By Anthony Cabot and Daniel Hamilton

On January 14th, the U.S. Department of Justice, in a rebuke of its previous position announced in 2011, released an opinion claiming that all forms of state-authorized Internet and interactive wagering including sports, state lotteries, poker, and casino games are now illegal.

This could have significant impact on gaming revenues in Nevada and New Jersey where a sizable portion of all sports-related wagering is generated online, in states such as Georgia, Illinois, Kentucky, Michigan, and New Hampshire that sell state lottery tickets online and a host of other states that are following Pennsylvania’s lead and authorizing online gambling, including casino games. These states and affected companies should immediately challenge this opinion.  

The controversy revolves around the federal Wire Act, which came from the 1961 government effort to suppress local criminal activities from which organized crime drew much of its sustenance. The Wire Act was one of three statutes that formed the cornerstones of the program. According to then U.S. Attorney General Robert Kennedy, "the target clearly is organized crime." From its earliest legislation to the Kennedy era and the present, Congress's primary intent in adopting gambling laws has been to assist the states by using federal authorities to police activities between states that are beyond the capabilities and powers of the individual states.

In its latest opinion, the DOJ twisted the language of the Wire Act in two critical ways to conclude that it prohibits all state-authorized and regulated online gambling. The Wire Act bans operators from transmitting “bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest” using “a wire communication facility for the transmission in interstate or foreign commerce.”

This makes sense. If a bettor calls his bookie in a state where sports betting is illegal and asks, “What is the point spread on the Browns game?,” this is not a crime. If the bookie says, “Browns plus 8”, this is “information assisting in the placing of a sports bet” and covered by the Act. If the bettor decides not to accept the wager, the bookie still committed a crime by transmitting information assisting in the placing of a sports wager. Likewise, if the bettor calls and asks to place $20 on the Browns and bookie accepts, the Act covers this as the transmission of a wager. That the terms are intertwined in practice is self-evident.

The new DOJ opinion strains logic to reinterpret the meaning of “bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest” to apply to wagers other than sports. Reflect on the words for a few moments and you are likely to come to the same conclusion as the Fifth Circuit Court of Appeals did in 2002 when it decided that “a plain reading of the [Wire Act’s] statutory language clearly requires that the object of the gambling be a sporting event or contest.”

Likewise, the First Circuit Court of Appeals concluded: The Wire Act applies only to "wagers on any sporting event or contest," that is, sports betting. This seemingly makes sense given that in 1961, when the Wire Wager Act was passed, the notion that persons could use the telephone to wager on anything but sporting events or horse racing was unrealistic. Kennedy, when explaining the bill, explicitly referred only to sports betting. Congressman Emanuel Celler of New York, one of the bill's sponsors, claimed that the Act "involves the transmission of wagers or bets and layoffs on horse racing and other sporting events." In fact, in 2011, when then the Department of Justice issued its formal opinion that the Wire Act only applies to sports wagering, Assistant US Attorney Virginia A. Seitz provided compelling and voluminous support in the legislative history of the Wire Act supporting its limitation to sports.

So, how does the new DOJ opinion deal with the crushing weight of logic and precedent?

First, in juxtaposition to the prior DOJ opinion and the circuit court cases, the new DOJ opinion claims the words “on any sporting event or contest” were unambiguously meant to apply only to “information assisting in the placing of bets or wagers” and not on the terms “bets or wagers.” In other words, the DOJ now illogically asserts the Act prohibits transmission of all wagers including lotteries and casino games but prohibits the transmission of information assisting in the placing of a wager only if it relates to a sports wager.

What about the legislative history that clearly shows otherwise? The DOJ response is: Why should legislative history look at that when the language is so clear?

What about the opposite and logical conclusions by the circuit courts? The opinion mentions them (one only in a footnote) and then promptly never even discusses them.

The DOJ decided to contradict its interpretation of a law despite the reliance by states and companies that have invested time and millions in their online gaming industry. The DOJ response in the opinion to its flip-flop was little more than "a foolish consistency is the hobgoblin of little minds.”

The second way the new DOJ opinion twisted language to conclude that the Wire Act prevents all state-authorized and regulated online gambling was to assert that transmitting sports wagers in interstate commerce also bans bets where both the bettor and the sports book operator are in the same state. A theory exists that any communication over modern telecommunication (including digital telephone systems and the Internet) is considered interstate even where the sender and receiver are in the same state because the communication could travel outside the state.

In enacting more stringent prohibitions against illegal Internet wagering in 2006, however, Congress decreed that Internet wagering is not deemed interstate where “the bet or wager is initiated and received or otherwise made exclusively within a single State.” The new DOJ opinion decides that all this is simply irrelevant because Congress did it in another gaming statute that should have no bearing on the Wire Act as if, again, it is another foolish call for consistency.

In one sense, the absurdity of the situation should not be that concerning. The new DOJ opinion is the worst of conservative activism that starts with a preconceived conclusion and then presents an argument that lacks logic and legal support. It will not survive legal challenge. Nevertheless, it does create anxiety in the gaming markets, damage companies that have invested millions in reliance on the 2011 opinion and threatens state tax revenues.

This whole situation raises broader questions. The first is why this reversal of an established DOJ opinion was even contemplated. In the eight years since the 2011 opinion, what has transpired that positions legal intrastate wagering as an existential threat to American society justifying the extraordinary measure of the DOJ reversing itself? History is not on the DOJ’s side.

Sen. Lindsey Graham of South Carolina has tried unsuccessfully and repeatedly to pass legislation that would “restore” the interpretation of Wire Act prohibiting all Internet gambling. Congress does not seem concerned. Several states have successfully implemented or expanded Internet gambling, including New Jersey, which has a legitimate hope that it could be the catalyst for the revival of Atlantic City. Internet gambling has been successful without major scandal. There has not been any public outcry against Internet gambling.

Unlike 2011, the DOJ was not responding to concrete inquiries from states wanting guidance as to Internet gambling legality. No obvious reasons have arisen that should have caused the DOJ to revisit the issue; only questions. What are the forces behind the decision? Whether justified or not, Internet gaming is seen by some as a threat to land-based casinos. If the forces behind this effort are private competitive concerns close to the Trump administration, it is a significant concern worthy of congressional investigation.

Second, the actions criminalize a method of delivering a product and not the product itself. If gambling is wrong, then all iterations of the activity are bad. To call out Internet gambling and make it illegal by prosecutorial-edict is irrational. It is the antithesis of a free market. Sears as a company should fail because someone else conceived a better and cheaper way to meet consumer demands through Internet sales and not because it failed to create enough political clout to make online shopping illegal.

Third, the Trump administration has repeatedly claimed to espouse states’ rights. This is particularly apropos here because the purpose of federal gambling laws were to assist the states in administering their gambling policies not to preempt them. In this case, the Trump administration appears to be bowing to pressures that threaten to undermine the rights of numerous states that have adopted state-authorized interactive wagering to advance state policy. If Pennsylvania decides to allow its residents to pursue their own happiness through leisure gambling and at the same time raise tax revenues, why should the federal government dictate it can do so only through land-based casino and not the Internet?

The decision is one for the states and its citizens to make alone.

Anthony Cabot is a Distinguished Fellow of Gaming Law at UNLV Boyd School of Law. Before joining Boyd Law in 2018, he practiced gaming law for 37 years and was a former chair of the gaming law practice and executive committee member at Lewis Roca Rothgerber Christie LLP. Best Lawyers in America recognized him for Gaming Law from 2004 to 2017. Contact him at [email protected]

Daniel Hamilton is the fourth dean of the UNLV William S. Boyd School of Law. He assumed the deanship in July 2013 and joined the Boyd School of Law faculty as the Richard J. Morgan Professor of Law, from the University of Illinois College of Law where he was the Associate Dean for Faculty Development and Professor of Law and History.