What Is The UIGEA?

The Controversial History Of The UIGEA

The UIGEA came into being after the US Court of Appeals for the Fifth Circuit ruled in 2002 that the Interstate Wire Act, which prohibits the use of electronic transmission of sports betting information and bans oddsmakers from offering or accepting wagers on sporting events across state lines, did not actually prohibit all forms of Internet gambling. The Wire Act – very much a product of its time (being conceived of in the late 1950s and put into effect soon afterward), was devised as a means of cutting off one of organized crime’s most lucrative revenue streams: sports betting rackets and match-fixing. In this regard, the Wire Act was an arguable success, even if it was eventually superseded by progressively more effectual laws and enforcement tools like the Racketeer Influenced and Corrupt Organizations Act, or RICO Act, in the 1970s.

As discussed above, the UIGEA was passed the day before Congress adjourned for the 2006 elections, with legislators hurrying off to their reelection campaigns. According to senator Frank Lautenberg (D-NJ), one of the bill’s opponents, no one in the Senate-House Conference Committee, which approved tacking the UIGEA onto the SAFE Port Act, had ever seen the final language of the bill before the vote was called. In this way, the UIGEA was attached to the decidedly noncontroversial SAFE Port Act, which was in turn signed into law by president Bush two weeks later. So what is the UIGEA? Even its supporters don’t really know. (In retrospect, perhaps the ignorant and hasty passage of the UIGEA isn’t as unusual in practice as it seems. In the time since, plenty of lazy congresspersons have admitted that in order to find out what is in a bill, it is common practice to first get the bill signed into law.)

The UIGEA’s Effect On Legal Sports Betting

The UIGEA’s effect on legal sports betting – at least at first – cannot be understated. Initially, the passage of the UIGEA sent a shockwave through the online gambling industry, and sports betting was no exception. At the time the UIGEA became the law of the land, almost all foreign-based online gaming companies, which heretofore had been completely unaffected by either the Wire Act or the Professional and Amateur Sports Protection Act (PASPA), allowed US bettors to wager on table games and sporting events alike. However, after the UIGEA went into effect, the offshore websites that offered services to the US market immediately began looking for a loophole or workaround, and many stopped accepting action from American bettors within days after passage (though this proved to be very temporary in most cases).

In the immediate aftermath of the UIGEA, gambling websites that chose to remain in the US market faced an uphill battle to remain in the black, and many – primarily poker sites that stopped offering real-money bets – never recovered from the damage done by the UIGEA. Publicly traded companies with online poker action, finding themselves banned in America, turned the tables and starting banning American players, which drove down their web traffic substantially. Some websites had to cease operations immediately while others saw the almost industry-wide pullout as a chance to abscond with the money still sitting in player accounts.

Sports betting websites also left the US market, never to return, but others – like Bovada, MyBookie, BetOnline, and a few more top brands – are still going strong and continue to grow more than 10 years after the passage of the UIGEA. The biggest difference for these and other companies still serving US bettors is the reduction in payment processing options and the channeling of funds into markets that the US government cannot control. Since the UIGEA specifically targeted companies accepting payment for bets over the Internet, banks and credit card processing firms were forced to limit their “knowing” involvement in facilitating these transactions.

The short-term vacuum created by the absence of payment processors led to the rise in prominence of e-wallet services, but those also eventually abandoned the market after several high-profile cease-and-desist cases from the federal government (and the results of sting operations aimed at catching UIGEA violators, which came to a head during 2011’s notorious Black Friday, which shut down all of the biggest US online poker vendors). Nowadays, the remaining online gambling websites that serve the US prefer to send players their winnings through wire transfer services like Western Union, through money orders, and especially via cryptocurrencies like Bitcoin and other altcoins (Litecoin, Ethereum, etc.).

How Does The UIGEA Affect Daily Fantasy Sports?

Fortunately for players of DFS contests, the UIGEA does not affect daily fantasy sports or DFS fans’ ability to enjoy their pastime and win some money too, at least in the states with DFS support. Unless expressly prohibited in individual states that classify DFS as a game of chance and not a game of skill (i.e. “gambling”), the DFS industry operates under a loophole in the UIGEA. DFS contests are exempt from the UIGEA’s prohibitions because DFS does not award prizes based on the number of participants or the number of fees paid by entrants, and also because DFS contests don’t involve the currently fixed rosters of actual sports teams.

Owing to this loophole, the DFS industry, by and large, uses the UIGEA as a defense that its contests are not one and the same as sports betting, although some states have made moves to classify them as such. At the same time, the UIGEA contains language specifically saying that no part of the law can be construed as altering or limiting any other federal or state law (or even tribal-state gaming compacts) that relate to gambling regulation. Ultimately, the UIGEA’s provision that allows DFS as a game of “relative knowledge and skill” leaves the decision up to the individual states as to whether fantasy contests count as gambling.