Academic journal article Contemporary Economic Policy

All In: An Empirical Analysis of Legislative Voting on Internet Gambling Restrictions in the United States

Academic journal article Contemporary Economic Policy

All In: An Empirical Analysis of Legislative Voting on Internet Gambling Restrictions in the United States

Article excerpt

In 2006. the U.S. Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA) which prohibited financial institutions from processing transactions arising from online gaming activities, thereby severely hindering U.S. residents from participating in online casino games, primarily poker. Enactment of this legislation followed lobbying and political pressure from a variety qf interest groups. By examining House roll call votes, we identify empirically the sources of political influence that resulted in passage of the intemet gambling legislation. We find that party affiliation was of prima)), importance, with Republicans more likely to vote in favor of the bill. The percentage of constituents who are Evangelical Christians and also the number of gambling establishments in the district were positively associated with votes for the bill. However, contributions from the gaming industry decreased the probability a congressman would vote for the bill. (JEL D72, L83)

I. INTRODUCTION

In September 2006, the U.S. Congress enacted the Unlawful Internet Gambling Enforcement Act (UIGEA ), which prohibited the transfer of funds from U.S. financial institutions to internet gambling operators. (1) Although not banning online gambling itself, by neutralizing the ability of financial institutions to process gaming proceeds, the U1GEA had an immediate and significant effect on Americans' participation in online casinos and on the industry in general. Large online gambling companies publicly listed on foreign stock exchanges, such as PartyGaming Plc. and 888 Holdings Plc., closed their operations to U.S. players (GamblingPlanet.org, accessed March 1, 2011). PartyGaming Plc., the holding company of the popular online poker room, PartyPoker.com, saw its stock drop almost 60% in a 24-hour period following passage of the UIGEA (Online Gaming Association, accessed March 1, 2011). By February 2007, some 2,300 online books and casinos had exited the U.S. market, while customer accounts with the major wire-transfer services were frozen. NETeller, the primary wire-transfer company serving U.S. residents, had effectively ceased its U.S. operations when, in January 2007, its founders were arrested in Manhattan and charged with money laundering (Gambling-Planet.org, accessed March 1, 2011). The total value of online poker wagers within the United States has declined by 83% since 2010 (Berzon and Albergotti 2012).

Like other government policies. U.S. gambling laws have been shaped in part by interest-group politics. A predecessor to the UTGEA, the Internet Gambling Prohibition Act (IGPA), first introduced in 1997, was supported by such Christian conservative groups as Focus on the Family, the Moral Majority, and the Christian Coalition, but was ultimately defeated in 1999 due largely to the efforts of prominent Republican lobbyist Jack Abramoff, who was hired by eLottery, Inc., a firm whose plans to sell state lottery tickets online was threatened by the IGPA (Schmidt and Grimaldi 2005). Even after the UIGEA was enacted, special interests continued to exert pressure. In 2008, media reports indicated that the Traditional Values Coalition received a $25,000 donation from eLottery, again orchestrated by Abramoff, to oppose the UIGEA. Also in 2008, the Associated Press reported that the National Basketball Association spent $330,000 on lobbying to maintain the UIGEA in force (GamblingPlanet.org, accessed March 1, 2011). Some large casino companies unsuccessfully pushed bills to create a federal law repealing the UIGEA and legalizing online poker (Berzon 2011a).

The purpose of this paper is to identify empirically the main forces driving U.S. policy on internet gambling, and in particular the UIGEA. This empirical analysis is based on a public choice perspective on the determinants of inter-net gambling policy. According to this approach gambling regulation is supplied endogenously through a political process that weighs the impacts of online gambling on various interest groups. …

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