Former US Representative Jim Leach, a Republican from Iowa and author of the UIGEA, recently commented on the daily fantasy sports industry. Leach, whose Unlawful Internet Gambling Enforcement Act (UIGEA) effectively banned most forms of online gambling in the United States, said he could not have foreseen the rise of online daily fantasy sports, but he is disappointed that such an obvious form of gambling is approved by his anti-gambling bill.
Leach spoke to ThinkProgress recently about the law he wrote and developments in online gambling since then. He said that the idea of creating a carve out for fantasy sports like fantasy football and Rotisserie baseball was not his. When he was required to write the carve out, the passages covering fantasy sports were never meant to address daily fantasy sports, also known as one-day fantasy contests.
Intent Was to Constrain "A Growing Gambling Ethos"
Former Congressman Leach said, "My intent in initiating the law was to constrain a growing gambling ethos in America that could bring the casino to the home, the work station, college dorm, even the treadmill. My concern was that a savings and investing country could too easily become a country where too many would bet wantonly on unrealistic hopes of obtaining a big payoff."
One might think Jim Leach has too much time on his hands, as a retired Congressman. In fact, the Republican is still active in public life, after a bipartisan appointment by President Obama. Leach is the Director of the National Endowment for the Humanities, a federal agency which offers grants to American citizens to produce works of literature, history, and the arts.
Leach said he added the clauses involving fantasy sports after "a number of [House] members indicated they couldn't support it if it didn't make a minor exception for fantasy sports." The Iowan ex-Representative said he agreed to the stipulation reluctantly, but only "on the assumption that nothing in the endeavor could be used to incentivize corruption of any actual sports contests being played."
Carve-Outs in the UIGEA
Eventually, Leach added lottery gaming and horse racing to the carve outs. Lotto tickets are state-owned gambling institutions, while horse racing is a sport which caters to the kind of high-dollar donors who contribute to Republican candidates' campaigns. Fantasy football, on the other hand, has 50 million Americans who play it each year. Those 50 million Americans, both Republicans and Democrats, would not be happy if they were told they were criminals for betting a few dollars on their local league.
Since the rise of DFS websites like FanDuel and DraftKings, Jim Leach says he is displeased with the language of the UIGEA on further reflection. At the time, daily fantasy sports was not even a consideration. Only in 2007 and 2008 did entrepreneurs such as FantasySportsLive begin to toy with the concept. After those sites began to attract customers, the industry-changing operations like FanDuel and DraftKings began launching in 2009 and 2010.
Billion-Dollar DFS Industry
Five years later, those operations collect hundreds of millions of dollars in wagers each year. Both are considered roughly $900 million businesses. Between them, they have investors which read like a who's who of American entertainment and media groups: Disney Corporation, NBC, ABC, ESPN, and Comcast. Fifteen NFL teams and over a dozen NBA franchises have deals with the daily fantasy sports industry, while the NHL and Major League Baseball have deals in place.
Meanwhile, traditional gambling executives like MGM Resorts' James Murren continue to talk about daily fantasy as if it's gambling. As the industry becomes a billion-dollar niche, the drumbeat appears to be growing to either ban or regulate the DFS industry. But powerful commercial interests now have investments in the industry, while those 50,000,000 fantasy sports owners remain a potentially rancorous constituency for whichever party outlaws their favorite hobby.
About the UIGEA
Technically, the UIGEA does not ban online casinos or poker sites. Instead, the law bans online transactions which support the forms of gambling which were banned under the 1961 Wire Act. The Wire Act specifically banned sports betting, which was the only form of gambling which was bet over the telephone lines in those days. Casino games like poker, blackjack, roulette, and craps could not be bet on (fairly) over a telephone line, so the Wire Act never applied to those games.
When the UIGEA was passed in 2006, Republican lawmakers argued that the Wire Act did apply to casino games--or it would have, had the Internet existed in 1961. While that might have seemed spurious to many Americans, the Department of Justice under George W. Bush interpreted the law that way.
How Online Gambling Was Banned in the USA
Most of the major online payment methods and software companies stopped operating in the US market. Without their technical and financial support systems, publicly-traded online casinos and poker rooms stopped accepting US players. From late 2006 until 2011, that was the law of the land.
In 2011, the states of New York and Illinois asked the Department of Justice for an intepretation on the UIGEA and the Wire Act. The Obama DoJ rendered the opinion that the Wire Act only applied to the one form of gambling it specifically mentioned--sports betting--and that all other forms of gambling were therefore legal under the UIGEA. After that opinion became known, the states of Nevada, Delaware, and New Jersey passed legislation regulating online gambling through casinos and card rooms.
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