On January 14, 2019, the U.S. Department of Justice published a legal opinion that may restrict online gambling. The opinion, dated November 2, 2018, (although only now published) reconsidered the DOJ's 2011 opinion that declared the Wire Act (18 U.S.C. § 1084) only applied to sports gambling. After the release of the 2011 opinion, several states, including New Jersey, Delaware and Pennsylvania, launched or moved forward with intrastate online lottery, casino gaming and poker. The new opinion, however, somewhat clouds the landscape regarding these operations. Online gaming businesses would be well advised to quickly determine whether their operations comply with the DOJ's new reading.
The reconsideration stems from one phrase in the Wire Act: "on any sporting event or contest." In 2011, the DOJ opined that the Wire Act was ambiguous and "that the more logical result" was that the phrase "on any sporting event or contest" applied to the entirety of the Wire Act, thereby prohibiting only the transmission of "bets or wagers" or "information assisting in the placing of bets or wagers" across state lines, if the bet or wager were on a sporting event. This logic follows in part from the Act's legislative history, which reveals that Congress' overriding goal in passing the Wire Act was to stop the use of wire communications by organized crime for illegal sports gambling. In 2018, the Supreme Court of the United States, in Murphy v. Nat'l Collegiate Athletic Ass'n—a decision that paved the way for states to authorize sports betting, in dicta—noted Congress' original intent in characterizing a general federal approach to gambling: Operating a gambling business violates federal law only if that conduct is illegal under state or local law.
A number of states, relying at least in part on the logic of the 2011 opinion, authorized a range of nonsports-related internet gambling to take place within their respective borders. Nevada, New Jersey and Delaware have launched intrastate online gambling. Each of these states also entered into a multistate internet gaming agreement that permits players physically present in each respective state to be pooled into interstate poker games. Pennsylvania currently is in the process of implementing its recently expanded gambling law that similarly permits intrastate nonsports-related internet gambling. Additionally, six states offer internet-based lottery sales.
Several states throughout the country have adopted, or are in the process of adopting, legislation authorizing intrastate internet sports betting. This legislation was enacted despite the existence of the Wire Act. States have likely relied on the fact that the breadth of the Wire Act does not extend to intrastate activity made expressly legal by state law. The growth of the sports betting industry is already rapid, as is evidenced by New Jersey's successful sports betting launch.
The DOJ's 2018 opinion, while clear in its language and conclusion as to the applicability of the Wire Act to nonsports-related internet gambling, also concludes that while the Wire Act's prohibition on transmitting "information assisting in the placing of bets or wagers" applies only to a sporting event or contest, the prohibition on transmitting "bets or wagers" across state lines applies to all bets or wagers—not just those on a sporting event or contest. In other words, the DOJ now takes the position that the transmission of any bet or wager—even one permitted by state law—across state lines, violates the Wire Act. The opinion also states the DOJ's belief that the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 did not modify the terms of the Wire Act, even though UIGEA presents a more flexible approach to "intermediate routing"—data that passes across state lines even though the data originates and ends in a state where the bet or wager is legal.
The 2018 opinion creates more questions than answers and leaves the future of internet gaming—whether sports-related or not—in a state of uncertainty. What is certain is that states and private companies have invested years and significant funds into developing legal, regulated and promising internet gaming markets, and such states and companies will not surrender without a fight. Over time, we anticipate litigation and a push for federal legislation to definitively clarify the Wire Act. In the immediate term, we anticipate states and private companies to continue to operate internet-based sports betting and other forms of casino gaming on an intrastate basis—after first carefully analyzing their operations to ensure that they comply with this new interpretation.
Duane Morris will continue to monitor the situation and provide additional guidance as it becomes available.
For More Information
If you have any questions about this Alert, please contact Frank A. DiGiacomo, Robert L. Ruben, any of the attorneys in our Gaming Industry Group or the attorney in the firm with whom you are in regular contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
