it continued to license its poker platform for lottery networks in Canada, Austria and Sweden.

Entraction was a sports betting company that also offered online poker to Americans until UIGEA. It continued to operate in most other markets for many years after that. IGT, an American slot manufacturer, acquired the poker software in 2011 in the hopes of using it in the legal U.S. market. That plan never came to fruition. IGT banned several questionable markets from its software to remain compliant with its U.S. licenses.

That policy finished off the network and it closed in December 2012, although traffic was nearly at zero when it finally closed its virtual doors.

American online poker post-UIGEA

Several big names remained in the U.S. online poker market for years after the UIGEA was enacted. PokerStars immediately became the No. 1 site for cash games. It already held that spot for tournaments and quickly became a favorite site for cash game players. PokerStars was forced out of the U.S. market on April 15, 2011. That date is known as Black Friday. That was the first time that the UIGEA was used in a criminal prosecution.

Full Tilt Poker was the second largest site post-UIGEA. It was nearly irrelevant before many of its competitors fled the U.S. market. Full Tilt Poker was also named in the Black Friday indictment where the UIGEA was used as a prosecutorial weapon. It was unable to pay players as a ponzi scheme was uncovered, according to the U.S. Attorney’s Office in the Southern District of New York. It took a PokerStars bailout to make Full Tilt players whole.

Absolute Poker was the other site named in the Black Friday indictment. It was home to an insider cheating scam, as was its sister site, Ultimate Bet. Brent Beckley, the head of payment processing at Absolute Poker, served a nine-month sentence related to Black Friday. Scott Tom, who was named as the main cheater in the insider cheating scandal, as well as head of Absolute Poker operations, remains at-large.

The main participants these days in the U.S. online poker offshore market are Bovada, Winning Poker Network, Chico Poker and Merge Gaming. Each specializes in sports betting and casino games. Poker is just a side business. Companies related to Bovada and Winning Poker are under indictment in Maryland for illegal gambling, yet continue to operate in the U.S.

Sports book changes post-UIGEA

There were several changes in the U.S. sports betting market as a result of UIGEA. Sporting Bet and its sister site Paradise Poker left the U.S. market almost immediately. Its customers were sold to Jazette Enterprises for $1 in addition to player balances on deposit. The main brand under the Jazette umbrella is Sportsbook.com. It was sold to Jazette by Sporting Bet under the terms of the sale. Carbon Poker, Carbon Sports and PlayersOnly are other brands that operate under this company.

BetCris, one of the largest and most respected sportsbooks in the world, dropped U.S. players after UIGEA. It created a secondary site known as Bookmaker.com to protect its main business. Bookmaker was named in the Maryland indictment that was unsealed in May 2011. This incident is known in the online gambling world as Blue Monday. Bookmaker and its related poker sites known as Winning Poker remain in the U.S. market. Brands include Americas Cardroom and True Poker.

Other major sports betting organizations that left the U.S. market after UIGEA include The Greek and Pinnacle Sports. These sites remain large players in the international online gambling market.

Payment processing in the post-UIGEA era

One of the biggest issues sites that remained in the U.S. market faced after the UIGEA was enacted was a lack of payment processing options. When UIGEA was passed, Neteller decided to remain in the U.S. market. Neteller was thought to be a reliable processor. The company and two of its founders were indicted in January 2007. The charges were not related to UIGEA. The investigation was already underway at the time.

Credit card processors abandoned the U.S. online gambling market well before the UIGEA went into effect. This was due to high chargeback levels and legal concerns. This left poker, casino and sportsbook sites with alternatives that were often of questionable integrity.

Two ewallets that continued to stay in the U.S. after UIGEA were ePassporte and eWalletXpress. ePassporte was originally a payment processor that provided payment methods for adult websites. It branched out into the online poker market. In April 2008, it was widely reported that ePassporte received a received a cease-and-desist notice from the U.S. Government to stop processing payments.

Players were paid, but ePassporte later failed without paying its customers related to its other niches. eWalletXpress lasted a bit longer. It was reportedly seized in November 2010. Players never received a dime. An ewallet known as EcheckUS suffered the same fate in May 2011.

The most interesting ewallet failure was UseMyWallet. It became a flagship in the online gambling industry. UseMyWallet was able to process online gambling payments when its competitors could not. It turned out that it was using a bogus payment processor known as Linwood Payment Solutions. That processor was actually a part of a federal sting operation related to the Maryland Blue Monday indictments.

There are no ewallets available to U.S. players that give action to offshore sites these days. Americans wanting to play offshore poker, casino or sports betting must often send cash through services like Western Union and MoneyGram. Withdrawals are typically returned in the same fashion, although checks and ATM cards have also been known to be sent to players.

The UIGEA and fantasy sports

The daily fantasy sports industry claims that its companies operate under an exemption of the UIGEA. It does exempt daily fantasy sports from its reach with the following definition:

“Participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:”

(ix) participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:

(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

(III) No winning outcome is based—

(aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or

(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.

How state law, the UIGEA and fantasy sports interact

While there is a carve-out for daily fantasy sports in the UIGEA, there is one major flaw with its assertion of legality under federal law. The rule of construction in the UIGEA states: “No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.”

The most important caveat in the UIGEA’s fantasy sports language is the “relative knowledge and skill” passage, which, when coupled with the rule of construction, leaves the legality of daily fantasy sports contests up to each individual state. DFS relies on the idea that it is a “game of skill” under the law in most states, a notion that has not been challenged in court.

States have a variety of different approaches to gambling in their code, and what constitutes a game of skill vs. a game of chance is different in many jurisdictions. The UIGEA only states that it cannot be used to enforce other gambling laws under the conditions listed for fantasy sports. State law still determines whether fantasy sports is a legal activity.

Only two states — Kansas and Maryland — have expressly passed laws dealing with fantasy sports; both laws mimic the UIGEA language.

The Nevada Attorney General’s office mentioned the UIGEA in a October 2015 opinion. It notes that the “UIGEA did not legalize fantasy sports.”

The actual usefulness of the UIGEA safe harbor is being questioned as more and more states — most notably New York — consider whether DFS contests are actually gambling under state law or are legitimate games of skill.

Everything you wanted to know about the UIGEA

A closer look at the Unlawful Internet Gambling Enforcement Act:

What is the UIGEA?

The UIGEA was passed by Congress at the 11th hour on September 30, 2006, immediately before Congress adjourned for the 2006 election recess. The UIGEA did not make anything new illegal. Instead, it was a punitive measure that added a layer of enforcement against individuals and companies that processed payments for illegal internet gambling, which was not defined by the law.

There were several exemptions for the UIGEA. This included activity protected by the Horseracing Act of 1978, certain forms of fantasy sports and intrastate gambling specifically permitted under state laws. It also included language that excluded forms of insurance and financial instruments traded on a public stock exchange.

Why was the UIGEA passed?

Unregulated internet gambling exploded in the years prior to the passage of UIGEA. Online poker was extremely popular during this era. Online poker and casino games operated in a gray area of the law.

While the UIGEA’s intent was to make payment processing for these industries illegal, it was already unlawful to do so before UIGEA was enacted. UIGEA simply created additional punishment for those found guilty of the activity.

What was the UIGEA trying to do?

The goal was to encourage offshore gambling sites to exit the U.S. market by creating a specific law to punish individuals and companies that processed payments to these entities.

What did the UIGEA actually do?

It only pushed about two-thirds of the companies out of the U.S. market. It created a black market of unregulated sites that often were not legitimate businesses. Many of the sites that remained in the U.S. market turned out to be scams.

Who supported passage of the UIGEA?

Conservatives, sports leagues and bricks-and-mortar gaming interests were among those that were proponents of the UIGEA.

Who did not support the UIGEA?

Online poker and casino players, as well as governments of countries and that spread online gambling to the U.S. were among those that opposed the UIGEA.

UIGEA Timeline

The UIGEA was first introduced by Rep. Jim Leach in November 2005. It was not seriously debated until July 2006. It passed the U.S. House of Representatives by a super majority.

There was no support in the U.S. Senate for the UIGEA and it was set to die there. Senate Majority Leader Bill Frist attached it to the must-pass Safe Port Act. The UIGEA passed the Senate without any debate. It was signed into law by President George W. Bush on October 13, 2006.

Banking regulations were not imposed until 2009 as there was much debate about whether UIGEA would get repealed under proposals sponsored by Rep. Barney Frank.

What is the Safe Port Act?

The Safe Port Act was a bill that was a counter-terrorism measure. It created funding to secure U.S. ports. The Safe Port Act was completely unrelated to the UIGEA, which was attached to it as a rider without any debate. Many U.S. senators that voted for the Safe Port Act had no idea that the UIGEA language was included.

Why do some California special interests reference the UIGEA in state online poker bills?

Some tribal gaming interests use the UIGEA as a benchmark for whether a company or individual should be excluded from the potential online poker market in California. The cutoff date used is December 31, 2006. It is unknown why this date is used, as opposed to October 13, 2006, when the bill was actually signed into law. California special interests that use this language hope to keep PokerStars out of the state.

Why does the daily fantasy sports industry use the UIGEA in its legal defense?

There is an exemption for some forms of fantasy sports in the UIGEA. The law defines fantasy sports where skill is the predominant factor as an item not covered by the UIGEA. Daily fantasy sports had not yet been invented at the time.

These sites still point to the carveout as justification of its legality. While the UIGEA does give the industry an exemption, state law is not preempted. If a form of fantasy sports is illegal under state law, the UIGEA does not offer safe harbor. This fact is often omitted from the assertions of the daily fantasy sports industry’s legal position.

Have there been any rulings/major cases referencing UIGEA?

The UIGEA was first used in what is known as Black Friday for online poker. Black Friday was the indictment related to three poker sites and many payment processors that was unsealed on April 15, 2011.

How are states allowed to offer legal online gambling?

One exemption in the UIGEA permits states to explicitly legalize online gaming. This includes the sale of lottery tickets, online poker and online casino games. Online sports betting is restricted to four states under the Professional and Amateur Sports Protection Act. Even in these four states – Nevada, Oregon, Montana and Delaware – only sports betting legal prior to 1992 is permitted. For Nevada, this means all forms of sports betting. The largest U.S. gaming market already licenses mobile and online sports betting.

Delaware, Nevada and New Jersey have already legalized online poker. Delaware and New Jersey also permit online casino games. Michigan and Georgia are among the states that sell online lottery tickets. These two states also offer internet scratch off tickets that resemble slot machines and keno.

UIGEA specifically gives states the freedom to legalize online gaming. Intrastate is among these options. Three states – Delaware, Nevada and New Jersey – now permit online poker. Delaware and Nevada share an online poker network. Delaware and New Jersey now also have legal online casinos. Nevada also permits sports betting through mobile devices, as well as the Internet.

Recommended reading about the UIGEA