GPWA Times Magazine - Issue 19 - February 2012

By I. Nelson Rose T he United States Depart- ment of Justice (DOJ) has given the online gaming com- munity a big, big present, made public two days before Christmas. President Barack Obama’s administration has just declared that the major federal anti- gambling statute, the Wire Act, applies only to bets on sports events and races. This is also a gift to the states, which are desperate to find ways to raise revenue without raising taxes. In fact, Nevada and the District of Columbia have already passed laws authorizing most forms of Internet gambling. The two jurisdictions are now free to start their online games immediately. They can even enter into agreements to allow operators in Las Vegas to accept players from Washington, and vice versa. The opinion requires that the gambling be legal under state laws. It will take some time for legislatures to react. But many of the state lotteries can set up online games quickly. They will start with Internet varia- tions of the lotteries they already sell with paper tickets and in-store computer termi- nals. But some will follow the lead of gov- ernment lotteries in Canada and elsewhere and set up online poker and casino games. The political fights will be over who gets the licenses. In D.C., the operator is the Lottery. In Nevada, where there is no state lottery, the licenses will naturally go to the privately owned casinos. But what happens in a state like California? The politicians will legalize Internet poker solely to raise revenue, not to protect the local operators. Giving the exclusive right to Internet games to the State Lottery might bring in more money in the long run, but the state is desperate for cash, now. Only outside companies, like Caesars Entertainment, can come up with the $100 million or so the state will want, up front. But California has long-established and politically powerful card clubs and Indian casinos. They will not quietly accept an outsider setting up a competing operation that brings legal gambling into every home in the state. Still, there is so much money at stake that political deals will be made. In states like Nevada and New Jersey, where the local operators are the big money, the land-based casino companies will get the Internet gambling licenses. In states like California, local operators will get a li- cense or two, but others will also be sold to the highest bidders. The great irony is that this coming explo- sion of legal Internet gambling in the U.S. was created by a conservative Republican attempting to outlaw online gaming. When the GOP controlled Congress and George W. Bush was President, Bill Frist (R-Tenn.), then majority leader of the U.S. Senate, rammed through the Unlawful Internet Gambling Enforcement Act by attaching it to a must-pass anti-terrorist bill. Frist did such a terrible job of writing the UIGEA that he accidentally opened the door to many forms of online gaming, including fantasy sports, skill games and intrastate gambling. It was the last that led to the announce- ment by the DOJ. The UIGEA expressly al- lows states to authorize gambling when the bettor and operator are in that state. And it says to ignore the fact that communication wires might cross into another state. But the DOJ had always taken the position that the Wire Act outlawed all forms of gam- bling, and that this federal law applied so long as the gambling information crossed, even temporarily, into another state. The state lotteries of Illinois and New York asked the DOJ whether they could take lottery bets online, even though some of the payment processing took place in other states. And after the District of Columbia announced it had authorized online poker and other games, the current majority leader of the Senate, Harry Reid (D-Nev.), and the second most power- ful Senate Republican, Jon Kyl (R-Ariz.), sent a letter, demanding that the DOJ do something about Internet gambling. The DOJ decided the only way out of its legal mess was to reinterpret the Wire Act. If this statute applied only to sports bets, then it wouldn’t matter if phone lines hap- pened to carry lottery or poker bets into and out of other states. The conclusion by the DOJ that the Wire Act’s “prohibitions relate solely to sport- related gambling activities in interstate and foreign commerce” eliminates one of the only federal anti-gambling laws that could apply to gaming that is legal un- der state laws. There simply are no other federal statutes that would make Internet poker and casino games illegal, even if the operators are in one state and the players in another, so long as the games are legal under the laws of those states. In fact, there is now no reason for states to limit their online gambling to residents of the United States. The Wire Act and the An Internet gambling present from the U.S. Dept. of Justice COVER STORY “ The opinion requires that the gambling be legal under state laws. It will take some time for legislatures to react. But many of the state lotteries can set up online games quickly.” An Internet gambling present from the U.S. Dept. of Justice