Since it has nothing else on its plate, the federal government has apparently decided it’s going to put gambling at the top of its priority list in the waning days of the 2018 legislative session.
Wednesday saw the federal government make not one, but two bold, and potentially extremely consequential moves regarding gambling in the US:
- The introduction of a proposed federal sports betting bill sponsored by Sen. Orrin Hatch (R) and Sen. Chuck Schumer (D).
- The existence of a new Department of Justice opinion draft regarding the scope of the Wire Act in regards to online gambling.
Both have far-reaching implications for the entire gambling industry, and particularly New Jersey.
New Jersey is one of the only states that would be affected by both measures, but the consequences of a reinterpreted Wire Act are far more consequential for the Garden State.
The many, many opinions on the Wire Act
First reported by Online Poker Report, the DOJ has a new Office of Legal Counsel opinion on the Wire Act and online gambling ready to go.
If the new OLC opinion is released (that’s far from a certainty), it would mark the DOJ’s third attempt to apply the 1961 Wire Act to the world of online gambling since 2002.
If nothing else, this demonstrates the difficulty of applying antiquated laws in a modern world.
What we do know from OPR’s reporting is the new opinion would roll back in whole or in part the 2011 OLC opinion that limited the scope of the Wire Act to just sports betting.
Michelle Minton, the author of the definitive paper on the Wire Act, and senior fellow in consumer policy studies at CEI (Competitive Enterprise Institute), called the idea of putting gambling laws in the hands of the DOJ “bad for everyone.”
However, she also noted that there might be a bright side as it’s “so obviously and universally horrible that it will unite lawmakers on both sides of the aisle in opposition.”
“Putting the power to approve state level gambling laws in the hands of the DOJ — essentially the President — would be bad for everyone apart from those interests the President already favors.
“Prohibiting online betting by executive fiat and against the original intent of the Wire Act is an affront to the idea of federalism. More importantly, if these developments are allowed to take place it would jeopardize all the progress states with legal online betting have made at chipping away at illegal online betting market.”
US Rep. Dina Titus of Nevada rightly considers the implications such a change in the Wire Act would have on the illegal market:
“If the DOJ moves forward with this decision, it would push more online gaming into the illegal market, put players at risk, and eliminate jobs. There is no reason to reverse the existing opinion; doing so would create uncertainty in this successfully regulated industry.”
Implications for NJ online gambling
How the new opinion would impact existing and future online gambling states is hard to say until it’s released.
At this point in time, it’s unclear if the new opinion has teeth or if it’s a case of being more bark than bite.
There are four states with legal online gambling: New Jersey, Nevada, Delaware, and soon, Pennsylvania. PA online casinos are expected to launch in 2019 and Nevada has had online wagering since 2012. Three of those states pool online poker players as part of an interstate agreement.
After that, there are 11 states with online lotteries and eight states that have legalized sports betting in some form with another bunch planning to do the same.
As Minton suggests, any attempt at a full rollback effort would be extremely messy. Those states are not going to go quietly into the night if the DOJ tries to pull millions of dollars spent on infrastructure and millions of dollars in future revenue out from under them.
A messy fight is something the DOJ would like to avoid. If for no other reason than it’s likely to lose in court, as it did in Mastercard International Inc. (2002) and in U.S. v. Lyons (2014).
Perhaps there’s little to fear for NJ online casinos
In addition to the court cases, legal experts also think New Jersey and other online gambling states have little to worry about.
According to a letter to the Pennsylvania legislature concerning a reversal of the 2011 OLC opinion by Thomas Decker, vice chairman of Cozen O’Connor, such a move would not change the legality of regulated intrastate online gambling:
“If the 2011 OLC Opinion were abrogated, such an action would not alter the existing legal framework. The text, legislative history, and federal appellate precedent interpreting the scope of this Act, which serve as the fundamental sources underpinning this prevailing interpretation, would remain…”
So, the 2011 OLC opinion is seen as having paved the way for states like New Jersey to legalize and regulate online gambling.
But it was more of a confirmation from the DOJ to the two states, Illinois and New York, that asked for DOJ guidance regarding online lottery sales.
Online poker could take a hit
One real area of concern would be interstate online poker.
Depending on the language of the new DOJ opinion, the interstate agreement forged between New Jersey, Nevada, and Delaware could be in jeopardy.
That would be the biggest proximate threat, yes, but even that might be ok, depending on wording in the opinion
— Dustin Gouker (@DustinGouker) December 19, 2018
Reason being (without going to deep into the weeds), the Wire Act covers interstate communications while subsequent federal gambling laws such as the UIGEA provide a safe harbor for legal, intrastate online gambling.
Payment processing could also take a hit
Eilers & Krejcik’s Chris Krafcik raised another point of concern. A reversal could spook some of the vendors that facilitate online gambling, including payment processors.
Couple of thoughts re: potential OLC reversal: It could spook card-issuing banks into declining legal online gambling transactions. Card-based transactions currently account for about 15% of NJ online casino / sports mix, per our tracking, so neg. impact likely at GGR level.
— Chris Krafcik (@CKrafcik) December 19, 2018
As it is, payment processing is a huge challenge for online gambling in the US. A lot of bank-issued credit/debit cards decline transactions at NJ online casinos and online sportsbooks, which is why many users turn to e-wallet services such as PayPal.
But still, depositing money into an online gambling account often results in frustration for users.
For now, NJ online gambling rolls forward into its sixth year of existence. What happens with the Wire Act and these new developments remains to be seen.