Legal and Corruption Issues in Sports Gambling

Abstract

On April 15, 2011, the federal government shut down the three largest online poker sites servicing the American market – Full Tilt Poker, PokerStars, and Absolute Poker/Ultimate Bet. The shutdown was subsequently labeled Black Friday in the mainstream press. In addition to seizing the assets of each of the aforementioned online poker operators, each affiliated website included stern notices from the Department of Justice (DOJ) and Federal Bureau of Investigation (FBI) informing visitors that certain gambling is illegal under federal law. Less than two months later, the online sports gambling industry was also subject to a federal-level enforcement action dubbed Blue Monday.

The Blue Monday indictments, released May 23, 2011, targeted a number of individuals and entities involved, at least tangentially, to online sports gambling. Ten sports gambling websites were shut down as a result. The indictments resulted from a two year multi-agency state and federal investigation that involved the creation and operation of an undercover payment processing firm that allowed law enforcement agents to interact directly with gambling organizations. An affidavit filed in conjunction with the indictment detailed intricate aspects of online sports betting and shed light on the lifeblood of internet-based sports gambling – payment processing, a prerequisite to any virtual portal accepting sports wagers from a remote location. Payment processing is a two-way street, with such processors collecting money from gamblers for their accounts and paying out winnings to gamblers upon request.

Citing cases dating back to the years following the Civil War, Major League Baseball’s anti-gambling stance has been described as a long-term crusade. A noted scholar described gambling as “the deadliest sin in sports.” The United States government’s move to criminalize operators servicing domestic sports gamblers wagering offshore highlights more than a century of tension between sports and gambling. Measuring the impact of gambling-related corruption on the integrity of sports has also been addressed. The unique role of gambling in the collegiate sports context has also been analyzed. From a lawmaking standpoint, a leading expert posited that “American policymakers have literally ceded sports betting to organized crime while the market continues to grow.” A near-apocalyptic view of gambling’s interaction with sports was summed up in a prominent 1986 Sports Illustrated article:

Nothing has done more to despoil the games Americans play and watch than widespread gambling on them. As fans cheer their bets rather than their favorite teams, dark clouds of cynicism and suspicion hang over games, and possibility of fixes is always in the air.

The purpose of this article was to analyze the legal and corruption-focused underpinnings of federal statutes that impact sports betting. One foci was on the Professional and Amateur Sports Protection Act (PASPA) in a post-internet world, where the scope and diversity of sports wagering differ markedly from the time PASPA was debated and enacted in the early 1990’s. The enforcement actions on Black Friday and Blue Monday, coupled with recent sports gambling-related litigation involving Delaware and New Jersey, have thrust PASPA and the other statutes back into the spotlight. The remainder of this article is organized as follows: Section II highlights relevant federal and state law, Section III focuses narrowly on PASPA, Section IV examines how corruption concerns have shaped federal legislation pertaining to sports gambling, Section V explains the resulting policy issues, and Section VI concludes with an outlook to the future.

Keywords: Gambling, Law, Policy, Sport Betting, Economics, Corruption, PASPA, Wire Act, UIGEA, New Jersey

JEL Classification: K00, K19, K20, K23, K29, K30, K39, K40, K49, L50, L59, L80, L83, L89