PA Online Gambling Could Be Impacted By New DOJ Wire Act Opinion

PA Online Gambling Could Be Impacted By New DOJ Wire Act Opinion

PA Online Gambling Wire Act

Online gambling is set to launch in Pennsylvania sometime in early 2019, but a new United States Department of Justice opinion on the Wire Act released on Monday is raising questions on the impact it will have for the state, if any.

What happened?

With its new opinion, the DOJ effectively said that the 1961 Wire Act applies to all forms of online gambling. The opinion is a reversal from a 2011 DOJ opinion — released under the Obama administration — which said that the law was only applicable to sports getting. The Wire Act is an archaic law that originally attempted to restrict wagers over “wire communications,” especially those that cross state lines.

Because the internet did not exist at the time the law was passed, the law’s impact on online gambling had been a hotly debated topic until the 2011 DOJ opinion. Monday’s reversal — which is believed to be at least in part politically motivated — further muddies the waters.

The impact

The opinion was released on Monday with reaction to the news varying from the opinion being a “dark day” for online gambling to a feeling that very little will change.

The DOJ opinion is just that, an opinion and not binding or a precedent. Still, it was the 2011 opinion that made states and companies more comfortable in advancing online gambling so it’s not hard to imagine a reversal having the opposite effect.

Since 2011 — and more specifically 2013 — momentum has hugely been in favor of online gambling regulation. Since the landmark decision, many states have regulated daily fantasy sports, a few have regulated online gambling — including Pennsylvania — and a couple are set to launchsports betting over the internet.

It’s a different world than it was in 2011 for online gambling in the United States. At this point, it could prove very difficult to put the proverbial genie back in the bottle when companies and states are investing millions and seeing millions revenue from online gambling, especially when case law seems to be on their side.

Some forms of online gambling more in danger than others

While the implications of the opinion should become more clear over the coming weeks and months, some online gambling appears to be in worse shape than others, notably interstate poker. In May 2017, Delaware, New Jersey and Nevada entered into a liquidity agreement which effectively allowed poker rooms that operated in multiple states to combine player pools when regulated. It was applicable to all forms of online gambling, but online poker is the most obvious benefactor of such liquidity agreements.

Because shared liquidity agreements are by nature across state lines, interstate poker is likely the most vulnerable to the DOJ’s decision. Without further clarification, it would seem that interstate poker’s growth into Pennsylvania will likely hit a roadblock, even if online poker within the state is unaffected

Three states have launched online gambling thus far with Pennsylvania very far along in the process, set to launch sometime in the next few months. The vast majority of Pennsylvania casinos have already been approved for online gambling — with only two casinos not applying — and have paid up to $10 million in licenses to offer online gambling.

Depending on the interpretation, online gambling within a state may also be applicable to the Wire Act, but that is much less clear. Due to how the internet is routed, wagering could be technically be transmitted across state lines, but from a practical standpoint, the bet is placed and accepted and paid within the state. This is undoubtedly a topic that will be debated and eventually litigated in the courts.

What next?

About the only thing that seems certain at this point is that there will be uncertainty, legal challenges and possibly payment processing obstacles.

The uncertainty itself could have a negative impact on online gambling in the United States. Will companies and states be less willing to invest and advance online gambling with this new opinion? It definitely won’t help and that has online gambling proponents concerned enough to believe that at the very least that this is a major setback in the expansion of online gambling elsewhere in the United States.

States and companies that have already invested into online gambling in states such as New Jersey and Pennsylvania have a lot to lose. New Jersey alone generates over $25 million in online casino revenue and Pennsylvania, a similarly sized market, has already collected around $100 million just in online gambling (poker, slots, table games) license fees. These stakeholders will not be going down without a fight, especially given that case law (the MasterCard case) seems to be on their side.

One of the more short term concerns is payment processing, the lifeblood of any online gambling site. If payment processors believe that there is too much risk in processing payments for online gambling sites, they may ultimately make the decision that processing payments

The payment processing concern, along with many other aspects of this issue, will be among the hotly debated and discussed topics over the coming weeks and months.