2019-08-24 | Howard & Howard, Law for Business
The recent proliferation of internet betting and sports wagering in the United States has been hampered by the Department of Justice’s position on the Wire Act, which limits the passage of wagering information across state lines. Technology companies and platform developers are bringing their products to emerging US markets on a state-by-state, casino-by-casino basis as this issue slowly winds its way through federal court.
The Wire Act prohibits persons involved in a gambling business from transmitting several types of wagering-related communications:
Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.
Legal US Online Gambling picks up Speed
In 2011, the DOJ took the position that the prohibitions contained in the Wire Act applied only to sports betting. This led to the introduction of internet gaming in Nevada and New Jersey in 2012. Other states have slowly followed suit. Many U.S. jurisdictions currently have some form of legal online gambling (poker, casino gaming, sports betting and lottery). Generally speaking, if a wager is consistent with applicable law in the place from which it originated and is also consistent with applicable law in the place it is received than the wager does not violate federal law. However, transactional data can sometimes route across state lines even if the actual gaming takes place on an intrastate basis.
In an opinion publicly released on January 14, 2019, the DOJ reversed its 2011 opinion, concluding that only one of four parts of the Wire Act apply to sports betting, while the other three apply to any form of wagering. Specifically, the DOJ’s 2019 opinion stated that the Wire Act actually created four prohibited transactions in total – (1) any interstate transmission of bets or wagers; (2) interstate transmission of information assisting in the placing of bets or wagers on any sporting event or contest; (3) any interstate transmission of information that entitles the recipient to receive money or credit as a result of bets or wagers; and (4) any interstate transmission of information that entitles the recipient to receive money or credit as a result of information assisting in the placing of bets or wagers.
Transactional Data across State Lines are Prohibited
It is unclear whether the routing of transactional data across state lines is prohibited under the DOJ’s latest interpretation of the Wire Act when the actual gaming is taking place on an intrastate basis. The U.S. Deputy Attorney General issued a memorandum on January 15, 2019, stating that the 2019 DOJ opinion will not take effect for 90 days, giving the DOJ time to develop prosecutorial guidelines. It is likely that these prosecutorial guidelines would have addressed the interstate routing of intrastate gaming data.
Before the new prosecutorial guidelines went into effect, the New Hampshire Lottery filed suit against the Attorney General of the United States challenging the DOJ’s 2019 opinion. The NH Lottery argued that the effect of the 2019 Opinion was to extend criminal liability under the Wire Act far beyond betting or wagering on sporting events or contests to include virtually any conceivable form of gambling, which would encompass state-conducted lotteries. The federal court agreed, granting summary judgment in favor of the NH Lottery, setting aside the DOJ’s 2019 opinion and finding that the Wire Act applies only to transmissions related to bets or wagers on a sporting event or contest. On August 16, 2019, the DOJ filed a notice of appeal of the decision. The DOJ must formally petition the First Circuit Court of Appeals to hear its appeal. After that, the First Circuit will determine what will happen next in the case. The court is not in session for oral arguments again until October.
Most analysts believe that the DOJ’s 2019 opinion is not supported by precedent and is likely to be set aside by the First Circuit. In the interim, the industry will continue to focus on mobile, sports and other forms of intrastate gaming while readying itself for a binding interpretation of the Wire Act that will allow for gaming that crosses state lines.