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Revising the Wire Act – part 1

Insight | Analysis

Earlier this month the Department of Justice (DoJ) threw the future of igaming in the US into doubt by announcing that the 1961 Wire Act applies to all forms of gambling. This opinion, issued by the Office of Legal Counsel (OLC) and updating a 2011 ruling that stated the legislation only applied to sports betting, has withdrawn the legal certainty that has prompted a number of states to regulate online gaming.

But how exactly it will impact regulated igaming and wagering is hard to discern. The Wire Act, which prohibits the use of wire communication technology for facilitating wagering across state or national borders, was believed to apply to sports betting, states were able to push for (and win) the right to regulate the vertical.

Furthermore, the Wire Act only prohibits wagering across state lines. While that may indeed put 888’s All-American Poker Network, which links players in Delaware, Nevada and New Jersey, at risk, igaming and sports betting are regulated on an intrastate, rather than interstate, basis.

Gaming and sports betting attorney Daniel Wallach argues there is not likely to be any discernible impact on sports betting, online gaming or poker.

Even daily fantasy sports (DFS), which some have suggested may bear the brunt of the ruling, are unlikely to be hit, Wallach adds.

“[Daily fantasy sports] should not be impacted since courts have held that DFS entry fees are not ‘bets’ or ‘wagers’,” he says. “And only ‘bets’ or ‘wagers’ are actionable under the Wire Act.”

New Jersey congressman Bill Pascrell agrees, but warns that established verticals such as lottery may bear the brunt of the impact: “This DOJ memo and subsequent clarification letter will ultimately have limited impact on licensed operators in states that have legalized online gaming and sports betting although pooled interstate lotteries and interstate poker compacts will be tested,” he says.

Therefore multi-state lottery jackpots, wildly successful in driving sales for state lotteries, are most likely to be hit. Rather than stem the tide of igaming regulation, the new opinion may instead hit efforts to raise funds for state education and infrastructure.

“You may see these activities [in these verticals] curtailed for now, or more likely, the stakeholders in that space will seek to challenge the DoJ opinion in federal court since prior cases have held that the Wire Act applies only to sports betting,” Wallach adds.

This is echoed by Maryland Lottery and Gaming Control Agency director Gordon Medenica. He describes the ruling as a “significant step backwards”.

Others argue that whether or not the fine print actually transpires to work in the betting and gaming industry’s favour, the uncertainty the ruling will create could be damaging.

“It certainly doesn’t help sports betting’s cause across the States and will no doubt serve to create further uncertainty,” KMigaming chief executive Keith McDonnell says. “[At] this point it’s an opinion and how the courts interpret that will be interesting to see.

“But as we know with Brexit, and other non-sector-related hot topics, uncertainty is the main barrier to positive progress and in that regard this development can’t be good,” he adds. “Investors will get nervous, deals will slow down and the real ones to benefit will be those doing business from hammocks on sandy beaches.”

Catena Media’s Michael Daly says simply that the ultimate result of the revised ruling will be more angst for the industry. While it does not seem to affect igaming and sports betting, he says, it could still be exploited by opponents of each sector.

“The opinion is just that, an opinion; it is how it is to be interpreted and acted upon that remains the great unknown,” he explains. "It opens up a number of doors that could be pursued depending on what forces wish to do to disrupt some very profitable businesses for the states.

“That includes not just online sports, casino, DFS but lottery, online and land based, as well as Wide Area Progressives which are high earning products in all American land-based casinos,” Daily continues. “Until some of this enforcement, or premeditative legal actions come, it will just leave a state of uncertainty, a state which is poor for all business. That will last through a long, multi-tier legal fight which will be months if not years in resolving.”

This makes the need for some sort of certainty vital.

Art Manteris, vice president of race and sports operations for Station Casinos’ Red Rock Resorts, says it is “vitally important” for casino operators to be advised by the DoJ on what the ruling will actually mean for them.

GLMS' Ludovico Calvi says a follow-up memo from the DoJ on how licensed operators should conduct their businesses would be welcome.

Calvi says that in the coming months, the key focus must be on the systems used by licensees in states to facilitate online betting and gaming. He says that the Wire Act opinion could be used to argue that any unintentional routing of digital gaming data across state borders could constitute a breach.

“The argument here is that digital gaming transactions infringes the Wire Act simply because it is difficult to guarantee the routing of internet traffic within a given state,” he explains.

“In the next weeks, the debate will definitely focus on the question of internet traffic monitoring and control within state borders and how to guarantee that transactions do not route out-of-state along the way because of network switching.”

In the second part of iGB’s investigation into the Wire Act ruling, we will discuss how operators and suppliers are preparing to cope with the regulatory uncertainty, and the need for further clarity from the DoJ.