Pennsylvania Regulators Exercising Caution With Wire Act Compliance

Pennsylvania Regulators Exercising Caution With Wire Act Compliance

PA Online Casino Wire Act

The Department of Justice’s revised opinion on the Wire Act released in mid-January shook the burgeoning online gambling industry in the United States. Despite the new opinion, many companies and states — including Pennsylvania — have said they will continue to move forward with online gambling expansion.

But that doesn’t mean that casinos and states aren’t also exercising caution.

In a memo to Pennsylvania casinos on January 18th, the Pennsylvania Gambling Control Board gave casinos 30 days to present plans for how they plan on responding to the new Wire Act opinion.

How will PA casinos respond to the Wire Act opinion?

A reasonable interpretation of the latest DOJ opinion is that online gambling — should it be regulated in a state — must be confined within the borders of the regulated state. On the surface, that should make it easy for states to comply. Ever since online gambling was regulated in New Jersey and Nevada in 2013, regulators have been aggressive in ensuring that online wagering takes place within a state’s borders through the use of geo-location software. Some players and bettors have even complained that the systems have been over-blocking users — including by those located just within a state’s borders. But one thing seems clear at this point — the system has largely been a success.

While online gambling sites have succeeded in keeping online gambling within a state from a user standpoint, online casinos often have online gambling infrastructure outside of the state. This could include servers, payment processing and other operations. So while a bet could be placed in the state of Pennsylvania, it might cross into New Jersey or another state, even if all users actually playing are located within the state.

Prior to the Wire Act reversal, Pennsylvania law specifically allowed for infrastructure and systems to be located outstate — and now that could be a problem. Just how much of a problem that is for the states remains to be seen.

One obvious loser in the new Wire Act opinion appears to be wagering that obviously crosses state lines. Three states — New Jersey, Nevada, and Delaware even merged liquidity last year, which allows poker players in all three states to play against each other. Pennsylvania was expected to eventually enter into the liquidity agreement as well, although those efforts have been severely cast into doubt with the Wire Act opinion.

What’s next?

With the 30-day window for casinos to present their plan, Pennsylvania gaming regulators are hoping to address the interstate element of their operations, which hopefully leads to less or no scrutiny from the Department of Justice. Of course, states could still be on the microscope even if jurisdictions do their best to keep their operations completely “intrastate.”

Undoubtedly anticipating confusion on the matter, the Department of Justice gave states 90 days to comply with the Wire Act, but Pennsylvania wants casinos to start preparing now. Ensuring that operations are fully within a state could be enough for the Department of Justice. Or they could take a more rigid interpretation and try to restrict all forms of online gambling. That is not expected, but it not beyond the realm of possibility but would undoubtedly lead to some major fights in the courts.

Whether the Department of Justice will take that approach or a more reasonable one, we could have more clarity by April 15th. That is when the Department of Justice’s Office of Legal Counsel could first publish enforcement guidelines.