In a win for the online gaming industry, the U.S. District Court for the District of Rhode Island entered an order in International Game Technology PLC v. Garland [1] on Sept. 15 siding with the groundbreaking and influential U.S. Court of Appeals for the First Circuit's interpretation of the Wire Act [2] last year in New Hampshire Lottery Commission v. Rosen.[3]

These decisions — confirming that the Wire Act applies only to sports betting and not online lotteries or online gaming — solidify years of uncertainty surrounding the Wire Act's shifting application.

History of the Wire Act

In an attempt to combat organized crime, the federal government enacted the Wire Act in 1961. The statute prohibits anyone "engaged in the business of betting or wagering" from:

Knowingly us[ing] 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.[4]

Although the Wire Act predates the internet, it is generally understood to be applicable to internet communications.[5] Prior to 2011, the U.S. Department of Justice consistently took the position that the Wire Act's prohibitions applied to all betting or wagering over the internet, as opposed to only applying to wagering on sporting events or contests.

However, in 2011, the DOJ issued a memorandum opinion concluding that the Wire Act's prohibitions on the interstate transmission of bets and wagers apply only to sports wagering and not to other types of gambling.[6]

This opinion clarified prior interpretations of the Wire Act and held that its prohibitions were limited to wagering on sporting events. Thus, the 2011 opinion opened the doors to interstate internet wagering on games such as slots, table games and poker.

Following a change in administration in 2018, the DOJ reversed its position articulated in the 2011 opinion and concluded that the Wire Act does, in fact, apply to all forms of wagering on the internet, including both wagers on sporting events and nonsports wagering such as slots, table games and poker.[7]

The New Hampshire Lottery Commission, joined by certain lottery systems and online gaming companies, promptly challenged the DOJ's 2018 position in New Hampshire Lottery Commission v. William Barr, filed in the U.S. District Court for the District of New Hampshire.[8]

Representatives of other states and state lotteries, as well as certain anti-gambling proponents, joined as amicus curiae. On June 3, 2019, the New Hampshire federal court issued an order finding that Section 1084(a) of the Wire Act "applies only to transmissions related to bets or wagers on a sporting event or contest. The 2018 OLC Opinion is set aside."[9]

The DOJ appealed the New Hampshire Lottery v. Barr decision and, in January 2021, the First Circuit issued an opinion affirming the New Hampshire district court's interpretation of the Wire Act.[10]

The First Circuit held explicitly in New Hampshire Lottery v. Rosen that the prohibitions of Wire Act Section 1084(a) are properly understood to apply only to the interstate transmission of wire communications related to bets or wagers on any "sporting event or contest."[11] The DOJ did not appeal this decision.

Less than one year after the First Circuit's decision in New Hampshire Lottery v. Rosen, International Game Technology and IGT Global Solutions Corporation, or IGT, sought a declaratory judgment that the 2018 opinion only prohibits interstate transmission related to sports wagering activity.

Primarily, IGT sought to protect its products by seeking declaratory relief that its online lotteries and online gaming products would be free from federal prosecution.

The Rhode Island district court granted IGT's motion for summary judgment and held "as to the parties now before it, the Wire Act applies only to 'bets or wagers on any sporting event or contest.'"[12]

In short, under the district court's decision, the DOJ cannot dangle the threat of prosecution over IGT, or those similarly situated. The DOJ has not yet commented on the decision or whether it intends to appeal the decision.

Implications

The Rosen and IGT decisions will almost certainly have implications that will expand across the nation. Where these holdings are binding, it is without question that the Wire Act does not reach interstate casino or poker play.

Nonetheless, the state authorization of casino or poker play across state lines, even without the threat of legal action from the DOJ, could be complex, as states which permit interstate online poker, slots or table games would need to agree among themselves on how to regulate and tax interstate gambling.

A few states have already entered into such agreements related to the regulation of interstate poker games, but that compact is, so far, fairly limited.

For example, in 2014, Nevada and Delaware, two of the nation's states with the smallest populations, formed the Multi-State Internet Gaming Agreement to "share liquidity among patrons participating in legal forms of online poker within the geographic boundaries of the two jurisdictions."[13] New Jersey joined the agreement in 2017, and the agreement's latest member state, Michigan, joined earlier this year.[14]

While the growth of online poker presents revenue opportunities for states and gaming operators alike, there are unique challenges that are often overlooked with intrastate gaming. A poker table, even one hosted on the internet, is of limited interest if there are not a sufficient number of users online at the same time willing to play.

Without the agreement, Nevada, Delaware, New Jersey and Michigan's market sizes were limited to their respective population pools. By entering into the agreement, these states have expanded their viable player pool to all states who are in the agreement.

In the wake of New Hampshire Lottery v. Rosen and its progeny, additional states are likely to follow suit. Indeed, Pennsylvania has the largest online poker market but has so far declined to join the agreement.

Yet only one day after Michigan joined, Pennsylvania Gov. Tom Wolf's press secretary Elizabeth Rementer stated that "[t]he Wolf administration continues to monitor how the expansion of online gaming in recent years has affected the gaming industry and Pennsylvania residents and continues to review the agreement."[15]

As the commonwealth's reported online poker revenue continues to sharply decline,[16] it is likely the Wolf administration will strongly consider the agreement.

But the agreement is not without its own set of obstacles. As mentioned above, the coordination of state-specific laws and regulations is imperative.

In fact, only two of the four member states have expanded their application of the agreement to nonpoker table games ⁠— e.g. blackjack, roulette or baccarat ⁠— or to other games with a progressive jackpot opportunity like slot machine games.

While Michigan shares its online poker pool with the other member states, its Lawful Internet Gaming Act permits the Michigan Gaming Control Board to enter into multijurisdictional agreements for online poker only; other online casino gaming such as blackjack, roulette or slots are limited to intrastate play.[17]

Likewise, while Nevada shares its online poker pool, all other online casino gaming in the state is illegal.

Moreover, in any situation where states agree to coordinate online gaming activities, thorny questions regarding state-specific licensing, tax revenue sharing, problem gambling and other state-specific regulatory interests will need to be harmonized. Thus, any player pools accompanying new members to the agreement will be limited by state-specific regulations and laws.

Further, and contingent on state-specific laws and regulations, even if participating states can find a path to harmonize their respective regulatory and taxation regimes, any multistate agreements would be limited to online poker and casino gaming.

Online sports wagering, which is booming as more and more states move to legalize and regulate that business, would still be subject to the Wire Act and, therefore, continue to be operated purely on an intrastate basis only.

Finally, it remains to be seen whether the DOJ will appeal the IGT decision. Given the current presidential administration's acquiescence to the New Hampshire Lottery v. Rosen appeal deadline, it seems unlikely.

It is nonetheless conceivable that, when faced with a direct challenge to interstate gaming activities, a district court in a locale outside the First Circuit could issue a decision incompatible with the Rosen and IGT decisions — and that the federal appellate court for that circuit could disagree with the holding in Rosen — forcing the U.S. Supreme Court to address the split.

Another possibility is that the Rosen and IGT rulings could spur Congress to finally take up the Wire Act and the question of online gambling and sports betting generally, especially if the next administration fails to finally resolve the current uncertainties.

Congress could potentially consider a model based on the Interstate Horseracing Act,[18] providing guardrails for interstate online wagering and mandating compliance with certain state regulations in each relevant state.

For now, and assuming the Rosen and IGT rulings stand, the Wire Act's lid on the expansion of all forms of internet gaming appears to have been lifted and there are plenty of opportunities for states to work together to promote and expand the already blossoming online gaming industry.

This is undoubtedly a positive sign for growth of online gaming opportunities in both existing and new jurisdictions.

"Internet Gaming Biz Hit the Jackpot with Wire Act Ruling," by Dennis Ehling, Danielle Catalan, and Nicole Metral was published in Law360 on October 12, 2022.