Analysis: ‘Tortured effort’ by DOJ attorneys concerning the Wire Act will be decided in federal court

January 16, 2019 5:05 AM
  • Howard Stutz, CDC Gaming Reports
January 16, 2019 5:05 AM
  • Howard Stutz, CDC Gaming Reports

Twenty-four hours after Department of Justice attorneys reversed a 2011 opinion concerning the Federal Wire Act, the gaming industry tried make sense of the ruling.

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Gaming attorneys universally believe the matter will be decided by a federal judge.

“Legally, the decision was not ambiguous,” said Las Vegas attorney Kate Lowenhar-Fisher of Dickinson Wright. “It was a tortured effort to interpret the Wire Act to include all forms of betting. It was an absurd grammatical exercise.”

Wall Street analysts didn’t want the investment community to overreact.

“Given the genie has left the bottle, we think the DOJ will have a somewhat uphill battle to successfully defend its new position, which in a sense, hinges on the original ruling being misinterpreted due to grammatical issues which misconstrued context,” Deutsche Bank gaming analyst Carlo Santarelli told investors in a research note Tuesday morning.

In its opinion, the department’s Office of Legal Counsel reverted to the original interpretation of the Wire Act, the 1961 law that prohibits certain types of betting businesses in the United States. The December 2011 opinion said the Act pertained only to sports betting. The new decision, dated Nov. 2, threw out the seven-year-old ruling and added back in other forms of online gaming, including Internet wagering and the sale of lottery tickets over the Internet.

Stock prices of several companies, including gaming equipment manufacturers, fell on news of the Justice Department’s decision.

“We see share price declines as an overreaction to a worst-case scenario that is relatively immaterial to company earnings,” said SunTrust gaming analyst Barry Jonas.

The news sent shockwaves through the U.S. Internet gaming market, which launched soon after the 2011 Wire Act ruling.

Lowenhar-Fisher and fellow Dickinson Wright gaming attorney Greg Gemignani – in an interview with Gambling Compliance – used the same language to describe the decision.

“It was RAWA by memo,” Lowenhar-Fisher told CDC Gaming Reports Tuesday in reference to Restoration of America’s Wire Act, a failed congressional bill backed by Las Vegas Sands Corp. Chairman Sheldon Adelson, a fervent opponent of Internet gaming.

“It’s unusual to see a reversal of a reversal,” Lowenhar-Fisher said. “So many states have relied on the 2011 decision.”

Jennifer Roberts, associate director of the International Center for Gaming Regulation at UNLV, told the Associated Press the impact of the opinion rests on how strictly the Justice Department will enforce the new interpretation of the statute. She worried the opinion could curtail marketing programs, limiting how casinos communicate with customers.

Six states have online lottery operations – New Hampshire, Pennsylvania, Georgia, Kentucky, Illinois, and Michigan.

Three states have Internet casino markets – Nevada, New Jersey and Delaware – and Pennsylvania legalized the activity in 2018 with sites expected to launch this year. That move has been thrown into question by the ruling.

“We think it will require considerable leg work to undo what’s been done, and we think the process will take an extended period,” Santarelli said.

Nevada’s online poker market is small with just two operators, Caesars Entertainment and the South Point Casino. Nevada, Delaware and New Jersey have interstate online gaming agreements that allows Internet poker players to compete across the three states.

New Jersey has the most active Internet gaming business of any state. According to the New Jersey Division of Gaming Enforcement, gaming revenue from online wagering was $298.7 million in 2018, a 21.6 percent increase from 2017. Since its launch in 2013, Internet gaming in New Jersey has generated more than $1 billion in revenue.

Nevada Congresswoman Dina Titus said the ruling appeared to be politically motivated. The Las Vegas Democrat, whose district includes the Las Vegas Strip, said the decision risked upsetting the state’s interstate online poker compact with New Jersey and Delaware.

“Though the full impact of this reckless DOJ reversal remains to be seen, we can be certain that it will inject uncertainty into a well-regulated market and push consumers back into the black market,” Titus said. “Unfortunately, the Trump Administration only supports states’ rights when it is politically convenient.”

Deputy Attorney General Rod Rosenstein on Tuesday issued a memorandum to delay implementation of the opinion for 90 days.

“Given that an (Office of Legal Counsel) opinion doesn’t carry force of law, the next question becomes what, if anything, the DOJ will do in light of the new OLC opinion,” said Eilers & Krejcik Gaming Managing Director Chris Grove. “The opinion is broad and vague enough to create significant disruption across the gambling industry if applied aggressively.”

Macquarie Securities gaming analyst Chad Beynon agreed that federal courts will ultimately decide the fate of the Wire Act. He said the Department of Justice will have to argue its case against past rulings, including two appellate court decisions that supported the 2011 interpretation.

“At a time when there has been a massive improvement in gaming technology, security and compliance, some of these rulings, in our view, have very little or outdated merit, but that’s politics,” Beynon said. “In Congress, there appear to be diametrically opposed views on the subject.”

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at Follow @howardstutz on Twitter.