The regulatory framework for online gambling recently took a wild turn when the Department of Justice Office of Legal Counsel (“OLC”) announced its view that the Wire Act (18 U.S.C. § 1084) applies to all forms of gambling—not merely sports betting. This marked a 180-degree reversal from the stance the OLC took just seven years earlier. The OLC’s 2011 opinion—which itself departed from public positions the DOJ had previously taken—was the foundation upon which today’s state-regulated online gambling industry is built. Four states—Delaware, Nevada, New Jersey and Pennsylvania—currently allow online gambling, and Michigan came close to legalizing it at the end of last year, although outgoing Governor Snyder vetoed the bipartisan bill in a surprise move. With the OLC’s follow-on announcement that legal online gambling businesses have just 90 days to wind down their operations before Wire Act enforcement will begin under this newly expanded view, many are left wondering what will become of the industry.
Perhaps we will see a Cole memo-esque enforcement regime, where the feds will exercise discretion not to prosecute well-behaved online gambling businesses operated in accordance with robust state regulatory frameworks. After all, legal online gambling businesses and their service providers are already subject to extensive vetting, and in Delaware, online gambling is state-run. Regardless, we expect the DOJ to publish internal guidelines for how the feds should prosecute cases—this is a model that has been used in other areas, and would presumably outline the specific factors under which proposed enforcement would be reviewed and approved.
The OLC memo itself previews other likely outcomes, including legal challenges from the very industry that it seeks to dismantle. Indeed, OLC suggests that the likelihood of legal challenges and the added benefit of judicial interpretation of the Wire Act weighs in favor of reversing its 2011 stance. (Our legal eagle readers may also be interested to know that OLC’s reversal is particularly unusual given that the office prides itself on its independence and purportedly abides by the guiding principle that past OLC opinions should be given “great weight” and “should not [be] lightly depart[ed] from . . . particularly where they directly address and decide a point in question.”). In that respect, it’s worth noting that at least two federal circuits have reached the opposite conclusion and held that the Wire Act applies only to sports betting. Notably, one of these decisions dates back to 2001—well before the 2011 OLC opinion that birthed the legal online gambling industry. The OLC also suggests that Congress could step in to clear up the confusion over the proper scope of the Wire Act and to protect the reliance interests of the industry, although with reports of powerful gaming interests seemingly supportive of the OLC opinion, we think that an unlikely outcome.
The new OLC opinion is surprising on many levels, not least of which because it comes so closely on the heels of the Supreme Court’s May 2018 Murphy decision, which paved the way for legalized sports betting—but for the Wire Act. Indeed, after Murphy held that the 1992 Professional and Amateur Sports Protection Act (“PASPA”), which prohibited states from legalizing sports betting, was unconstitutional, several states passed laws authorizing regulated sports betting.
Even though states were free to legalize sports betting after the fall of PASPA, the Wire Act still stood as an obstacle to online sports betting. That’s because it prohibits both wire transmissions of “bets or wagers” and “information assisting in the placing of bets or wagers,” but exempts only the latter when the transmission is from one legal state to another legal state. Undeterred, states and sports betting operators alike seemed comfortable with that risk, possibly in reliance on the much newer Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”). The UIGEA looks to state law to define what constitutes “unlawful internet gambling” and expressly states that “intermediate routing of electronic data shall not determine the location or locations in which a bet or wager is initiated, received, or otherwise made.” In other words, if the bet or wager is legal in the state(s) where it is placed and received, then it does not violate the UIGEA, even if the information transits an unlawful state on its way through cyberspace.
Any states and operators thinking that the 2006-enacted UIGEA (where the “IG” stands for internet gambling) surely would trump the Wire Act—enacted long before the internet in 1961—were disabused of that notion last week when the OLC went out of its way to conclude “that the 2006 enactment of UIGEA did not alter the scope of the Wire Act.”
This is a surprising turn of events, and we think there will be more to come as states and the industry grapple with the implications of the announcement. Stay tuned for more.