DOJ’s reversal on the Wire Act — what it means for internet gaming

Greenberg Traurig LLP J. Daniel WalshUSA December 29 2011

U.S. Commercial Gaming. It means that states can now pass laws authorizing the licensure of intrastate Internet gambling. Pursuant to Nevada statutes, on December 23, 2011, Nevada’s Gaming Commission adopted regulations to license online poker websites for intrastate play, and will be positioned to regulate interstate play should federal law authorize the same. In addition, Internet gaming or poker bills are pending in at least four other states: New Jersey, California, Florida and Iowa. It also may be that states could compact with each other to allow interstate provision of such games based on a revenue-sharing formula, similar to the multi-state lottery offerings like Powerball.

State Lotteries. States can now sell lottery tickets on the Internet, and several states, including New York and Illinois, have laws in place that allow this. While there is little controversy surrounding the sale of time-drawing tickets on the Internet, sales of virtual instant scratch-off tickets are likely to be far more controversial, as such a ticket makes a computer function in a manner identical to a slot machine. The National Association of Convenience Stores and its state chapters are likely to be vehemently opposed to scratch-off tickets on the Internet. Companies that provide services to state lotteries are likely to push states toward expanding their lottery offerings on the Internet. There will likely be state-by-state battles between commercial and lottery gaming interests as to whether states should license commercial operators to go on the Internet, or provide the games themselves through their lotteries — such fights are occurring in Canada and Europe today.

Tribal Gaming. The implications for tribal gaming are less clear. Under the Indian Gaming Regulatory Act (IGRA, 25 U.S.C. § 2701 et seq), if a state provides or licenses gaming, the tribe is supposed to be allowed to provide similar games on its reservation land.4 Tribal governments will likely argue that if a state lottery offers Internet gaming within a state, or if the state licenses commercial operators to accept Internet wagers, then a tribal government located within that state should be able to license its gaming enterprise to accept Internet play from anywhere in that state. However, some states will likely argue that tribes should only be allowed to accept Internet play from the reservation, as wagers from off the reservation are not “Indian gaming” as defined by IGRA.

Offshore Internet gaming operators. Some will hail this as a victory for offshore Internet gaming operators who have accepted non-sports Internet bets from the U.S. To be sure, such operators relied on legal opinions that maintained that the Wire Act only applied to sports betting, and the DOJ action validates those opinions. However, DOJ maintains that nearly all states have laws that prohibit the acceptance of wagers, except when such wagers are accepted pursuant to a state license, and that those prohibitions also apply to individuals outside the state who accept wagers from individuals within the state. The so-called “Black Friday” indictments of April 15, 2011, of individuals associated with the three largest U.S.-facing Internet poker sites did not reference the Wire Act, but instead relied on IGBA.

 Federal Legislation. Several bills have been introduced in Congress to license and regulate Internet gaming. In the current Congress, H.R. 1174 (Campbell-Frank) would have the Treasury Department license and regulate all forms of Internet gaming except sports betting. H.R. 2266 (Barton) would have the Commerce Department approve state gaming commissions to issue licenses to accept Internet poker bets, such that any operator licensed by an approved state could take play from any state that hadn’t opted out of the federal system.5 Some (particularly lottery interests) argue that new DOJ position means no federal legislation is needed. Others (mainly Nevada commercial gaming interests) argue that it means federal legislation is needed now more than ever. We believe the new DOJ position will provide impetus for hearings on Capitol Hill, and for a renewed push from Senate Majority Leader Harry Reid of Nevada to pass federal legislation to license and regulate Internet poker on an interstate basis.

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