Strict Enforcement Of The New DOJ Wire Act Opinion Could Spell Doom For Atlantic City

Posted on January 23, 2019 - Last Updated on January 24, 2019

A Nov. 2, 2018, Department of Justice opinion (released earlier this month) reversing a 2011 DOJ opinion on the 1961 Wire Act has left the gaming industry with far more questions than answers.

Deputy Attorney General Rod Rosenstein was supposed to provide some clarity on the new opinion, but his enforcement memo did nothing of the sort.

How the new opinion will affect states with legal online gambling, and how the DOJ will enforce its new interpretation of the Wire Act, are just as unclear after Rosenstein’s memo as they were before it.

Rosenstein’s memo simply provides “a 90-day window will give businesses that relied on the 2011 OLC opinion time to bring their operations into compliance with federal law.”

The memo doesn’t indicate if the states currently offering intrastate online gambling are in compliance with federal law, nor does it properly explain what the federal law actually is.

That leaves the states with legal online gambling such as New Jersey, and any state considering it, in a veritable limbo.

What we know about the Wire Act opinion

Barring legal challenges, the opinion likely means the interstate online gaming agreement between Nevada, Delaware and New Jersey will come to an end.

It’s also going to lead to some structural changes, such as Pennsylvania’s decision to adjust certain aspects of its in-process online gaming industry.

“As a result of the Opinion and at this time, we no longer believe it is consistent with law as articulated in the Opinion to locate the interactive gaming devices and associated equipment in any jurisdiction other than Pennsylvania,” wrote Kevin O’Toole, director of the Pennsylvania Gaming Control Board, in a memo to the state’s casinos.

And what we don’t know

The big unknown in the new DOJ opinion is intermediary routing of data and transmissions through the internet.

Even when a bet originates and ends in the same state, it’s often routed through other states. This incidental routing through other states is near unavoidable, and a byproduct of the internet.

Not surprisingly, the 2006 UIGEA addresses and allows for intermediary routing. But the 1961 Wire Act doesn’t, which leaves it open to interpretation.

The DOJ, therefore, could take one of two approaches:

  • Strictly enforce the new opinion and prosecute states that offer online gambling products, even intrastate products if the communications cross state lines at any point.
  • Take a more measured approach and continue to allow states to offer intrastate online gambling even if some of the communications cross state lines.

What happens for NJ online casinos and NJ online sports betting depends on what path the DOJ takes.

Based on Pennsylvania’s reaction, it believes the DOJ will take the more measured approach. That would be good news for New Jersey.

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A smart DOJ would expressly exempt intrastate online gambling

The DOJ would be wise to leave well enough alone.

Not only is the new opinion on shaky legal footing, but with numerous online gaming states (casino, poker, sports betting, and lottery), the pressure on congressional delegations would likely be overwhelming.

That provides states with a contingency plan of congressional action, in the unlikely event they lose in the courts.

As such, the DOJ’s best course of action is to enforce blatant interstate online gambling and ignore any incidental routing of data and transmissions that take place in legal intrastate jurisdictions.

If the DOJ isn’t smart, expect NJ to fight

Even if the DOJ takes a lax enforcement approach to the new opinion, this issue is likely headed to the courts.

And if the DOJ really wants to fight, New Jersey is ready to fight.

Former New Jersey State Sen. Raymond Lesniak said as much in an interview with Online Poker Report:

“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.”

How messy the legal fight will be will likely depend on how stringently the DOJ tries to enforce its new, somewhat ambiguous policy.

And then there’s the worst case scenario

If the DOJ takes a hardline approach and somehow manages to shut down online gambling in the US, it would be catastrophic for New Jersey.

“The new Justice Department opinion threatens the significant boost enjoyed by New Jersey casinos, and the jobs and state revenues from online gaming and it could also have a negative impact on sports betting at our casinos and racetracks,” New Jersey Senate President Steve Sweeney said in a statement.

“We don’t want to lose the hard-fought gains that are helping to revive Atlantic City and the state’s gaming industry.”

NJ online casinos generated nearly $300 million in revenue in 2018. Losing that revenue would be a blow to the state (the state taxes gaming revenue at 17.5 percent) but even more so to the Atlantic City casino industry.

One AC casino, Golden Nugget, heavily relies on NJ online gambling. With more than 40 percent of Golden Nugget’s revenues generated through its online gambling websites, the loss of online gambling could very well lead to the property closing its doors.

And Golden Nugget probably wouldn’t be the only causality. As PlayNJ laid out in a previous column, it’s unlikely the new Ocean Resort Casino and Hard Rock Atlantic City casino would have opened without online gambling.

If the new DOJ opinion is followed to the letter, Atlantic City would lose thousands of jobs and hundreds of millions of dollars of revenue.

It’s unfathomable to think the DOJ would sit by and watch that happen simply to appease the whims of a political mega-donor.

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Steve Ruddock

Steve covers nearly every angle of online poker in his job as a full-time freelance poker writer. His primary focus is the developing legal and legislative picture for regulated US online poker and gambling.

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