PROBLEMS AT THE ONLINE HORSE BET GATE

21 September 2007

Are DoJ officials and the industry headed for a confrontation?


The legislative carve-outs for horseracing by the United States in its attempts to hamstring Internet gambling are at the centre of much criticism and potentially very expensive legal hassles such as the currently high profile US vs. Antigua dispute in the World Trade Organisation.

Adding fuel to the fires this week was a Financial Times article, picked up by a wide range of other mainstream media, which suggests that a legal wrangle is developing between the horseracing industry and US enforcement authorities.

The article reports that visitors to Twinspires.com, a website operated by the owners of the Kentucky Derby, are offered a reassuring message about whether online gambling on horses is legal.

Under its FAQ, Twinspires says it operates legally in the US, citing legislation passed by Congress last year that toughened federal anti-gambling laws, while protecting companies that run internet bets on horses from the new rules.

"What Twinspires and several other websites fail to disclose is that the US Justice Department disagrees with this assessment," the newspaper observes.

The Financial Times report points out that in a recent letter to a senior Democratic lawmaker seeking clarification about the status of online horse betting, the Justice Department said its long-held view – that interstate betting (within the US) on horses online was illegal – had not been affected by last year's passage of the Unlawful Internet Gaming Enforcement Act.

The DoJ letter opined that this law was targeted at foreign online gaming companies and explicitly stated it was not "intended to resolve any existing disagreements over how to interpret" federal laws on online horse betting.

Its exclusion of online horse betting was seen by some industry observers as a way for Congress to protect the domestic gaming industry by keeping some rules intentionally ambiguous.

At the centre of the legal wrangle between law enforcement officials and the industry is a dispute over whether a 2000 amendment to the Interstate Horseracing Act (IHA), which legalised online pool betting in some states, trumps federal criminal laws that prohibit interstate gambling, the FT article claims.

The article goes on to summarise the positions of the industry, which feels that the IHA factually amended the Wire Act, and the DoJ which is adamant, and publicly so, in asserting that the Wire Act remains paramount and that interstate horse betting online remains illegal.

The FT emphasises that the DoJ has not yet brought a prosecution against any horse race company offering online betting, although it has revealed in testimony before Congress that it was investigating the activity.

The comments of one industry expert interviewed in the FT article will have a familiar ring for online casino operators when he says:
"My gut feeling is that they haven't tried to prosecute somebody because they don't want to lose, because then you have case law that says they're wrong. And I think they would lose."

At present, it does not appear that the DoJ's opinion is causing too much concern in the industry, the report continues, pointing out that the willingness of established companies to defy the Justice Department possibly highlights the industry's confidence that it has the upper hand in its analysis of the law.

"It reflects, too, the private view among Washington insiders that the industry, which is dependent on the Internet for future growth, is too politically protected to be vulnerable to law enforcement," the article concludes.

"The IHA sets forth that this is legal," says Kevin Flanery, vice-president of national public affairs at Churchill Downs, which owns Twinspires.com. "What we do is look at the law...The voice that matters in this situation is, in fact, Congress."

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