UIGEA Explained

The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) was signed into law by President George W. Bush in October of 2006. The overarching aim of the UIGEA is to disrupt illegal online gambling operations by targeting their finances. The UIGEA does so by making it a criminal offense for financial firms in the US to process payments to or from illegal gambling and betting sites.

If anyone reading this has attempted to fund an account with an offshore online sportsbook (despite our many recommendations to avoid unregulated betting sites) and had trouble depositing via credit card, that was likely a result of the UIGEA. Banking institutions, credit card issuers and other types of payment processors are all banned from facilitating payments to gambling sites that are considered unlawful.

Contrary to many media reports, the UIGEA does not outlaw online gambling at all. Many media reports over the years have referred to the UIGEA as a ban on online gambling, but that is not the case. The UIGEA does not ban any form of gambling; it bans payments made to unauthorized gambling sites. Furthermore, the UIGEA does not target players; it targets those who facilitate financial transactions for unlicensed gambling sites.

The UIGEA has had mixed results in attaining its original goal. The law did convince some of the world’s biggest online gambling companies to leave the US market. This was particularly detrimental to online poker players in the US, because a healthy poker economy is dependent on having lots of players.

Some offshore betting sites decided to stay in spite of the UIGEA. These companies did suffer from restricted payment options and a few of the smaller gambling sites folded, usually taking players’ funds with them. However, some offshore sites continue to operate to great success even to this day.

The UIGEA definitely hurt the offshore US market, but it has not even come close to ending online betting. As recently as early 2018, the American Gaming Association estimated Americans were wagering at least $150 billion annually on sports through illegal means.

UIGEA Exemptions

One of the key points to know regarding the UIGEA in today’s regulated online betting landscape is that the law only applies to unlawful gambling operations. Online sportsbooks, poker sites and casinos that are licensed in the USA are exempt.

The UIGEA provides this exemption by deferring to state law. If an online betting site of any type is legal in any state, it is exempt from the UIGEA. We’ll discuss that more below, but the gist of it is if a state says it is legal, the UIGEA does not apply.

In addition to the blanket exemption provided to state-authorized gambling sites, the UIGEA specifically exempts online horse racing and fantasy sports.

The horse racing exemption is provided in the UIGEA’s definition of “unlawful Internet gambling.” In the section of the law reserved for definitions, the UIGEA states:

The term “unlawful Internet gambling” shall not include any activity that is allowed under the Interstate Horseracing Act of 1978.

The Interstate Horseracing Act of 1978 is another federal law authorizing interstate off-track betting, which includes online racing betting. This is why horse racing sites such as BetAmerica, TwinSpires and others have been able to operate across the US for years even after the passage of the UIGEA.

Fantasy sports were also exempted from the UIGEA with the definitions section of the law including this carveout from the definition of “bet or wager”:

(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.

  • 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
  • No winning outcome is based—
  • on the score, point-spread or any performance or performances of any single real-world team or any combination of such teams; or
  • solely on any single performance of an individual athlete in any single real-world sporting or other event.

The vague wording of the fantasy sports exemption has caused considerable confusion among operators. The first paragraph is poorly-written, but is widely believed to simply mean a fantasy player cannot draft a fantasy team consisting solely of players from just one team. This is why the major DFS sites require all lineups to include players from at least two different teams.

It is also unclear what exactly counts as “any single real-world sporting” event. For years, fantasy sites interpreted this to mean all fantasy contests must span at least two different games.

More recently, fantasy sites have employed the use of creative interpretations of that portion of the law to push the bounds of the exemption. For example, inventive new contest formats such as single-game contests are questionable, but have not been challenged to date.

How the UIGEA Impacts Online Sports Betting

The UIGEA’s impacts on online sports betting depend entirely on whether we’re talking about legal online betting sites licensed in the United States or illegal sites hosted on foreign territory. As written, the UIGEA makes it clear in at least two places that it does not supersede state law.

In § 5361, we can find the following phrase that clearly explains the UIGEA defers to state and other federal laws:

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.

In § 5362 discussing definitions, the UIGEA notes that the term “unlawful Internet gambling” does not apply to wagers that meet the following criteria:

  • The bet or water is initiated and received or otherwise made exclusively within a single State;
  • The bet or wager and the method by which the bet or wager is initiated and received or otherwise made is expressly authorized by and placed in accordance with the laws of such State, and the State law or regulations include –
  • Age and location verification requirements reasonably designed to block access to minors and persons located out of such State
  • Appropriate data security standards to prevent unauthorized access by any person whose age and current location has not been verified in accordance with such State’s laws and regulations

What these provisions are saying is online sports betting and gambling is fine as long as it doesn’t break federal or state law. The only federal law prohibiting sports betting has been stricken down, so that eliminates half the problem right there. As individual states legalize online sports betting, the UIGEA will exempt those operations as well.

The one portion of the above text that appears concerning at first glance when it comes to sports betting is the requirement that the bet or wager take place entirely in one state. Could that provision be interpreted to stop online sportsbooks from operating in more than one state? For example, if the Borgata opens an online sportsbook in New Jersey, would the Borgata be unable to open a second betting site for customers in Delaware?

The answer is probably not. We should note that New Jersey, Nevada and Delaware signed a player sharing agreement in 2017 allowing poker rooms in all three states to share tables. With players from all three states betting against one another on a single hand of cards, there is no doubt those wagers are taking place across state lines. The UIGEA has not been invoked to stop such player sharing agreements.

However, the Federal Wire Act may cause issues for interstate sports betting. That law clearly states that sports wagers may not be placed across state lines. Click here to read more about those concerns and why we believe the Wire Act will most likely not hinder online sports betting to any great degree.

The UIGEA will likely have no negative impact on legal online sportsbooks. Unauthorized offshore sportsbooks, on the other hand, will still have to contend with the UIGEA and all the problems it causes for payment processing.