As of early November, 2012 was looking like a great year for Intrade. Traders on the online market where people bet money on political contests had accurately predicted the results of the presidential race for the second time in a row. Then Intrade’s fortunes turned. On Nov. 26, the Commodity Futures Trading Commission sued the Dublin-based company, accusing it of operating an illegal exchange. Intrade immediately barred U.S. customers from the site. Since the company had previously told me most of its users are in the U.S., I wagered in an article that it was doomed.
Turns out that may have been a bad bet.
This week, New Jersey became the third state, after Delaware and Nevada, to pass an online gambling bill. This came thanks to a complete reversal in policy at the U.S. Department of Justice. For years the agency had said online gambling was illegal—a violation of the Wire Act of 1961 that bans betting across state lines—and had prosecuted the owners of online gaming sites. Then late last year it told states wanting to start online lotteries that the Wire Act applied only to sports betting and not to other games. Industry observers were shocked. “The Justice Department came out 180 degrees opposite of where it was before,” says David Stewart, a lawyer specializing in gambling law at Ropes & Gray. “I’ve never seen that.”
Although the CFTC’s lawsuit against Intrade is still pending, the Justice Department’s new attitude appears to offer a way for Intrade to come back as a political betting site. The CFTC’s complaint against Intrade takes issue with its futures contracts on currency prices and some current events, but not its line on politics. In a past ruling, the CFTC said that political betting is out of its scope.
The Nevada statute allows 20 games, including community poker and craps. Companies that want to start gambling sites for games not on that list can seek special permission for a license from the Nevada Gaming Control Board. “There’s nothing that would stop Intrade from getting a license in the state of Nevada,” says Anthony Cabot, a Las Vegas lawyer who specializes in gambling law. Cabot says Nevada’s gaming commission would investigate the government’s allegations against Intrade, but the CFTC lawsuit wouldn’t automatically disqualify the company from getting a license. It would have a shot at certification if it could prove it’s offering a game of chance, as opposed to a game of skill, he says.
Intrade may resist transforming itself into a “gambling” site. It has always thought of it itself as a “market,” not a casino. It was founded by a stock trader, and Intraders buy and sell “shares” in their candidate. The difference between gambling and trading may be only semantic—for much of this century, commodities trading was considered illegal gambling—but Intrade could have a tough time making over its image. (Intrade did not return multiple requests for comment.) You can bet that political Intraders in the U.S., who’ve been fuming since the company closed their accounts last fall, want nothing more than for Intrade to come back.