Industry Online Gambling

Industry Expert On Wire Act Reversal: This Is Not Another UIGEA

department of justice building washington dc

The date was October 13, 2006. President George W. Bush signed into law the SAFE Port Act, to which was attached, in the 11th hour before Congress adjourned before the 2006 elections, an entirely unrelated piece of legislation called the Unlawful Internet Gambling Enforcement Act (UIGEA).

With a push from Bill Frist (R-TN) and Jon Kyl (R-AZ) in the Senate and Robert Goodlatte (R-VA) and Jim Leach (R-IA) in the House, a bill many in Congress said they never saw the final language of became law. And as a result, over the next four-and-a-half years, culminating in “Black Friday” on April 15, 2011, online poker in America was decimated.

But in September 2011, the Department of Justice issued a formal legal opinion on the scope of the Wire Act that led to a slow, state-by-state revival of online gaming. There has been no second poker boom. But there is now a thriving online casino industry in New Jersey and mobile sports betting is rapidly gaining traction.

Insert the sound of screeching brakes. Last Monday, January 15, the DOJ issued a new opinion on the Wire Act, causing confusion and consternation in the online gambling industry.

On paper, it’s all very different from UIGEA. But after a hot streak of positive legislative news over recent months and years, it’s hard for those who were in the business in 2006 not to feel at least a little unsettled.

Joe Brennan Jr. was director of the Interactive Media Entertainment & Gaming Association (iMEGA) in the immediate aftermath of UIGEA, and he continues to work in the industry as the co-founder of SportAD, a startup in the betting and fantasy sports sector. So we figured he’s a perfect person to talk to about the current situation and how it does and doesn’t resemble the challenges faced more than a decade ago.

(Note: This interview has been edited and condensed.)

US Bets: To what extent are you having UIGEA flashbacks based on the DOJ opinion that came out last week? Does it potentially feel like it could strike a serious blow to the online gaming industry, the way that UIGEA ultimately did?

Joe Brennan Jr.: I think comparing it to UIGEA is a massive overreaction. Not a whole lot has actually changed, and I think a lot of the headlines are just egregious. I would suggest that this reminds me more of the fall of 2015, when the New York Attorney General’s office sent cease-and-desist letters to both DraftKings and FanDuel. Because at that time, daily fantasy sports was moving like a freight train, it was like a black hole gobbling up all light in the universe and all advertising impressions on television, online, print, everywhere. And there was a lot of glow around the industry. And then when Eric Schneiderman, the New York Attorney General at the time, sent those letters, it created an immediate chill throughout the industry. And what was ironic was it didn’t chill [DraftKings and FanDuel], it chilled everybody else. So a company like mine at the time, that was reliant on venture capital dollars, well suddenly nobody wanted to invest in daily fantasy sports. Payment processors, even though there was a clear exemption in UIGEA that permitted for the activity, payment processors suddenly got antsy and they said, “You know what? We’re gonna hold off. We’re not taking any new DFS business.” So all this reminds me more of that than it does UIGEA.

US Bets: Is it safe to say one big difference with sports betting and online gaming now as compared to poker in the early 2000s is that there’s a lot less confusion about what’s legal and what isn’t?

JB: The sports betting laws were all written in full knowledge of the Wire Act and UIGEA and PASPA and everything else. That’s particularly true regarding the Wire Act; the law was crafted so it would be in compliance with the Wire Act. On top of that they’re, at least speaking from New Jersey’s perspective, also crafted to be in compliance with UIGEA, so that all the activity — not only sports betting but casino and poker — was entirely intrastate. So you can only take a bet and make a bet if you are physically within New Jersey.

US Bets: You mentioned poker. That’s an exception in terms of operating entirely intrastate.

JB: Right. Remember, it’s just a memo. It does not change the law, it has just indicated prosecutorial preference in how they will proceed, if they ever get a mind to prosecute, but nobody’s been prosecuted, nobody’s been indicted, nothing. This retuning of the Wire Act, this memo seems to indicate that something like the interstate pooling of poker liquidity between New Jersey, Delaware, and Nevada, that would be prohibited. But as far as the sports betting, nobody in New Jersey was going to be taking sports bets online or mobile from anybody in Pennsylvania or vice versa prior to this memo, nor are they going to be doing it subsequent to this memo. So nothing’s changed with sports betting. Nobody in New Jersey was taking casino bets from outside of New Jersey. So nothing’s changed in casino. Poker, the only thing that’s changed is that cross-border liquidity sharing agreement is now, I guess, unworkable, so there will be none of that between the states.

US Bets: What about DFS?

JB: DFS is unaffected, because it’s granted a specific exemption under the UIGEA law, where Congress has drawn a line between what is defined as sports betting and what is defined as fantasy sports. DFS is actually the least affected by this. So, the only thing that really seems to have been immediately affected, at least from a legal sense, is poker. What it will affect on a more informal basis, how it will affect other stakeholders, that’s what remains to be seen.

US Bets: By that do you mean the payment processor issue — the idea that, even though this might not really change the legality of anything, they could get spooked a bit and we could see some of them backing out of this industry?

JB: Well, I think similar to what happened in the fall of 2015, I think they might back out or not process for smaller companies in the industry, but they’re going to continue to process for FanDuel, DraftKings, William Hill, all the New Jersey casinos. But if you’re a new entrant into the marketplace, it may be more difficult to persuade them. They might want to show that they’re not taking on any more risk. But when the law covers you, what’s the risk? Where this could be, I would say, somewhat similar to UIGEA is the way that payment processors just ran for the hills. It took down Neteller, FirePay, a number of others, so people started looking for all sorts of workarounds. But again, at that time you were dealing with what the Justice Department considered to be illegal entities. Online casinos from Antigua, sportsbooks from Costa Rica, things like that. Here you’re talking about legal entities. The Wire Act covers illegal interstate sports betting, and now, I guess, online gambling. Emphasis on illegal. The definition of what is legal and illegal is defined by the states.

US Bets: There’s been some question, though, especially in light of the Pennsylvania Gaming Control Board’s reaction, as to how sports betting information can travel between states. What’s your take on that?

JB: Right in the first two paragraphs of the Wire Act, it’s defining that essentially there’s a safe harbor between states that treat the activity as legal. So if William Hill, for instance, is sending line information from its operations in Nevada to its operations in New Jersey, that then the local New Jersey operator uses to take bets within New Jersey, that’s legal, under the safe harbor created all the way back in 1961 under the Wire Act. It’s also covered under UIGEA, where the intermediate routing of data is treated as legal, as long as it’s legal in the state where the bet’s taken and where the bettor is located. It doesn’t matter if the signal goes to Utah, Hawaii, or the moon. It just matters how the state treats that bet.

US Bets: You sound confident in your interpretation of all of this, and everything you’re saying makes perfect sense. That said, in 2006, I recall a lot of people being confident that UIGEA wasn’t going to be enforceable or that it didn’t apply to poker. Is there a voice in the back of your mind saying, even though it seems like these forms of online gaming should be safe, we need to be a little concerned that, somehow, the rug’s getting pulled out from under us?

JB: No. And the reason why I say that is, again, this memo does not have the force of changing the law. It has not changed an act of Congress. The DOJ is not capable of doing that, and all current legal regulated betting activities have been written on an intrastate basis, not an interstate basis. And the Wire Act only covers interstate illegal sports betting. If everybody in the industry would stop, take a collective deep breath, and actually read the text of the laws that are in question, then I think people would be far more confident that there’s nothing amiss.

Now, I’ve seen that, for instance, [former New Jersey state] Senator [Raymond] Lesniak, who I’ve worked a great deal with in the past, along with [New Jersey state] Senate President Steve Sweeney, another guy I’ve worked with in the past, I think that what they’re doing when suggesting they’re going to go to court and get a ruling, I think that is introducing more uncertainty here because it’s essentially validating, to an extent, any concerns that people may have. Senator Lesniak and Senator Sweeney saying, “Let’s go to court,” what does that do? Well, that potentially gives payment processors, the ones most likely to get spooked, it essentially gives credence to their fears. If you say, “We’re going to go to court to declare that the DOJ is wrong,” what does that do for payment processors? They say, “Well, I guess we ought to take a timeout until that court rules.” What court? What action? The court doesn’t have anything to rule on. It’s a memo. It’s not a law. Courts don’t rule on memos. Has anybody been prosecuted or indicted under this? No. So what is there to challenge? Nothing. All it’s doing is adding more uncertainty to this process. You have to ask yourself, is there anybody out there right now, in New Jersey, Pennsylvania, that’s running an illegal interstate sports betting or online gambling operation? Sure. Bovada. BetOnline. Those guys.

US Bets: The only regulated site that’s on the wrong side of that line is WSOP.com going across states, but they just need to get back in compliance on that basis.

JB: Yes. My tweet was, when the Wire Act opinion came out, I said, “Well, sucks to be a poker player today.” Back in 2006, 2007, 2008, you had folks that were claiming that UIGEA didn’t apply to poker because it’s a game of skill, and they were fighting very hard to get Barney Frank to change the law or pass a law, but it never worked out. Look, we are a nation of laws. Because everybody has written their gaming laws to comply with federal laws and state laws and all the banking regulations, the light has to be shone on the fact that that law, and that memo, is meant to be able to demarcate the line between legal and illegal business. So what we’re really talking about is a memo that targets the illegal businesses.

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