An Internet Gambling Present from the US Dept. of Justice
The United States Department of Justice (“DoJ”) has given the online gaming community a big, big present, made public two days before Christmas. President Barack Obama’s administration has just declared that the major federal antigambling statute, the Wire Act, applies only to bets on sports events and races.
This is also a gift to the states, which are desperate to find ways to raise revenue without raising taxes. In fact, Nevada and the District of Columbia have already passed laws authorising most forms of Interne gambling. The two jurisdictions are now free to start their online games immediately. They can even enter into agreements to allow operators in Las Vegas to accept players from Washington, and vice versa.
The opinion requires that the gambling be legal under state laws. It will take some time for legislatures to react. But many of the state lotteries can set up online games quickly. They will start with Internet variations of the lotteries they already sell with paper tickets and in-store computer terminals. But some will follow the lead of government lotteries in Canada and elsewhere and set up online poker and casino games.
The political fights will be over who gets the licenses. In D.C., the operator is the Lottery. In Nevada, where there is no state lottery, the licenses will naturally go to the privately owned casinos.
But what happens in a state like California? The politicians will legalise Internet poker solely to raise revenue, not to protect the local operators. Giving the exclusive right to Internet games to the State
Lottery might bring in more money in the long run, but the state is desperate for cash, now. Only outside companies, like Caesars Entertainment, can come up with the $100 million or so the state will want, up front. But California has long-established and politically powerful card clubs and Indian casinos. They will not quietly accept an outsider setting up a competing operation that brings legal gambling into every home in the state.
Still, there is so much money at stake that political deals will be made. In states like Nevada and New Jersey, where the local operators are the big money, the landbased casino companies will get the Internet gambling licenses. In states like California, local operators will get a license or two, but others will also be sold to the highest bidders.
The great irony is that this coming explosion of legal Internet gambling in the US was created by a conservative Republican attempting to outlaw online gaming. When the GOP controlled Congress and George W. Bush was President, Bill Frist (R.-TN), then majority leader of the US Senate, rammed through the Unlawful Internet Gambling Enforcement Act, by attaching it to a must-pass anti-terrorist bill. Frist did such a terrible job of writing the UIGEA that he accidentally opened the door to many forms of online gaming, including fantasy sports, skill games, and intra-state gambling.
It was the last that led to the announcement by the DoJ. The UIGEA expressly allows states to authorize gambling when the bettor and operator are in that state. And it says to ignore the fact that communication wires might cross into another state. But the DoJ had always taken the position that the Wire Act outlawed all forms of gambling, and that this federal law applied so long as the gambling information crossed, even temporarily, into another state.
The state lotteries of Illinois and New York asked the DoJ whether they could take lottery bets online, even though some of the payment processing took place in other states. And after the District of Columbia announced it had authorised online poker and other games, the current majority leader of the Senate, Harry Reid (D.-NV), and the second most powerful Senate Republican, Jon Kyl (R.-AZ), sent a letter, demanding that the DoJ do something about Internet gambling. The DoJ decided the only way out of its legal mess was to reinterpret the Wire Act. If this statute applied only to sports bets, then it wouldn’t matter if phone lines happened to carry lottery or poker bets into and out of other states.
The conclusion by the DoJ that the Wire Act’s “prohibitions relate solely to sport-related gambling activities in interstate and foreign commerce,” eliminates one of the only federal anti-gambling laws that could apply to gaming that is legal under state laws. There simply are no other federal statutes that would make Internet poker and casino games illegal, even if the operators are in one state and the players in another, so long as the games are legal under the laws of those states.
In fact, there is now no reason for states to limit their online gambling to residents of the United States. The Wire Act and the anti-lottery laws are the only federal antigambling laws that can apply to legal games. Every other federal anti-gambling statute is designed to go after organised crime. These laws are all written as applying only to illegal gambling. Any state that wants to, can now authorise Internet gambling and allow operators to take bets from residents of that state and of other states and nations that have also legalised online gaming.
Questions remain. The Wire Act still applies to bets on horse races. In December 2000, Congress amended the Interstate Horseracing Act to expressly allow the states to decide for themselves whether their residents can make bets on horse races by phone and computer. More than half the states have passed laws allowing this remote betting, called Advanced Deposit Wagering, including across state lines. But the DoJ’s official position is still that the ADW operator and the bettor have to be in the same state. No one else, including the World Trade Organization, agrees with the DoJ. And payment processors have to figure out who is right.
Another federal statute, the Professional and Amateur Sports Protection Act, grandfathers-in Nevada, Delaware and a half-dozen other states, while prohibiting any other state from legalising sports betting. This is now being challenged in the courts, because New Jersey voters approved sports betting in November 2011.
What impact will all this have on proposed federal laws? Proponents are trying to spin the DoJ opinion. The Poker Players Alliance stated, “However, this ruling makes it even more important that Congress act now to clarify federal law, and to create a licensing and regulation regime for Internet poker, coupled with clear laws and strong enforcement against other forms of gambling deemed to be illegal.” But the reality is that Congressional advocates, like Barney Frank (D.-Mass.) and Joe Barton (R.-Tx.), have had some of the wind knocked out of their sails. Since states are now clearly free to legalise intra-state online poker, and perhaps even interstate, there is not much reason to even bother with a federal law. It might be a good idea to have one unified law. But the success of all the gambling now licensed or operated solely by states and tribes, shows consistency is not essential. Only the major operators, like Caesars Entertainment, need an overriding federal law, because they don’t want to be competing with politically connected local gaming companies for limited numbers of licenses in 50 states.
Opponents, like Jon Kyl (R.-AZ) and Frank Wolf (R.-VA), might get some leverage for their attempts to expand the Wire Act to cover all forms of gambling. But, as I have pointed out (to the ire of some who have given money to politicians and lobbyists), Congress has passed literally no substantive laws since the Republicans took over the House of Representatives in January 2011. There is as little chance of this Congress passing a new prohibition as there is of it passing a repeal of the UIGEA.
So, while Congress continues to do nothing, Internet gambling is about to explode across the nation, made legal under state laws.
In 1962, there were no legal state lotteries in the US. It took more than 40 years before almost all the states made lotteries legal.
Internet years are like “dog years.” Developments now happen so fast, that it won’t take four decades before Internet gambling is legal in almost every state.
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© 2012, I. Nelson Rose. Prof. Rose is recognised as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments, industry and players. His latest books, INTERNET GAMING
LAW (1st and 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.
