THE DOJ IS IGNORING ALL GOOD WIRE ACT ADVICE AND GOING AFTER THE WRONG TARGET
The Department of Justice announced its intention to continue to waste everyone’s time and ensure the emerging US online gambling industry has to keep looking over its shoulder.
Now, the First Circuit Court of Appeals will have to hear the case of whether the 1961 Wire Act, around long before Al Gore invented the internet, applies only to sports betting.
Plus, it’s beginning to look like the New Hampshire judge behind the decision was right. This case ultimately won’t be decided until the US Supreme Court gets a kick at the can.
ORIGINS OF THE WIRE ACT ISSUE
The entire issue stems from the origins of legal and regulated online gambling in this country.
In 2011, a number of states looking to start online lottery sales asked the DOJ for clarification on the law. At the time, the DOJ issued the opinion that the Wire Act only applies to sports betting. States including New Jersey, Delaware, and Nevada took this decision and ran with it. They figured it gave them the green light to legalize various other forms of online gambling as well.
Las Vegas Sands Corporation CEO and anti-online gambling zealot Sheldon Adelson was among the few that cried foul. But Adelson never admitted his true fear was online gambling would eat away at his brick and mortar casino business. Instead, he claimed to oppose online gambling on moral grounds.
Adelson’s attempts to save the children and the mentally challenged and intoxicated from the evils of casino games on the internet saw him pour untold millions into the campaigns of politicians he hoped would ultimately back a plan to reinterpret the Wire Act.
The plan never seemed to get much traction. But suddenly, in 2018, the DOJ issued a new opinion on the Wire Act. The opinion reversed the DOJ’s 2011 stance. Plus, despite DOJ denials, it seemed to come straight from a memo sent to the DOJ by an Adelson-backed lobbyist a year earlier.
The new opinion was that the Wire Act applies to all forms of online gambling. At least those that cross state lines. And it sent the otherwise legal and above-board online gambling industry scrambling.
LEGAL ONLINE GAMBLING SUDDENLY IN THE DOJ’S CROSSHAIRS
Online gambling operators and the geolocation technology they employ do a great job of blocking players located out-of-state. However, most operators also pass a certain amount of relatively innocuous data back and forth between servers across state lines. It seems a little nit-picky, but that activity would seem to run afoul of the DOJ’s latest Wire Act interpretation.
Therefore, operators were forced to start looking for a new way to do businessin an effort to meet a DOJ set June 14, 2019 compliance deadline.
The DOJ turned down the heat a little moving that compliance deadline to 2020. Then as opposition to the opinion mounted across the country, the June Federal District Court decision gave the DOJ the opportunity to leave this whole mess behind it.
The appeal the DOJ filed on Aug. 16 sounds like the standard procedure for its legal team. However, it’s also a clear sign the DOJ has decided not to abandon the fight here–no matter how much of a losing battle it seems to be.
Pennsylvania just launched its first online casino sites. But it appears the growth of the US online gambling industry will be stunted for now. Instead of continuing to provide much-needed tax revenue in the states where it operates, and expanding into others, the online gambling industry will now be forced to spend the next few years with one eye on how the courts are handling this Wire Act issue.
THE DEPARTMENT OF JUSTICE COULD HAVE WALKED AWAY
The DOJ could have walked away. Instead, as online gambling lobbying group iDEA Growth founder Jeff Ifrah said in the wake of last week’s filing, it went ahead with an unwarranted appeal simply as a matter of course.
It’s not clear if the DOJ was listening, but Ifrah also had a solid suggestion for it:
"We hope that, rather than engaging in a protracted, expensive and ultimately unsuccessful legal fight, the Department will take this opportunity to negotiate a settlement which will focus the Wire Act and DOJ’s enforcement resources on the right targets – the unlicensed illegal offshore Internet gambling operators who do not create jobs or tax revenue in the US and do not appropriately protect consumers.”
GOING AFTER THE WRONG TARGET
Instead, it appears the DOJ’s Office of Legal Counsel is hell-bent on ignoring any good advice offered. It’s much more interested in moving forward with this legal fight and vilifying the legal side of this industry instead of the illegal one. Online gambling is the budding industry behind one of the only new and successful state tax revenue streams created in decades. It’s not the criminal element the DOJ should really be spending its time, money, and effort to go after.
DON’T LOOK NOW, BUT ONLINE GAMING IS SPREADING ACROSS THE USA
It’s been over six years since the Department of Justice Office of Legal Counsel issued an opinion that opened the door for states to legalize certain forms of online gaming.
In response to inquiries by New York and Illinois, the OLC determined (as have the courts) that states could offer online lotteries, and by extension online casino and poker games, within their borders.
To date, nine states have done just that:
- Delaware (online casino and poker)
- Georgia (online lottery)
- Illinois (online lottery)
- Kentucky (online lottery)
- Michigan (online lottery)
- Nevada (online poker)
- New Hampshire (online lottery)
- New Jersey (online casino and poker)
- Pennsylvania (online casino, poker, and lottery)
The pace of action may seem slow. It’s not as frustratingly slow as it first appears though.
In addition to the nine states listed above, another 19 states have passed legislation legalizing and regulating daily fantasy sports. DFS is a product that might not be classified as “gambling” in most states. Nonetheless, it does have all the mechanics of online gaming and occurs almost exclusively online.
There is also online gaming and lottery legislation active in a number of states, with more legislation expected as we move deeper into 2018.
Six states with pending online gaming or online lottery legislation:
- Connecticut (online lottery and possibly online gaming)
- Illinois (online gaming bill carried over from 2017)
- Louisiana (online gaming)
- Michigan (online gaming bill carried over from 2017)
- New York (online poker bill carried over from 2017)
- West Virginia (online gaming)
Legislation is already in the pipeline in several other states as well.
Massachusetts, a state that already has a vague bill referencing online gaming, and New Hampshire are solid candidates to introduce online gaming legislation this year.
Massachusetts is even more likely to take another crack at an online lottery. The state was one of the leading candidates to pass an online lottery bill last year but failed to see it across the finish line.
This year it has even more reasons to add online lottery products to its offerings. Now, one of its northern neighbors, New Hampshire, passed a bill last year. Elsewhere, one of its southern neighbors, Connecticut, has active legislation.
And speaking of Connecticut, the Constitution State isn’t just exploring online lottery and sports betting, it also appears to be taking the first steps towards online gaming legislation.
You also have a full list of potential online gambling candidates for the year.
WE’VE COME A LONG WAY IN FIVE YEARS
It’s been over five years since the first online gaming bills were passed, and over four years since Nevada, Delaware, and New Jersey launched their online gaming industries. It’s safe to say the conversation has undergone a paradigm shift.
Online gaming is no longer an ethereal product that opponents can blindly claim will wreak havoc on the land-based gaming industry while simultaneously bringing about untold consequences on society writ large.
There’s simply no evidence of this. Rather than being a disruptive force to the social fabric and existing forms of gaming, the legalization of online gaming has been virtually incident-free. Moreover, it exists in absolute harmony with land-based gaming options.
Essentially, online gaming’s five-year track record has put to rest many of the unfounded criticisms that have been lobbied against the industry. It’s been normalized, and that’s led to more and more states are dipping their toes into the water.
Other than a few outliers who continue to cling to the “casino in every pocket,” and “think about the children,” talking points, the conversation has moved from lawmakers asking, “should we do this?” to, “how should we do this?”
Lawmakers are now focused on:
- Eradicating the existing black market
- Supporting and modernizing existing gaming operators and state lotteries
- Providing robust regulations and consumer protections
- Creating a new stream of revenue for the state
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