Sports Betting Exemption Boosts Barney Frank Bill Prospects

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Sports Betting Exemption Boosts Barney Frank Bill Prospects
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Substantial limitations on internet sports wagering and tightly drafted player protection provisions mean Congressman Barney Frank’s latest measure to license and regulate online gambling in the United States stands to make further progress than his previous legislative effort, according to one US gaming expert.

The ban on most sports betting and the carefully drafted player protection and licensing restrictions contemplated in Barney Frank’s ‘Internet Gambling Regulation Consumer Protection and Enforcement Act’ could be enough to garner support among more moderate members of Congress for the draft bill which was filed in Washington DC yesterday, said US gaming expert Joe Kelly, a professor of business law at SUNY College, Buffalo.

Congressman Frank’s previous attempt in 2007 to regulate online gambling at the federal level in the US died a swift death before his own House Financial Services Committee, but the 2009 incarnation of the bill is both far more sophisticated and more intelligently drafted than the previous effort, according to Professor Kelly.

The conspicuous exemption for sports wagering this time around could also go someway towards placating potentially powerful opposition in the form of professional sports leagues such as the NFL, he added.

Frank’s new bill would authorize the US Treasury to license and regulate companies to offer internet gambling services - bar wagering on professional or amateur sports – in the United States and take regulated online gaming activities outside the scope of the Unlawful Internet Gambling Enforcement Act (UIGEA), which was passed under the Bush administration in October 2006.

Contrary to reports preceding Frank’s announcement yesterday, the bill would not repeal the UIGEA, although a companion piece of legislation filed by Frank would delay enforcement of the that Act’s formal payments-blocking regulations until December 1, 2010.

A third measure introduced by Representative Jim McDermott would oblige the newly-regulated companies to pay a 2 percent tax on customer deposits. McDermott said his and Congressman Frank’s legislation could together raise up to $43bn in federal taxes as well as “additional billions for various state governments” over a ten-year period.

Under Frank’s Internet Gambling Regulation Consumer Protection and Enforcement Act, individual states would be allowed to serve notice to the Treasury within 90 days of the act taking effect that they wished to opt out of the federal internet gambling regulatory regime. Licensed operators would be obliged to install technology to ensure their compliance with such a state-level request, the bill adds.

Certain US gaming experts remain highly skeptical about whether a renewed legislative push from Congressman Frank push stands any chance of successfully navigating its way through Congress following its abject failure just two years ago, and the latest effort is sure to be met with once again significant opposition.

However, Professor Kelly opines that the exclusion of sports betting may be just enough to allow the bill to gather some momentum on Capitol Hill. The bill specifically states that nothing within it “shall be construed as authorizing any licensee to operate an Internet gambling facility that knowingly accepts bets or wagers on sporting events from persons located in the United States” - in violation of federal laws that effectively prohibit sports wagering in all states bar Nevada, Oregon, Montana and Delaware.

It remains to be seen whether Vegas’ sports books would be allowed to move online under Frank’s system, and also whether this prospect alone would be enough to rally the likes of the NFL and NBA to oppose the bill. In a 2007 letter voicing their opposition to Frank’s previous initiative, for example, representatives from all five major US sports leagues expressly stated that they would “also oppose any legislation that would legalize and regulate non-sports gambling online.”

“This new bill is still going to have to come up against the Christian Right, the professional sports leagues and politicians who for one reason or another just don’t like gambling,” acknowledges Professor Kelly. “Although [the sports wagering exemption] will not win the sports leagues over, it might make them less vehement in their opposition.”

A key challenge for Frank – along with bill co-sponsor, Republican Congressman Peter King from New York – will come in steering the bill through the House Financial Services Committee to which Frank serves as chair.

Frank’s 2007 bill failed to secure enough support even to pass through that Committee, and Republican members, though weaker both in number and influence since 2007, are thought to be growing increasingly disgruntled at what they perceive as a raft of government regulation flying off Frank’s desk since the deepening of the financial crisis prior to last year’s elections. Speaking at a press conference yesterday, Frank said he planned to see the legislation clear the Committee before August’s congressional recess.

“The Republicans on the committee are still formidable but I don’t think they’re as powerful now as they were before,” Professor Kelly said, adding that the bill’s progress in the wider Congress could then ultimately come to be determined by the positions taken by Democratic congressional leaders Nancy Pelosi, the House Speaker, and Harry Reid, the Senate Majority leader from Nevada. Frank told journalists yesterday that he had not yet spoken to either leader, nor to the Obama administration, about the bill.

Professor Kelly told GamblingCompliance: “This bill has been very well thought out… and it might go a long way towards alleviating some of the fears of more moderate members of Congress who would recognize that the current prohibition on internet gambling has failed, that US players are not subject to any protection at the moment and that the US is missing out on millions of dollars in potential tax revenues… I’d say it answers some of the concerns of those skeptics.”

Under the bill, all license applicants would be subject to stringent background checks by federal government, with state authorities also able to interject in both the approval process and in enforcing the law at a local level.

Would-be licensees would have to demonstrate their financial suitability - as well as their ability to comply with secondary anti-money laundering and player protection regulations that would be issued following the bill’s passage in Congress - with “clear and convincing evidence” – a similar standard to that required of companies seeking a terrestrial casino license in New Jersey, according to Professor Kelly.

Setting the bar so high for an online license approval could ultimately stand to benefit those US gaming operators already licensed by prominent state gaming authorities in jurisdictions such as Nevada, New Jersey or Missouri, Professor Kelly suggested. Already being in possession of a licence issued by a state gaming authority would “count for an awful lot” before the federal government, he added. “You would be able to say that people who have expertise in this area have already approved you.”