Having published an opinion that the Wire Act applies to all forms of gambling, the Department of Justice now says the opinion may not apply to lotteries.
In 2009, the states of New York and Illinois approached the Department of Justice (DOJ) to see if it was okay to sell lottery tickets over the Internet using out-of-state payment processors, or if their plans to take the lottery online violated the 1961 Wire Act. The DOJ´s Office of Legal Counsel subsequently published an opinion in 2011 stating that
interstate transmissions of wire communications that do not relate to a ‘sporting event or contest’ fall outside the reach of the Wire Act.
The DOJ´s opinion resulted in the launch of multiple intrastate and interstate gambling operations – not just online lotteries; but also Daily Fantasy Sports, online casinos and online poker. There were no concerns about using out-of-state processors, or about the Internet routing across state lines, because transactions did not relate to sporting events or contests; and the states that regulated these activities benefitted substantially from the tax revenues they generated.
DOJ Revises its Wire Act Opinion
Back in January this year, the DOJ´s Office of Legal Counsel published a revised opinion that the 1961 Wire Act applies to all forms of gambling and not just sports betting. Operators affected by the revised opinion were given until 15th April 2019 to comply with the new interpretation – a deadline later extended until 14th June 2019. Naturally the new interpretation caused uproar due to the billions of dollars regulated states would lose if the revised opinion was enforced.
The District of New Hampshire almost immediately filed a lawsuit against the DOJ to protect its state lottery. Other states quickly joined the legal action as co-plaintiffs. However, the DOJ filed a motion to dismiss – claiming that the revised opinion did not infringe states´ tenth amendment rights as alleged and, as no enforcement action had been taken, there was no case to answer. Notably, the DOJ argued that, if New Hampshire won its case, the court should not issue nationwide relief to all states.
Now Wire Act May Not Apply to Lotteries
Oral hearings in the case between New Hampshire and the DOJ were due to start tomorrow. However the DOJ has now filed a memo stating that, when it published its revised opinion in January, the Office of Legal Counsel had not considered whether or not the opinion applied to lotteries. The memo says the Department is reviewing the application of the Wire Act, and that DOJ employees have been told not to take enforcement action against state lotteries when the compliance deadline expires in June.
Clearly this is a desperate last-minute attempt by the DOJ to get the case dismissed. If the court interprets the memo as saying lotteries won´t be affected by the reinterpretation of the Wire Act – despite the revised opinion going to great lengths to explain why online and interstate lotteries violate the Wire Act – the DOJ would have no case to answer. That would leave just Daily Fantasy Sports, online casinos and online poker operators in the firing line.
What´s the Next Reinterpretation Going to Be?
The latest memo does not guarantee lotteries will be given a Wire Act carve out, but it seems the most likely conclusion. There will also likely be a carve out for Daily Fantasy Sports because this gambling activity is not opposed by anti-online gambling campaigner Sheldon Adelson – the real motivation for the revised opinion of the Wire Act. There may be other reinterpretations further down the line as states that have regulated online casinos and online poker file their own lawsuits against the DOJ.
This is where it becomes interesting, because the five states that has already passed laws regulating online poker and casinos could also be given an exemption from Wire Act enforcement action. This is what I feel the DOJ was planning as a fallback position when it argued the court in the New Hampshire case should not issue nationwide relief to all states. What surprises me is that more states have not yet picked up on this and rushed through legislation to regulate online casinos and online poker.
Plenty of Life Left in this Saga
We´ll probably know within a few days whether New Hampshire´s case will be dismissed or whether the court will seek more concrete assurances no enforcement action will be taken against state lotteries. However, that won´t be the end of the story. Four of the five states that have passed legislation to regulate online casinos and online poker were co-plaintiffs in the New Hampshire case (Nevada being the exception). It is likely they will quickly file a separate lawsuit if the current case is dismissed, leading to months of more litigation and – I strongly suspect – more reinterpretations of the Wire Act.