On Jan. 14, the Office of Legal Counsel (DOLC) at the Department of Justice (DOJ) issued a revised opinion on the applicability of the Wire Act. This apparently innocuous act may have serious implications for the nascent online gambling industry in the US.
It’s been just over a week since the opinion was published. The potential ramifications are being digested and some reactions refuse to mince words. Slowly, it is becoming clear just what the consequences will be.
What is the Wire Act problem?
The Wire Act of 1961 made it illegal for anyone to engage in;
“the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers,”[emphasis added].
Until 2011, the DOJ interpreted this to mean that all gambling on the internet was illegal.
- In 2011, the DOJ issued an opinion saying that the Wire Act only made internet gambling on sports illegal. It did not apply to online lottery, poker or casino games.
- Jan 2019, the new DOJ opinion says that Act applies to all bets and wagers.
The 2011 opinion opened the doors for states to introduce their own regulated online gambling. The 2019 opinion has not closed those doors, but it does throw a few obstacles in the way.
Most importantly, the opinion is just an opinion. It is designed to guide people as to how the DOJ will act in enforcing federal law. It is not the law itself, only a court can decide whether the new interpretation is correct or not.
State-regulated online gambling
After the first opinion, Delaware, New Jersey and Nevada rapidly moved to introduce state-regulated online gambling. Pennsylvania followed a few years later, but has yet to launch any online gambling sites.
After the second opinion, online gambling is now in legal limbo. The key issue is the part of the Wire Act that governs the transmission of information, not just bets or wagers.
The internet is not a local service. Even messages sent from a player inside a state to a game server inside a licensed casino in that state may be routed outside the state borders. If so they may be covered by the Wire Act.
Payment information that routes outside the state would also transgress. Any site processing credit and debit cards or payment services such as Neteller or PayPal may need to send information outside the state.
Pennsylvania rules out games on servers outside the state
The Pennsylvania Gaming Control Board’s (PGCB) reaction may be typical of regulators nationwide. It has sent a letter to all casinos explaining its view of the legal situation.
First, it identifies the information transmission problem. Then, it explains that so long as the information does not cross state lines, there should be no problem:
“The Opinion does not, however, negate the premise that “intrastate” activity as provided for by State law is permitted. Thus, with any forms of internet or mobile gambling, it appears that diligence in assuring that the transmission of bets and wagers, payments and credits as a result of bets or wagers, as well as the information assisting in placing those bets and wagers [subject to § 1084(b)], does not cross state lines is paramount.”
The letter then points out that one element of the Pennsylvania law may well now be illegal. PA law states that internet game servers can be located anywhere in the US so long as certain conditions are met.
Obviously with the new opinion, that won’t hold, so the PGCB states unequivocally:
“We no longer believe it is consistent with the law, as articulated in the Opinion to locate the interactive gaming devices and associated equipment in any jurisdiction other than Pennsylvania.”
And at a stroke that means Pennsylvania will not be joining any interstate compact to share player pools for online poker.
Even if the servers are located inside Pennsylvania, game information must be transmitted over state borders if a New Jersey player is to sit at the same virtual table as a Pennsylvania player.
Ex-State Senator Ray Lesniak plans to challenge the Wire Act opinion
New Jersey former State Senator Ray Lesniak played a major role in legalizing online gambling. He is simply furious with the new opinion. He told OnlinePokerReport:
“It looks like I will have to go to court again to straighten out the Justice Department’s overreaching on states’ rights, as I did with sports betting. This opinion is outrageous. It puts state lotteries at risk and state revenues. If Congress won’t fix it, I will through the judicial process.”
Lesniak puts his finger right on the real problem. Like the PGCB, states will adopt a cautious approach, reluctant to risk breaching an undefined federal law:
“It throws a monkey wrench into everything. This throws a wet blanket on any of this expansion. It makes everyone stop and think and halt and wait. The devil is in the details. You don’t know how the Justice Department is going to enforce it.”
Even the current expansion of state-regulated sports betting could slow down. The opinion doesn’t change the status of legal live sports betting, but might affect online sports betting.
The gaming world has moved on since the Wire Act was passed. Well over half of total sports betting handle is now wagered online or on mobile devices.
Legislation that ignores this fact is not addressing the whole market. Operators will invest less in a market where online sports betting is not permitted.
The gaming industry is keeping its cards close
Reaction from individual operators has largely been non-committal. They all agree that they will obey the law, but don’t want to specify what the law is — they no longer know.
The American Gaming Association (AGA) released a statement that fell short of what many expected. AGA spokesperson Sara Slane said:
“It is unfortunate that the Department of Justice departed from well-established practice in reversing its previous opinion without a compelling reason to do so. However, the 2018 OLC opinion does not impact the ability for states and Tribes to legalize and regulate gaming on a state-by-state and tribal basis, or for companies to provide the exciting products and entertainment experiences our customers want.”
The statement bypassed the whole issue of online gambling. The major online operators would probably use a stronger word than “unfortunate” to describe the situation.
Gambling opponents celebrate
“CSIG is pleased to see today’s decision by the Department of Justice to reverse an Office of Legal Counsel opinion that was as problematic legally as it was morally.
Today’s decision seamlessly aligns with the Department’s longstanding position that federal law prohibits all forms of internet gambling, as well as with Congress’s intent when it gave law enforcement additional tools to shut down the activity through the overwhelmingly-passed Unlawful Internet Gambling Enforcement Act in 2006.”
CSIG is over-reaching in its estimate of the effects. Online gambling in states where it is now legal isn’t going to shut down overnight.
The Attorney General issued a statement saying that no new DOJ actions will be taken on the basis of the new opinion for a period of 90 days.
Thereafter, any attempt to interrupt online gambling in the gaming states will meet with immediate and spirited opposition.
There is a big difference between 2011 and 2019. This year states have multi-million dollar revenue streams to protect. The issue is not theoretical anymore, it’s financial and that does concentrate political minds.