Shockwaves reverberated through the gaming industry on Wednesday with the revelation that the online gaming business in the US could be turned on its head by the Department of Justice.
Or it won’t be turned on its head at all.
An opinion from the DOJ appears to be coming — as first reported at Online Poker Report — that reverses the DOJ’s stance that the Wire Act applies only to sports betting, and instead applies to all forms of betting that crosses state lines in some way.
However, its release is not a guarantee, according to Online Poker Report sources, or that it will materialize on Friday. And we’re not sure of exactly what the opinion would say, if it’s released, other than it walks back the 2011 opinion from the DOJ’s Office of Legal Counsel (OLC).
Still, the OLC opinion helped spark the rise of intrastate online gaming in Nevada, New Jersey, Delaware and Pennsylvania. And intrastate online sports betting has gotten underway with few real worries about the Wire Act.
So what would a reversal of the DOJ stance mean in practice? It could mean almost nothing changes or everything changes, depending on the content of the DOJ opinion and who you talk to about it.
We asked some lawyers and other industry experts, and suffice it to say, the opinions varied wildly on what it could all mean.
Court precedent, history doesn’t mesh with a Wire Act reversal
Mark Hichar, a shareholder with Greenberg Traurig, has been an expert on the Wire Act and its implications for gaming in the US for some time.
Even in a world where the DOJ reverses its stance, there’s considerable legal precedent against what the DOJ will be saying, Hichar told Legal Sports Report:
“I think a short answer is that a reversal of the 2011 opinion likely would lead to litigation. There are decisions from the Fifth Circuit and the First Circuit Courts of Appeals holding that the Wire Act applies only to sports betting.
“So a hypothetical reversal of the 2011 opinion from the Department of Justice Office of Legal Counsel would not reverse those circuit court opinions. We would be left in a curious state where we’d have two circuit courts that have held that the Wire Act applies only to sports betting, and the DOJ’s Office of Legal Counsel saying otherwise.
So, one takeaway: We’re possibly headed to courts to sort this all out. It would be interesting if somehow a Wire Act case would end up in front of the US Supreme Court, which earlier this year ended the federal ban on sports gambling.
Betting, like marijuana?
If you’re looking for a comparison for what a DOJ rollback on guidance under an existing law, you don’t have to look any further than earlier this year:
“I guess one really messy reversal would be one similar to what Attorney General (Jeff) Sessions did several months ago when he declared that the Obama-era guidance on cannabis was no longer applicable, but nothing was put in its place,” Hichar said. “He just said it’s gone, ignore it. But that left people wondering — what does that mean?
“If the OLC were to simply say that the 2011 opinion is no longer applicable, we would be left with that same question, except in the Fifth Circuit and First Circuit. And I don’t know if it would be correct to assume then that the Trump-era Department of Justice had adopted the pre-UIGEA (Unlawful Internet Gambling Enforcement Act), Bush-era interpretation of the Wire Act.”
So, lots of confusion. That sounds less than ideal.
Are lotteries at risk?
We’re not only talking online gaming and sports betting here. Lotteries and how they function — online sales or not — have worries as well.
“A reversal of the 2011 opinion could affect state lotteries where their product purchases cross state lines, either due to the way communication networks are set up or because they have processing centers out of state,” Hichar said.
“The 2011 opinion came about as a result of petitions filed in 2009 by the New York and Illinois state lotteries, and they listed in their petitions a number of state lotteries that — at that time — used out-of-state equipment to process ticket purchases. So I would think that states with lotteries in such a situation would seek to enjoin enforcement.”
Not the end of the world?
One piece of good news: The technology to stop people from wagering online where it’s not legal is extremely effective.
New Jersey has proven that with its online casino industry for more than five years. Daily fantasy sports companies have been using geolocation technology for a few years now.
Here’s David Briggs, CEO of GeoComply, which conducts geolocation services for online gaming operators:
“Obviously it is still unknown what, if anything, is likely to come from the Department of Justice regarding their interpretation of the Wire Act. Regardless of a new opinion from DOJ, it remains true that, based on existing federal statutes, any state is free to proceed with online wagering, as long as they put in place the appropriate safeguards to ensure compliance with an intrastate system,” said Briggs.
“A key requirement for state compliance is that appropriate geofencing tools are used so that the online wagering only occurs within the territory where the operator is approved. GeoComply, is already enabling states and operators to comply with that requirement and we stand ready to continue to provide the checks and balances that ensure compliance with all applicable state and federal laws.”
Given that intrastate sports betting is already going on in the current landscape, there’s certainly a school of thought that messing with the Wire Act would really do nothing at all. The biggest question might be the interstate poker compact that exists between Nevada, NJ and Delaware.
A wide net for gaming?
Granted, we don’t know what exactly the opinion will say. But there are scenarios where it can affect just about everything, according to some attorneys.
Greg Gemignani, a gaming lawyer in Nevada, says all sorts of activities are called into question.
“Ultimately, it will depend on how the opinion is written. If it attempts to interpret the FWA (Federal Wire Act) like the Restoration of America’s Wire Act (and there is some legal support for that) then it presents a huge risk to all mobile and remote forms of wagering,” Gemignani said. (The Restoration of America’s Wire Act is proposed legislation in Congress that has never garnered much support.)
“It also presents a risk that casino advertisements, promotional calls, player agreements transmitted by email could also be prohibited by a reinterpretation of the FWA.”
Kate Lowenhar-Fisher, practice group chair for gaming for Dickinson Wright, similarly thinks a reversal puts a lot of things in question.
“If the opinion states that (a) the FWA prohibits all forms of online betting (deciding that “sporting” modifies “events” only and not “contests”) and (b) communications that can cross state lines (i.e., anything online) constitute communications in interstate commerce, then all online gaming could be deemed to violate the FWA (even ‘intrastate’ online gaming).
“So, intrastate online sports betting in Nevada and New Jersey could get shut down. Interstate and intrastate online casino-style gambling could get shut down. The emerging regulated sports betting industry gets murdered because the vast majority of handle and revenue are likely to come from online sports betting.
“Even the safe harbor regarding ‘information’ could be affected if the underlying gambling is now deemed unlawful,” said Lowenhar-Fisher.
A “dangerous precedent?”
Regardless of the intent of a reversal by the DOJ, it would certainly create issues for the legal gaming markets, and further solidify the stranglehold offshore gaming outfits have on the US online gaming industry, particularly in sports betting.
Here’s Competitive Enterprise Institute Senior Fellow Michelle Minton:
“The Department of Justice’s rumored memo could jeopardize the progress states with legal online betting have made at chipping away at the illegal online betting market. The original intent of the Wire Act was that it only applied to sports betting and never sought to strip states of their power to decide whether or not to legalize any form of intrastate gambling.
“Allowing the executive branch to bypass Congress, seemingly in the service of special interests, sets a dangerous precedent,” said Minton.
The bottom line: A reversal creates more questions than answers
We’re doing a lot of guessing, obviously. But yet another reinterpretation of the Wire Act casts a shadow over lotteries, sports betting and online gaming in the US. And it comes at a crucial point in the development of online wagering.
Payment processing has been a constant challenge in the early years of online gaming and now sports betting. The federal government could make banks and other processors skittish just with a new opinion. That, too, would again help illegal markets flourish at a time when the US should be doing everything it can to help the legal market.
The Wire Act opinion may or may not come out on Friday, or at all, for that matter. But it certainly seems like it will have a non-zero impact on the future of US gaming if it comes to fruition.