The recent decision of the United States Supreme Court in Murphy v. National Collegiate Athletic Association that overturned the federal law that makes sports gambling illegal will have far-reaching impacts on the sports wagering marketplace. While the decision has led to the legalization of sports wagering in several states with efforts to legalize in many more, this still does not change some of the issues facing offshore sportsbooks that cater to U.S. players. It remains to be seen where gambling volume will go, but regulation will make wagering in states safer.
Federal Law and Offshore Betting
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Murphy did not legalize sports betting nationwide, nor did it permit offshore entities to accept bets from American gamblers. The same prohibitions that caused federal law enforcement to crack down on online poker during Black Friday still remain in place with respect to offshore betting. Specifically, the Unlawful Internet Gambling Enforcement Act, which provided the legal underpinnings for Black Friday, still remains in place. Also, the WIRE Act is still valid federal law. In other words, unless there is a state law making wagering legal, it is still illegal to accept wagers.
Competition with States
Given that offshore betting entities will be in competition with taxpaying entities that are licensed to operate in various states, there is a potential for a crackdown on these entities in the future. The reality is that there are high stakes associated with sports wagering revenues, and after Murphy, states will have a vested interest in keeping sports betting onshore. It is projected that sports betting revenues will surpass $6 billion by 2023. Although it is difficult to estimate the total revenues of offshore sports betting, a rough estimate of their profits is between $2.5 billion and $3 billion. There are currently between 12 and 15 million sports bettors who wager through unregulated betting venues.
While winnings from offshore sportsbooks are taxable, the reality is that few taxes are paid on these winnings, giving the government a motive to curtail these operations. Although individual players are not at risk, the offshore operators are.
Tools for a Legal Crackdown on Offshore Betting
There are various mechanisms that law enforcement can employ in a crackdown against an offshore gambling operator. These methods are tried and true and have been used by the federal government before in contexts other than gambling.
First, it is important to understand the laws that can provide a framework for legal enforcement. There are two sets of laws that apply to gambling in this country. First, federal law governs some of the interstate elements of wagering, including wire communications and money transfers. Additionally, prior to Murphy, certain categories of betting, such as sports betting, were deemed illegal outside of Nevada. Second, the actual act of gambling itself is covered by state laws. Any enforcement by U.S. Attorneys will be related to federal laws. In addition, states have made various attempts in the past to crack down on online gambling.
The primary federal law that applies is the WIRE Act. This law makes it illegal to use wire communications to transmit bets or wagers or to assist in these activities. This enables the federal government to charge offshore betting operators with a federal crime for their use of the internet, which is considered to be a “wire communication.” Additionally, the Travel Act has also been read to prohibit online sports wagering since it makes illegal the use of interstate commerce to distribute proceeds of unlawful activities. Finally, UIGEA targets, among other things, the money transfers that power offshore sports betting. The UIGEA makes it illegal to accept payments in connection with wagers.
There have been efforts in the past on the state level to pressure internet service providers into ceasing to allow betting entities to operate in their states. For example, in 2009, Minnesota attempted to require ISPs to block state residents from accessing these sites online. This was challenged in a lawsuit and the eventual result was that Minnesota relented. There are other concerns, such as free speech issues, that make going after ISPs a tenuous proposition.
An effective tool that the federal government may deploy against offshore betting is enforcement under the UIGEA. Initially, payment processors sharply curtailed their activities in response to the legislation. Credit card companies exercised extreme vigilance in scrutinizing transactions with an eye towards compliance with the UIGEA. However, payment processors are much less afraid of government enforcement action than they were in the past, in part due to a lack of enforcement since UIGEA. Recently, credit card companies have begun to fund online gaming businesses. All that they require is a letter from the gaming operator’s lawyer that attests to the legality of the contest offered. Should the federal government act against the payment processors, it could effectively cut off the flow of funds to offshore betting.
Benefits of Betting in the U.S.
The recent trend towards the legalization of sports betting may help move some sports betting back onshore. This may have several benefits for sports bettors. First, offshore betting is completely unregulated. Players have no legal or regulatory protections whatsoever, and they assume risk every time that they place a wager in this medium. Consumer protection is an issue because there is nowhere to go to file a complaint in the event that a customer believes that were treated improperly. Further, there are no rules to be upheld other than the offshore operator’s own rules. By placing wagers onshore, through a licensed operator, players receive regulatory protection in the event that they experience an issue. There are established rules that sportsbooks must follow in order to maintain their licenses.
In addition, onshore operators will afford players a higher degree of safety than they would receive when betting offshore. There are numerous horror stories of offshore operators going under and taking their customers’ money down with them. There is less of a risk of this occurring with a licensed onshore casino. As regulated entities, these casinos will be scrutinized and regulatory attention may serve to prevent costly bankruptcies.
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Offshore Betting
Many states in the US have legalized sports betting. More are considering doing so and have legislation in the pipelines.
However, a good portion of states are still served by offshore bookmakers. The latter operate in the US without licensing and don’t pay taxes to the American government.
They instead leave the matter up to individual states.
Should the federal government finally take strong action against unregulated operators and ban them? I’ll discuss more on offshore bookmakers along with if they should be completely ousted from America.
What Are Offshore Betting Sites?
The United States doesn’t allow for any unregulated gambling sites to be based within its borders. They’ll take swift action against anybody who tries to run an illegal gambling operation in any of the 50 states.
However, authorities would probably need to do much more work to bust unlicensed bookmakers that operate outside of its borders. They just can’t send the feds to Costa Rica on a whim.
Speaking of which, Costa Rica is the biggest hotbed for offshore bookmaking. It allows online sportsbooks to operate within its borders with nothing more than a business license. The Costa Rican government also has few restrictions in place against operators.
Therefore, an offshore bookmaker can serve whatever country or territory they’d like from within this loose jurisdiction.
Most offshore operators stopped serving the Bluegrass State after this incident. For the most part, though, offshore betting sites will operate in any market that doesn’t have strongly-worded laws regarding online gambling.
What’s the Legal Situation Surrounding Offshore Bookmakers?
Unregulated betting sites have never been legal in the US. However, they haven’t necessarily been banned either.
The first major action that the federal government took against sports gambling sites was the Unlawful Internet Gambling Enforcement Act (UIGEA). Signed into effect by President Bush in 2006, the UIGEA bars online gambling sites from accepting payments where doing so is illegal.
Its main function is to disrupt offshore operators’ ability to take payments from many US states. The US Department of Justice (DoJ) called on this law when they took down several online poker sites in April 2011 (e.g. Black Friday).
The UIGEA isn’t, however, an outright ban on internet sports betting. Bookmakers have found ways around this law through unconventional payment methods, such as Bitcoin.
In 2011, the DoJ gave an opinion on the federal Wire Act that may deem offshore betting illegal. They opined that the Wire Act only applies to sports gambling.
However, this is just a decade-old opinion from the DoJ. The federal government has never gone after offshore operators based on this interpretation of the law alone.
Of course, the feds have taken down certain online bookmakers in the past. They’ve only done so, though, when they had proof that the betting sites were laundering money and/or guilty of bank fraud.
Why Governments Hate Offshore Operators
The federal and state governments dislike offshore betting sites for multiple reasons. Here are their main gripes against unlicensed bookmaking.
No Tax Revenue or Licensing Fees
The big motivation behind state governments legalizing sports gambling lately is money. The US betting market is projected to hit $8 billion by 2025.
Politicians want a piece of this pie for their respective states. They don’t want to be among the minority that misses out on serious tax revenue in the future.
With offshore operators, states don’t see any of this money. Bookmakers in Costa Rica, Belize, and elsewhere keep all of their earnings beyond what the taxes they pay local governments.
Of course, this situation doesn’t directly impact the federal government. But US lawmakers would rather see money flowing into various states rather than staying offshore.
No Control Over the Operators
One of the key benefits of a legal sports gambling market is that regulatory bodies have some control over the operators.
A state regulator can set rules and standards for the market. Bookmakers, meanwhile, must abide by these standards or risk a heavy fine.
Online bookmakers aren’t supposed to run misleading advertisements or target problem bettors.
Regulatory bodies don’t have the same oversight over unlicensed betting sites. They must undertake a big effort to go after offshore bookmakers. After all, the latter are operating in completely different jurisdictions.
No Protections for Gamblers
When an operator gets out of line in a regulated market, the local governing body will crack down. They can impose a big fine on the bookmaker or even revoke their license.
Bettors feel protected in these cases. If they feel that an online sportsbook has wronged them and won’t fix the issue, they can contact the local regulator.
Picking on Costa Rica again, the government takes a hands-off approach to operators.
This isn’t to say that every Costa Rican sportsbook is crooked. In fact, some of them are among the best in the business. However, nefarious operators have more room to get away with ripping off customers in this country.
The Case for Offshore Bookmakers
You can see that regulated markets offer big advantages to gamblers. They protect bettors and have lots of oversight over bookmakers. But as you’ll see below, unlicensed betting sites come with their own set of benefits.
Competitive Marketplace
More operators create a more competitive market. Offshore sports gambling sites have been collectively offering their services for a quarter century.
They’ve had plenty of time to find out what does and doesn’t work.
Of course, offshore betting sites possess an unfair advantage when competing directly against legal and state-regulated bookmakers.
Nevertheless, they can force regulated bookmakers to provide more competitive odds. Otherwise, sports bettors might just use a VPN (consider the pros and cons first) and keep gambling at offshore sites.
Freedom to Bet
Not every state in the US features a regulated internet sports betting market.
Those living in these states don’t have many options to choose from.
They can give states like California, for example, the ability to bet on sports.
America is built upon freedom. Therefore, many bettors feel like they should have the freedom to wager on sports whenever they wish to.
Plenty of Quality Operators
The offshore betting industry gets a bad rap for the reasons covered before. It also features a few bad apples.
Nevertheless, there are plenty of high-quality sports betting sites that are based overseas. These sites specialize in offering fair odds, knowledgeable customer service, and bonus opportunities.
Of course, you should never blindly sign up at the first online sportsbook that you find. But you can definitely pick out some good ones by reading reviews and looking at rankings for the best sports betting sites.
Do Offshore Betting Sites Belong in America?
Unregulated sports wagering sites have been operating in the US for over 25 years. With that said, they don’t look to be on the outs just yet.
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However, America is largely moving towards regulation with online betting. More states are legalizing the matter, and they expect offshore bookmakers to stay out of their markets.
Luckily, many unregulated operators are abiding by the rules. They’re only offering their services to states without regulation.
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I believe that an offshore bookmaker has the right to serve a gray market with no regulation or strong anti-online gambling laws in place. Unregulated sites belong in America until there are no more gray markets to serve.
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Conclusion
Offshore Betting Odds
The federal government has never fully embraced offshore betting sites. Nevertheless, they’ve put up with them in some capacity for more than a quarter century.
By “putting up with,” I mean that the US government hasn’t explicitly banned offshore bookmaking.
The US government has only gone after betting sites that have used money laundering and bank fraud as a means of serving customers. Ever since the repeal of PASPA, states have had the option to legalize betting and deal with offshore bookmakers.
Most unlicensed betting sites stay out of these markets as a result.
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Therefore, the federal government will likely never implement a hard ban against unregulated operators. They’ll just continue letting states handle the matter.