Legal Experts Still Unsure If Wire Act Opinion Could Affect State Revenue

Posted By Nicholaus Garcia on February 5, 2019 - Last Updated on February 15, 2019

Since the release of a new opinion by the Department of Justice’s Office of Legal Counsel, many experts have weighed in on the Wire Act’s impact to online gaming revenue in several states across the country.

The 2011 opinion issued by the DOJ stated that the Wire Act only applied to sports betting. However, the new filing makes the act applicable to any form of online gambling, and online lottery transactions that cross state lines.

The reactions range from frustrated to downright angry–AGs from gambling hotbeds New Jersey and Pennsylvania have sent strongly worded letters.

In reality – it’s still too early to determine if such an impact exist.

Potential implications of the new Wire Act opinion

Online gaming revenue is part of a bigger whole. The potential impact extends far beyond stripping states of online casino games, daily fantasy sports (DFS) or even sports betting.

Tommy Shepherd, an attorney with Jones Walker in Jackson, Miss., said one area the DOJ opinion could extend to is payment compliance.

“There are many concerns with the reversal of the years-old DOJ position,” Walker said. “A significant concern for the states and their gaming revenue is payment processing.”

What the DOJ opinion has done is bring massive amounts of uncertainty. It has flooded legal analysts with hypothetical “what ifs.”

It remains unclear if the DOJ even plans on enforcing such an opinion.

GeoComply CEO David Briggs told Legal Sports Report last week he too believes it’s unknown if anything, including state revenue, could be impacted.

“Regardless of this new opinion from DOJ, it remains true that, based on existing federal statutes, any state is free to authorize online wagering, as long as they (put) in place the appropriate safeguards to ensure compliance with an intrastate system,” Briggs said.

The payment factor

Following the 2011 opinion, several states moved forward with legalizing some form of online gambling. These states include Delaware, New Jersey, Nevada and Pennsylvania. In the beginning, banks and payment processors were skeptical of entering the US online gaming industry. Several even dished out heavy decline rates for transactions.

A significant question Shepherd noted was, “Will the banks, and other payment processors, be leery of providing the means to facilitate the movement of money through website wagering and mobile app betting?

“If these sources contract, it could adversely impact revenues. And 90 days to ‘come into compliance’ is just not enough time for companies to completely alter the infrastructure for their businesses to all be intrastate,” Shepherd said.

Entering the online gaming space

Another uncertainty is states looking to get into the online gaming market.

Mississippi was the only southern state to enter the sports betting market following the US Supreme Court decision in May 2018. It did so without online wagering and instead opted for on-site only, for now.

To make up ground, neighboring Louisiana is looking at bringing sports betting to the Bayou State complete with an online component. A question lawmakers will certainly dive into is, “what implications do the DOJ opinion have on states that lack online gaming?”

Ronnie Jones, chairman of the Louisiana Gaming Control Board, said the short answer is, we’re not sure.

“My gut tells me that may be a problem, but I’m waiting to meet with counsel for further clarification,” Jones said. “Since we don’t have any form of mobile gaming or sports betting at this point, those issues are moot.”

“Attorneys at the AG’s office have been reviewing the advisory opinion in the view of the fact that several of our casino licensees participate with casino licensees in other states in offering progressive slot games,” he said.

Continued use of geofencing is crucial

To ensure adequate interpretation of federal law, Briggs said states should make sure wagering only takes place within state borders.

“A core requirement is that the appropriate geofencing tools are used such that online wagering only occurs within the territory where the operator is approved,” Briggs told LSR.

“GeoComply is already enabling states and operators to comply with this requirement and we stand ready to continue to provide the checks and balances that ensure compliance with all applicable state and federal laws,” Briggs said.

Kevin Braig, an attorney with Shumaker, Loop & Kendrick in Columbus, Ohio, agreed with Briggs’ assessment of geofencing.

“Geolocation software has become so good and so prevalent in the industry that, that sort of makes the rule different back when the Wire Act was being aggressively enforced in the ’60s and ’70s,” Braig said.

No real enforcement yet

From his analysis of the opinion, Braig said it remains unclear how or if the opinion will be enforced.

“It seems that the exact recipe on how it’s going to be enforced, the DOJ doesn’t even know,” Braig said. “Sure, there is potential state revenue could be lost, there are some businesses out there that are going to have to revisit how they do business.”

A common trend from legal analysts appears to be that the DOJ reversal has done nothing but cloud the water.

“I’m never surprised by the government creating uncertainty,” Braig said.

However, he noted that as long as companies continue to comply with federal law, the DOJ opinion should not matter.

“Compliance is an active state — you just don’t do it once. We will really see what happens after the 91st day,” he said.

Nicholaus Garcia Avatar
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Nicholaus Garcia

Nick has had stints in Chicago and Washington, D.C., writing about politics, financial markets, and sports betting. He graduated from Texas Tech University and completed his master's degree in journalism at Columbia College Chicago.

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