Was my sports bet legal?

February 15, 2011, 3:00 PM UTC

From March Madness to online poker — what’s legal and what’s not in the complex (and lucrative) world of sports betting.

This month, Fortune delves into the story behind Ted Forstmann’s controversial sports betting history in the story “Ted Forstmann’s bad bet.” The facts have by now been well documented: last fall, prompted by a lawsuit, Forstmann—who heads IMG, one of the biggest talent agencies in the world—acknowledged he had placed bets on NCAA college basketball, pro football, and tennis matches involving IMG clients (though Forstmann appears to have stopped betting on college sports before entering that business). The legality of his wagers has not officially been questioned and most chatter has instead focused on the ethics of his gambling and on whether he violated any rules of the various sports’ governing bodies. (So far, it appears he did not.)

But a worthwhile question Fortune readers may have, especially as March Madness season fast approaches, is what a typical person—one that doesn’t have a hand in the business—is permitted to do in terms of sports betting.

The answer, it turns out, is far from simple. The reason: laws about gaming, or legalized betting (as opposed to “gambling” which is usually unlawful) are murky, vary state to state, and are hotly debated.

According to Chuck Humphrey, a Colorado attorney specializing in gambling law, the basic gist of the law boils down to a distinction few people know or make: the laws are different for the person making the bet, or the bettor, and the person taking the bet, i.e. the bookmaker or, in more informal situations, the person running a pool. “The common mistake is to assume the laws are the same for both parties,” Humphrey says. The making of bets, he says, is legal (or at least isn’t prosecuted) in most states, including California and New York. The taking of a bet, however, is illegal in almost all states.

That’s the case with federal law, too. “There is no federal law that makes it a crime to make a bet,” says Professor I. Nelson Rose, gaming law expert and author of an internationally syndicated column called Gambling and the Law. “Even if it’s with an illegal bookie, the bettor is not violating a law.”

But with a few exceptions, anti-gambling laws have traditionally been state issues, not a matter of major concern to federal lawmakers.

About half of the 50 states do have ancient laws on the books that criminalize the making of bets. However, the government only gets involved if it’s serious—say, in the case of a large-scale betting ring, or organized crime. In terms of “social betting” —like a low-stakes poker game—Rose says authorities look the other way. “Federal laws have generally switched from prohibition to grudging permission,” he says.

Above board betting

A small number of states do have laws enabling the taking of bets, or bookmaking. Most of them make room to permit “calcuttas,” or betting auctions most often used with March Madness pools. Humphrey says that March Madness pools are usually not prosecuted because they typically do not involve anyone making money other than the bettors. (In other words, the person running a pool typically does not take a cut.)

Where is bookmaking legal? Each of the following states allows for some sort of bet-taking, though what is permissible is highly specific, so this doesn’t mean you can legally begin a new career as a bookie: Alaska; Delaware; Mississippi; Montana; Nevada; New Mexico; North Dakota; Oregon; Washington; and Wyoming. In addition, Connecticut, Florida, Nevada, Puerto Rico and Rhode Island all allow the taking of bets on jai alai, a popular sport for gamblers. Of course, in Vegas casinos, all betting is legal.

Unsurprisingly, Anthony Cabot, a well-known international gaming attorney based in Las Vegas, says the issue of sports gambling continues to confuse almost all non-experts. “States are divided on this,” he points out, which makes establishing an overall, unified set of laws complicated.

What about online betting? Thanks to the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA), the online operator of a betting site is committing a crime by accepting money from U.S. residents to fund their accounts. As for those using the sites, Humphrey says, “enforcement actions against individuals are just about non-existent.” In 2010, notably, New Jersey became the first state to legalize some forms of online gambling (Washington, on the other hand, recently made it a felony to bet on the Internet).

Some politicians are starting to lobby for looser laws, pointing to the potential economic help that regulated gambling could bring. Massachusetts Congressman Barney Frank (D) has been the leading proponent of the charge, and in 2007, U.S. Representative Jim McDermott (D), Washington, cited an estimate that the U.S. could get revenues of anywhere from $3 to $15 billion if it legalized Internet gambling.

The takeaway, then, is that for most readers, your occasional bets at the racetrack, keno games in bars, and participation in March Madness pools won’t be bringing the feds to your door anytime soon.

Those running the pools, however, are technically breaking the law. But it likely won’t set off alarms with law enforcement. Especially considering that, as one source shared with us, there are basketball tournament betting pools going on even at some District Attorney’s offices. And of course they’re de rigueur around newsrooms too: one source told Fortune that a newspaper reporter once interviewed him for a story about the illegality of sports pools, only to have the story killed at the eleventh hour. The reason? His editor was organizing his own pool.

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