Online Gambling in the US — Is it Legal?

I have done a fair amount of research and thinking about this issue, and wanted to share my findings and thoughts on the topic.

1) Prior to the passing of the Unlawful Internet Gambling Enforcement Act of 2006, eleven states had laws on the books that specifically ban all forms of online gambling. These states are: IL, IN, LA, MI, NJ, NV, NY, OR, SD, WA, WI. Online gambling continues to be considered illegal in these states. As for the other 39 states, the question of whether online gambling is illegal continues to be unanswered.

It bears noting that I have seen no reports of any player in the United States being prosecuted under any anti-online gambling state laws.

2) The Act did nothing to alter, curtail, or extend state laws regarding online gambling. Thus, it did not make online gambling illegal in all states.

3) The Act does place restrictions on the financial transactions that occur in connection with online gambling; it restricts electronic fund transfers and the use of credit cards in connection with such wagering. This means that players will no longer be able to make wagers, or collect winnings using electronic fund transfers, credit or debit cards, or some other online payment systems — once the US Treasury Department publishes its regulations for enforcing the Act in the summer of 2007. As a law passed by Congress, this law will apply to all states.

In response to the Act, online gambling sites have done one of three things with respect to US-based real-money players:
1) Continue to accept US-based real-money players from all states
2) Accept US-based real-money players from states other than the states in which online gambling is specifically outlawed (meaning no players from the states listed above)
3) Closed their site to all US-based real-money players

Also in response to the Act, Firepay (an online payment system) stopped handling gambling-related transactions. NETeller (another online payment system) continues to handle gambling-related transactions, and has stated that they are monitoring the situation. Blog update: NETeller has also exited the US market.

So what has the Act really done? In and of itself, it certainly did not make online gambling illegal; the state laws on this issue continue to apply as they did before the Act was passed. It has reduced the number of sites where US players can gamble, and it forced US players to find creative ways of funding their online gambling accounts. It certainly raised awareness in the United States (and the world for that matter) about online gambling, but my sense is that it still has not yet had a major impact on behavior. Depending on the enforcement parameters that the US Treasury Department comes up with next year, the Act may have little long-term impact on online gambling in the United States.