Why has it Taken So Long for US States to Legalize Online Gambling?

Gambling is very popular pastime in the United States (and many other parts of the world) and has grown into a multibillion-dollar industry. The adoption of the Internet and other digital technologies has transformed the US gambling market significantly over the last two decades. Yet, many states remain hesitant to embrace gambling and its potential lucrative benefits to the economy. Several factors have influenced gambling legalization and regulation, such as historical, political, and economic implications.

History of Online Casinos

Online casinos started with the introduction of the Internet in the 1990s and gained structure as digital technologies evolved. The history of online gambling also includes specific laws. The Wire Act of 1961 prohibited interstate wagers and defined the industry’s growth, especially for online casinos, which influenced regulatory conditions for decades and only received clarity in 2011. The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) is another important piece of legislation influencing online gambling.

The introduction of modern smartphones over the last 10–15 years is another important milestone in the history of online casinos. Today, players have access to so many casinos online, gambling support and resources, and regulatory information directly on government websites and apps. These technologies have shaped how players enjoy and play their favorite casino games, shifting consumer behavior in a big way.

Despite these, online gambling is not available in every US state; only about 30 states allow some form of online betting and impose strict regulations, while online casinos are only allowed to operate in 7 US states. Various factors are behind this reluctance to legalize online gambling in the US—let’s take a look at them.

Political, Ethical, and Social Factors

Political dynamics play a crucial role in gambling regulations in the US, with religious groups and conservative lawmakers largely influencing the reluctance to legalize gambling based on ethical grounds. The stigma surrounding gambling attracts heated debates in state legislatures (especially on the potential challenges of gambling addiction and its social impact). Advocacy groups also warn against the ease of accessing online casinos and gambling activities and the risks posed to vulnerable populations, such as children and people prone to addictive habits.

Although public opinion is gradually shifting, with a growing number of Americans supporting legal gambling, more states may eventually adopt regulated online gambling.

Some traditional brick-and-mortar casinos are also actively lobbying against legalizing online gambling. The traditional casino industry cites competitive reasons, potential revenue loss, and reduced influence/dominance in the gambling industry. These traditional casinos also influence state policies and delay progress in making online casinos legal in most states.

The Complex Legal Situation

The US federal and state gambling regulatory frameworks are diverse, and they change with several court rulings. The federal Government previously banned transactions related to illegal gambling, which operators and players interpreted to mean a broad ban on gambling. However, a new interpretation of the Wire Act in 2013 legalized casinos and poker rooms, spurring Michigan and Pennsylvania to legalize online casinos.

US states follow federal regulations but can determine their laws regarding gambling, taxes, and related activity. Many states remain resistant—Utah and Hawaii, for instance, maintain strict anti-gambling laws due to long-standing religious and cultural beliefs. Although many states allow traditional gambling, only 20 states permit some form of online gambling, like casinos and sports betting.

Economic Considerations

Revenue generation is a major plus for legalizing online gambling. According to the American Gaming Association, online gaming (gambling-related) generated $16.55 billion in 2023, and Statista put the figure for sports betting revenue at $11.04 billion in 2023. Note that these markets, while growing, are predicted to reach new levels as new locations are unlocked. The revenue potential from taking on gaming operators and players’ winnings can become a significant source for states. In 2020 for example, New Jersey received over $1 billion in revenue from the online gaming market.

The costs of regulation are another important factor in the gambling sector—some lawmakers express concerns about the costs of regulation and oversight from implementation. The costs of gambling regulation impact the states’ decisions against legalizing gambling despite the economic benefits.

Technological Advancements

Security and stability are two crucial factors that regulatory authorities consider when granting operating licenses to casinos. Technological advances have made online gambling more secure and accessible, opening new markets in remote regions with Internet access. Adopting modern technologies, such as blockchain and advanced data encryption, increased the security of online platforms against fraud and data theft. Yet, lawmakers and the general public remain worried about cybersecurity risks and losses and their impact on the industry—a valid concern in the modern age of tech and online data.

Officials have more challenges and opportunities to keep pace with the rapidly evolving digital space, where new and emerging technologies impact how players access online gambling. One key area for legislators is the emerging adoption of DeFi-based gambling platforms, where players can bypass KYC requirements.

The Current State of Online Gambling in the US

These US States have fully legalized online gambling activities (casino games and sports betting):

Source

Other states have permitted some form of gambling, with the majority allowing online sports betting. Only two states (Utah and Hawaii) have fully restricted all forms of gambling.

The Future of Gambling Legislation

The general perception is that more states will lean toward casino regulation and legalization, especially with the projected revenue growth and market size. With over 50 million players today, the online gambling market is projected to grow at a CAGR of 12 percent between 2022 and 2030, according to Polaris Markets Research. We expect more collaboration between federal and state regulatory authorities to establish uniform regulations and a closer partnership with industry giants to implement more regulations, especially in data protection.

Conclusion

The regulatory frameworks in the online gambling niche will eventually expand to cover more digital technologies and provide players and operators with new guidelines. The key question for regulatory authorities is, “How best to protect consumers and the public while regulating a market with huge revenue potential?” The demand for regulated and legal online gambling platforms will increase as more people explore their favorite casino games from their computers and mobile devices. As public opinion shifts, more players will enter the space and the growth shall continue.