Industry Legal

Lawyers Offer Optimism About Resolution To Industry’s Wire Act Problem

Though no one connected to the online gaming industry likes the confusion and uncertainty hanging over their operations due to a recent federal interpretation of the Wire Act, they should be optimistic all will be fine for them in the end.

That cautiously positive message — based on various factors, most notably a U.S. District Court judge’s initial ruling in their favor — rose above the disenchantment expressed with the Justice Department during panel discussions this week at the American Gaming Association’s annual Global Gaming Expo in Las Vegas.

Operators and regulators noted a chilling effect this year on development and expansion of online gaming, but they were advised by lawyers not to despair.

The industry is awaiting the outcome of the Justice Department’s appeal of Judge Paul Barbadoro’s decision in New Hampshire that rebuffed the DOJ’s revised stance regarding the 1961 federal Wire Act.

Reasons for positivism beyond judge’s opinion

Last year, for the first time, the Justice Department’s Office of Legal Counsel adopted a posture that the Wire Act made illegal interstate routing of information related to any type of gambling and not just sports betting. The Act was enacted to address racketeering revolving around sports betting before the internet age, and all of a sudden everyone from lotteries to iGaming companies faced legal danger from interstate compacts and computer networks that crossed borders.

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There was a sigh of relief when Barbadoro sided in June with the New Hampshire Lottery Commission’s suit challenging the new interpretation. A federal appellate court will hear arguments in the case next year, and it could ultimately go the Supreme Court, but lawyers following the case closely said multiple signs should reassure operators and regulators stymied by the Justice Department’s stance.

Lawyers noted that in addition to a strong likelihood that the appellate courts will reinforce Barbadoro’s ruling, the Justice Department has indicated it is again reviewing its own stance. There’s mystery surrounding what prompted the Office of Legal Counsel, whose opinions are binding on the executive branch, to reverse its prior position on the Wire Act to start with, and any change of presidential administrations could also impact things in the industry’s favor.

“I wouldn’t suggest it’s turning into a purely academic exercise as to what the language of the 1961 statute means, but I don’t detect a whole lot of enthusiasm in the department to bring a Wire Act case,” said Matthew McGill, a lawyer who has represented the New Hampshire Lottery’s vendor in the case.

“It’s just hard to imagine the department devoting resources to aggressively addressing a problem that arguably doesn’t exist.”

iGaming momentum has slowed in Pa., elsewhere

Despite the optimism offered by McGill and others on panels, an air of uncertainty until the litigation is resolved still has a chilling effect on momentum, said Kent Young, CEO of Spin Games LLC, which began supplying online games in New Jersey in 2013 and expected the market to grow much more than it has.

Spin Games is also providing games to Pennsylvania online casinos, but only three of those are operating yet out of nine that paid for iGaming licenses. The Justice Department opinion meant the Pennsylvania Gaming Control Board wanted all computer operations tied to the new games to be based within Pennsylvania, rather than crossing state lines from New Jersey, as originally intended.

“That’s definitely slowed down the rollout in Pennsylvania,” Young said. “Without the DOJ opinion, they’d probably all be up and running by now.”

The other chilling impact of the opinion was to discourage states from legalizing online casino games with the same speed at which they have been debating and adopting sports betting, Young said.

One positive, he said, is that payment processing companies — which in many cases took a long time to get comfortable with gambling-related transactions — have not curbed their processing related to interactive gaming.

“A company is only as good as their ability to deliver payment,” noted Dawn Himel, deputy director of the Louisiana attorney general’s gaming division, who said regulators just want “clear interpretation” soon of what is permissible and what is not.

Schedule could lead to oral arguments in spring

In the New Hampshire Lottery case going before the U.S. First Circuit Appellate Court, the Justice Department is to provide briefs by Nov. 12 and the Lottery’s lawyers by Dec. 12, with the government scheduled to reply by Jan. 2. Lawyers said that creates the potential for oral arguments in the spring and a ruling three to nine months thereafter.

Panelists noted that the best solution to the issue would be for Congress to adopt modern legislation clarifying the confusion over the 58-year-old Wire Act, but they also acknowledged it is naïve to believe that will happen anytime soon.

“If things in Washington weren’t chaotic or uncertain enough, the gaming industry might as well have a piece of that chaos, so here we are,” quipped Greg Brower, a former Justice Department official who now practices in gaming litigation.

Photo by Alexander Limbach  / Shutterstock.com

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