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A New Cloud Over Internet Gaming

Robert J. McLaughlin
Gaming Alert
January 22, 2019

The Department of Justice’s (“DOJ”) Office of Legal Counsel issued an opinion on January 14, 2019 (“Opinion”) stating that the Federal Wire Act applies to all forms of internet gaming. By maintaining that the Wire Act prohibits all interstate wagering activity, the Opinion contradicts DOJ’s previously stated 2011 position. While the 2011 DOJ opinion let sunlight shine on internet gaming, including lotteries, fantasy sports, and online casinos and poker, the Opinion reinstates a “cloud” on internet gaming and its future in the US.

Background

In 2011, DOJ was asked by the Illinois and New York state lotteries whether selling lottery tickets online could trigger federal prosecutions under “The Wire Act” (18 USC §1084). DOJ obtained an opinion from the Office of Legal Counsel (“OLC”) which stated that the Wire Act’s prohibitions were limited to sports betting. (“. . . the Wire Act does not reach interstate transmission of wire communications that do not relate to a “sporting event or contest,” . . .”) Many state lotteries began operating online lottery ticket sales in reliance on the 2011 opinion and states licensed fantasy sports within their jurisdictions between 2013 and 2015. In addition, several states began operating internet gaming sites, including online poker, with at least three states creating a “compact” to create a larger pool of players. Although these initiatives have had varying degrees of success, states have spent millions in setting up these new programs and have relied on the revenue – and revenue projections into the future – in their budget plans.

The 2019 Opinion

On January 14, 2019, DOJ posted a new OLC Opinion declaring that the Wire Act extends beyond a “sporting event or contest” and includes all online casino games and poker. In its analysis, the OLC identified four prohibitions of the Wire Act: knowingly using a wire communication facility to transmit bets or wagers; knowingly using a wire communication facility to transmit information assisting in the placing of bets or wagers on any sporting event or contest; knowingly using a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers; and knowingly using a wire communication for information assisting in the placing of bets or wagers. Only one of these prohibitions is limited to sporting events. The Opinion spends more than 10 pages justifying its changed position and discusses, in somewhat tortured logic, the modifying terms of the statute and why the interpretation under the Obama Administration was simply wrong. (“[T]he linguistic maneuvers that are necessary to conclude that the sports-gambling modifier sweeps both backwards and forwards to reach all four of [the Wire Act’s] prohibitions are too much for the statutory text to bear.”) While acknowledging that the legislative history of the Wire Act leads to the conclusion that Congress’s overriding goal was to stop sports gambling through the use of a wire transmission, the OLC noted Encino Motorcars, LLC v. Navarro, 138 S.Ct. 1134 (2018) for the proposition that statutes often go beyond the initial “evil” identified and it is “ultimately the provisions of our laws rather than the principal concerns of our legislators by which we are governed.” Id. at 1142, 1143.

Finally, the Opinion discusses the impact the 2006 Unlawful Internet Gambling Enforcement Act (“UIGEA”) had on the Wire Act. (UIGEA, among other things, seemed to legalize fantasy sports while limiting the use of payment processors for all forms of gambling.) The 2011 opinion specifically did not address this question. UIGEA (31 USC §5361, et. seq.) prohibits anyone involved in the business of bets or wagers from knowingly accepting various kinds of payments from another person who is engaged in “unlawful internet gaming.” See, 31 USC §5363. Unlawful internet gaming means “to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law . . .” Id. §5362(10)(A). The Opinion notes the exceptions to this definition included in UIGEA, including that it does not include a bet or wager where the bet or wager is initiated and received or otherwise made exclusively within a single State. Id. §5362(10)(B)(i). The OLC concludes the Opinion discussion with the statement that UIGEA “in no way” alters or limits existing prohibitions of the Wire Act.

Incredibly, the Opinion concludes that one reason DOJ needed to change its position was a need for “clarification” through litigation. In other words, the new Opinion invites appellate or Supreme Court review of their view of the Wire Act’s application and while the judicial review cannot be a substitute for the DOJ’s obligation to interpret and execute the laws of the US, DOJ notes that litigation provides a “one-way check of the correctness of today’s opinion, which weighs in favor of our change in position.” 

What Does This Mean For You?

We note that OLC opinions are not binding precedent and have no immediate or discernible effect upon federal prosecutorial priorities. Accordingly, the change in position of the office does not mean that U.S. Attorney Offices or the DOJ Criminal Division sections will suddenly seek out federal prosecutions of on-line gaming where some aspect of the betting touches jurisdictions where gambling is illegal under state law. We believe that this Opinion is merely a change in interpretation and it remains to be seen whether this will be a new enforcement policy for the DOJ. Deputy AG Rosenstein is supposed to provide further guidance over the course of the coming days/weeks.

With respect to lotteries and fantasy sports, online sales will likely continue to be governed under the exception provisions of UIGEA which focus on where the transaction occurs – not how it occurs. However, since states are traditionally risk adverse, it is possible that some of these operations may be suspended for a period of time as states review whether their operations are fully intrastate. Similarly, as states gear up for sports betting, sports book operators have always conducted business with the knowledge that the Wire Act directly touched on their operations and have planned accordingly. This landscape should therefore remain largely unchanged.

The Opinion will have the greatest impact on the online casino and poker businesses, as the Opinion requires these businesses to revert to the pre-2011 opinion days. State lawmakers and gaming operators will need to evaluate how to structure the online gaming environment to be fully intrastate.

Should there be a panic in the streets accompanied by the “wailing and grinding of teeth”? Probably not. The Opinion is merely an opinion; it does not have the force of a law and it requires DOJ to affirmatively act to enforce this new interpretation. While courts may look to this Opinion in their analysis, it is not binding on their interpretation. Clients should be mindful in their operations and monitor the challenges that will inevitably arise. Congress may make this moot by finally acting to update the Wire Act for the 21st Century.

We will continue to monitor developments in this.