What Is The UIGEA?

The Unlawful Internet Gambling Enforcement Act of 2006, or the UIGEA for short, is a piece of federal anti-gambling legislation that prohibits online gambling businesses from knowingly accepting payment for a wagers deemed to be illegal according to federal or state law. As its name suggests, the UIGEA is strictly a law relating to the enforcement of existing anti-gambling laws. Though the UIGEA is not controversial in itself, the way in which it became the law makes its one of the most controversial bills of any kind in American history and one of the most significant gaming-related laws.

Essentially, the UIGEA, also called the Leach Act after the bill’s primary sponsor, Representative Jim Leach of Iowa, was attached as a rider to the unrelated Security and Accountability for Every Port Act of 2006. The SAFE Port Act, as the law is also known, primarily deals with codifying anti-terrorism initiatives that improve the security of US ports, was seen as a piece of must-pass legislation by the 109th Congress, and Legislators in favor of the UIGEA seized on the opportunity. In an 11th-hour vote, the SAFE Port Act passed by a 409-2 vote in the House and a unanimous vote in the Senate, although no further legislative review of the bill was conducted, meaning many lawmakers did not even know the UIGEA language was included.

President George W. Bush signed the SAFE Port Act – and the UIGEA along with it – into law on Oct. 13, 2006. The passage of the UIGEA had major repercussions for the internet gambling market and still does to this day, but to better understand its significance and how it affects legal online sports betting, we must first dig a little deeper into the background of the law.

The Controversial History Of The UIGEA

The UIGEA came into being after the US Court of Appeals for the Fifth Circuit ruled in 2002 that the Wire Act, which prohibits the use of electronic transmission of sports betting information or for placing wagers on sporting events, did not prohibit internet gambling. The Wire Act – very much a product of its time, being conceived of in the late 1950s and put into effect soon afterward – was devised as a means of cutting off one of organized crimes’ most lucrative revenue streams: sports betting rackets and match-fixing. In this regard, the Wire Act was a success, even if it was eventually superseded by progressively more effectual laws and enforcement tools like the Racketeer Influenced and Corrupt Organizations Act in the 1970s.

However, the UIGEA, despite its provisions being no more in practice than those enumerated by the Wire Act more than 40 decades prior, is known as a controversial and contentious piece of legislation due to the way it was hastily passed through Congress in 2006. Rep. Jim Leach (R-Iowa), the sponsor and chief architect of the UIGEA first tried to get the original version of the bill passed in the 2005 legislative session, but despite supermajority support in the House of Representatives, the bill did not make traction in the Senate. However, the chance to get the unpopular bill pushed through the legislative process came a year later.

As discussed above, the UIGEA was passed the day before Congress adjourned for the 2006 elections, with legislators hurrying off to their reelection campaigns. According to Sen. Frank Lautenburg, one of the bill’s opponents, no one in the Senate-House Conference Committee, which approved tacking the UIGEA onto the SAFE Port Act, had ever seen the final language of the bill before a vote was called. Subsequently, on Sept. 29, 2006, the House returned a 409-2 vote and the Senate a unanimous vote in favor of passing the UIGEA even though review of the conference report containing the updated language was waived. In this way, the UIGEA was attached to the decidedly un-controversial SAFE Port Act, a counter-terrorism funding bill, which was in turn signed into law by President George W. Bush two weeks later.

The UIGEA’s Effect On Legal Sports Betting

The passage of UIGEA sent a shockwave through the online gambling industry, and sports betting was no exception. At the time the UIGEA became the law of the land, almost all foreign-based online gaming companies, which heretofore had been completely unaffected by either the Wire Act or the Professional and Amateur Sports Protection Act (PASPA), allowed US bettors to wager on table games and sporting events. However, after the UIGEA went into effect, the offshore websites that offered services to the US market immediately began looking for an exit, and many stopped accepting action from American bettors within days after passage.

Gambling websites that chose to remain in the US market faced an uphill battle to remain in the black, and many – primarily poker sites that stopped offering real-money bets – never recovered from the damage done by the UIGEA. Publicly traded companies with online poker action, finding themselves banned in America turned the tables and starting banning American players, which drove down their web traffic substantially. Some websites had to cease operations immediately while other saw the almost industry-wide pullout as a chance to abscond with the money still sitting in player accounts.

Sports betting websites also left the US market, never to return, but others like Bovada, 5Dimes and BetOnline are still going strong and are even growing more than 10 years after the passage of UIGEA. The biggest difference for these and other companies still serving US bettors is the lack of payment processing options. Since the UIGEA specifically targeted companies accepting payment for bets over the internet, credit card processing firms bailed out of the US online gambling market.

The vacuum created by the absence of payment processors led to the rise in prominence of e-wallet services, but those also eventually abandoned the market after several high-profile cease-and-desist cases from the federal government and even sting operations aimed at catching UIGEA violators. Nowadays, the remaining online gambling website that serve the US send players their winnings through wire transfer services like Western Union.

How Does The UIGEA Effect Daily Fantasy Sports?

Fortunately for players of daily fantasy sports (DFS) contests, the UIGEA does not affect their ability to enjoy their pastime and win some money too, at least in the states with daily fantasy sports. Unless expressively prohibited in individual states that classify DFS as a game of chance and not a game of skill, the DFS industry operates under a loophole in the UIGEA. DFS contests are exempt from the UIGEA’s prohibitions because DFS does not award prizes based on the number of participants or the amount of fees paid by entrants and because DFS contests don’t involve the current membership of actual sports teams.

Owing to this loophole, the DFS industry by and large uses the UIGEA as its defense that its contests are not one and the same as sports betting, although some states, namely Massachusetts, have recently made moves to classify them as such. At the same time, the UIGEA contains language that specifically delineates that no part of the law can be construed as altering or limiting any other federal or state law (or even Tribal-state gambling compacts) that relate to gambling regulation. Ultimately, the UIGEA’s provision that allows DFS as a game of “relative knowledge and skill” only leaves the decision as whether fantasy contests are gambling or not up to individual states.

Read more about the UIGEA on Wikipedia.

Check Here For The FDIC Overview Of The UIGEA