Betting firms battling the odds: US online gambling reversal puts 'chill' on massive industry
The Big Picture
The US Justice Department's decision to expand a federal prohibition on internet gambling will cast a pall on the industry as businesses and state lotteries evaluate the implications of the change and the government's plans to enforce it.
The US now says the US Wire Act bars all internet gambling that involves interstate transactions - reversing its position from 2011 that only sports betting was prohibited under a law passed 50 years earlier.
The move sours the mood in a massive industry with the potential to get even bigger, after a US Supreme Court decision last year that states could legalise gambling on individual sporting events. While the federal law specifically prohibits transmission of wagers and related information across state lines, the Justice Department's new interpretation will impact all online gambling because - as a practical matter - it's difficult to guarantee that no payments are routed through other states, said Aaron Swerdlow, an attorney with Glaser Weil Fink Howard Avchen & Shapiro LLP in Los Angeles.
"This will have a chilling effect on investment and expansion in the industry," Mr Swerdlow said. "You are going to see legal challenges."
The reversal was prompted by the department's criminal division, which prosecutes illegal gambling. The opinion issued about seven years ago that the 1961 Wire Act only banned sports gambling was a misinterpretation of the statute, according to an opinion by the department's Office of Legal Counsel made public on Monday.
The new reading of the law will probably be tested in the courts as judges may entertain challenges to the government's view of the law's scope, the Justice Department said.
It may also affect states that began selling lottery tickets online after the 2011 opinion, as well as casinos that offer online gambling.
A coalition backed by billionaire casino executive, Sheldon Adelson, lobbied the Justice Department in 2017 to reconsider its 2011 decision that cleared the way for states to allow online gambling.
The businesses that will be most directly affected are interstate lotteries that have become well established after 2011, said Dennis Gutwald, an attorney with McDonald Carano in Las Vegas. The Justice Department's new reading of the law won't affect intrastate online wagering, where patrons bet only from within a single state.
The US Supreme Court ruled last year that states other than Nevada could also permit sports betting.
New Jersey and other states that now allow sports wagering restrict those activities to individuals physically within the state. The Justice Department's change of heart will be an obstacle to an exemption between Delaware, Nevada and New Jersey that allows people from those states to play poker against each other online, Gutwald said.