January 21, 2019

wire-act-opinion-letter
Wire Act Opinion Letter

The Office of Legal Counsel for the United States Department of Justice (“DOJ”) has released an opinion updating the DOJ’s interpretation of the federal Wire Act.  The new Wire Act opinion letter expands the scope of the Wire Act’s interstate prohibitions as they have existed since 2011.  However, given the potentially drastic impact that it would have upon a burgeoning gambling industry, the DOJ has indicated that it will delay implementing the new opinion for 90 days to allow those in the industry to review their operations and make necessary adjustments.

What are the major anticipated effects of the Wire Act opinion letter?

The Wire Act opinion letter makes clear that the prohibitions of the law are not merely limited to sports gambling (as the DOJ had concluded in 2011), but rather apply to all forms of gambling.  Given that the DOJ has just released its Wire Act opinion letter, it is difficult to forecast the breadth of its impact.  Nevertheless, while it is unlikely that most forms of gambling that were once viewed as legal will now be shut down, there are certain sectors of the gaming industry that are expected to be affected by the change.  These sectors include:

  • Fantasy Sports:
    • The Wire Act opinion letter makes clear that the DOJ believes that the language of the Unlawful Internet Gambling Enforcement Act (“UIGEA”), which clarifies that a bet/wager is intrastate if it is initiated and received in the same state (even if data crosses state lines in the delivery process), does not apply to the Wire Act. This is likely to have a significant impact on the daily fantasy sports industry, which has grown accustomed to the synergies and liquidity of operating platforms across state lines.
  • 2014 Interstate Poker Compacts among Nevada, New Jersey and Delaware:
    • Perhaps the most obvious prospective threat that this DOJ guidance presents is to the continued viability of interstate compacts entered into by and between Nevada, New Jersey and Delaware, that have allowed residents of the respective states to play online games with one another across state lines. The fate of this tri-state agreement is likely to be decided by imminent court challenges to the DOJ’s Wire Act opinion letter in the months to come.
  • Indian Tribes:
    • To the extent that tribal boundaries are deemed to be legal boundaries, a strict interpretation of the Wire Act by the DOJ could mean that tribal casinos would be in violation of the statute for offering online gaming to persons residing outside the borders of reservations, but in states that have legalized online games. Because of this, state efforts to legalize online gambling (which rely on the political support of Indian tribes) may encounter significant headwinds from those tribes that are concerned with the prospect of federal law violations.
  • iGaming and iLotteries:
    • A practical effect of the Wire Act opinion letter will be the actions taken by payment processors in its wake. Payment processing has long been a challenge with which gaming operators have had to grapple, even under the former DOJ policy.  To the extent that processing of gambling transactions becomes even less reliable because of processors’ (and their partner banks’) fear of legal ambiguity created by the new DOJ policy, most online gaming and lottery operators are at risk.

Notwithstanding the foregoing, please note that the Wire Act opinion letter is not anticipated to have any appreciable effect on states that have legalized sports gambling nor on the states that are currently undertaking legalization efforts.  Given that the Wire Act’s prohibitions have long been understood to apply to sports wagering, the change to DOJ policy should have no measurable effect on burgeoning intrastate sports betting markets.

What Happens Next for those Affected by the Wire Act Opinion Letter?

As indicated above, following the release of the Wire Act opinion letter, the DOJ released an additional memorandum directing federal prosecutors to refrain from applying the new DOJ policy for a period of 90 days to allow businesses that relied on the now-obsolete DOJ guidance time to bring their operations into compliance. It is anticipated that this 90-day window will also be used by affected states and businesses alike in order to initiate lawsuits challenging the new DOJ policy, perhaps resulting in court stays that would delay implementation even further beyond the 90-day grace period.  Nevertheless, with significant changes to the online gaming industry afoot, it is critical that those business operating in the space work closely with knowledge gaming attorneys to ensure compliance with applicable law.

If you are interested in learning more about this topic or need to review your gaming operations, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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