DOJ Reversal Could Clear the Way for Online Gambling

On Friday I noted that federal law does not appear to bar an online poker company licensed in Nevada from serving customers in other states where the game is legal. That same day, the Justice Department posted a memorandum from its Office of Legal Counsel that implicitly confirms this point. The September 20 memo, first reported by gambling law expert I. Nelson Rose, addresses the question of whether online lottery ticket sales by Illinois and New York would violate the Wire Act of 1961, the relevant section of which says:

Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.

The Justice Department has long maintained that the Wire Act encompasses not just sports betting but other forms of gambling as well, including poker and blackjack. The OLC memo (PDF), prepared by Assistant Attorney General Virginia Seitz at the request of Lanny Breuer, head of the Justice Department's Criminal Division, unequivocally says that position is wrong (emphasis added):

The Criminal Division's conclusion that the New York and Illinois lottery proposals may be unlawful rests on the premise that the Wire Act prohibits interstate wire transmissions of gambling-related communications that do not involve "any sporting event or contest."…We conclude that the Criminal Division's premise is incorrect and that the Wire Act prohibits only the transmission of communications related to bets or wagers on sporting events or contests….

In our view, it is more natural to treat the phrase "on any sporting event or contest" in subsection 1084(a)'s first clause as modifying both "the transmission in interstate or foreign commerce of bets or wagers" and "information assisting in the placing of bets or wagers," rather than as modifying the latter phrase alone….

We likewise conclude that the phrase "on any sporting event or contest" modifies subsection 1084(a)'s second clause, which prohibits "the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers."…

The legislative history of subsection 1084(a) supports our reading of the text…

In sum, the text of the Wire Act and the relevant legislative materials support our conclusion that the Act's prohibitions relate solely to sports-related gambling activities in interstate and foreign commerce….

Given that the Wire Act does not reach interstate transmissions of wire communications that do not relate to a "sporting event or contest," and that the state-run lotteries proposed by New York and Illinois do not involve sporting events or contests, we conclude that the Wire Act does not prohibit the lotteries described in these proposals.  

As Rose emphasizes, the implications of this legal interpretation extend beyond lotteries. If the Wire Act applies only to "sports-related gambling activities in interstate and foreign commerce," it does not cover poker, blackjack, or other casino games. That means onlike poker is legal unless it is prohibited by state law. Rose argues that the scenario I suggested, in which states agree among themselves to allow online poker, is a more likely route to legalization than legislative action at the federal level:

There may be nothing preventing states from making compacts with other states, and even foreign nations, once they have legalized an online game, like poker. If Nevada and the District of Columbia want to take Internet poker players from each other, what federal law would they be violating? And, if they agreed that their residents could bet with licensed poker operators in, say, Antigua and England, while residents of those nations could bet with poker operators in Nevada and Washington, we know they would not be violating the Wire Act, or the anti-lottery laws, or any of the federal prohibitions which require that the gambling be illegal under a state's laws….

My bet is that [Congress] will continue to do nothing, while Internet gambling explodes across the nation, made legal under state laws.