Will New Jersey Online Gambling Industry Survive DOJ’s New Wire Act Interpretation?

The DOJ Recently Threw a Curveball to NJ’s Growing Online Gambling Industry by Issuing a New Interpretation of the Wire Act…

The Department of Justice (DOJ) recently threw a curveball to New Jersey’s growing online gambling industry by issuing a new interpretation of the Wire Act. The DOJ’s new stance is that the Wire Act is applicable to online gambling, not just sports wagers.

Federal Wire Act

First enacted in 1961, the Wire Act prohibits persons involved in the gambling business from transmitting several types of wagering-related communications over the “wires.” The prohibitions are set forth in Section 1084(a), which provides:

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.

DOJ’s 2011 Opinion

While the Wire Act was drafted in a time where “wires” only referred to telephones, the Internet has allowed online gambling to flourish, albeit in a legal grey area. In 2002, the Fifth Circuit Court of Appeals provided some clarity, holding in In Re: Mastercard International Inc. Internet Gambling Litigation that the Wire Act applies only to sports betting.

Several years later, two states proposed using the Internet or using out-of-state transaction processors to sell lottery tickets to in-state adults and asked the DOJ to provide guidance regarding its proposals would run afoul of the Wire Act. The DOJ’s 2011 Opinion acknowledged that the statutory text was ambiguous. However, it went on to conclude that the “more logical result” was to read section 1084(a)’s prohibitions as parallel in scope and therefore as all limited to sports gambling. “[W]e conclude that interstate transmissions of wire communications that do not relate to a ‘sporting event or contest,’ 18 U.S.C. § 1084(a), fall outside of the reach of the Wire Act,” the DOJ wrote. “Because the proposed New York and Illinois lottery proposals do not involve wagering on sporting events or contests, the Wire Act does not, in our view, prohibit them.”

DOJ’s 2019 Opinion

On January 14, 2019, the DOJ’s Office of Legal Counsel (OLC) reversed position by issuing a new opinion, entitled Reconsidering Whether the Wire Act Applies to Non-Sports Gambling. It concludes that “[w]hile the Wire Act is not a model of artful drafting, we conclude that the words of the statute are sufficiently clear and that all but one of its prohibitions sweep beyond sports gambling.”

Under the DOJ’s new interpretation, only the second prohibition of the first clause of Section 1084(a), which criminalizes “the transmission … of. . . information assisting in the placing of bets or wagers on any sporting event or contest’ (emphasis added), is limited to sports betting or wagering. In its opinion, the OLC explains that the limitation “on any sporting event or contest” in that second prohibition does not sweep backwards or forwards to reach the other prohibitions in Section I084(a). Accordingly, the first prohibition (barring persons in the gambling business from knowingly using a wire communication facility to transmit “bets or wagers”), the third prohibition (barring any such persons from transmitting wire communications that entitle the recipient to “receive money or credit as a result of bets or wagers”), and the fourth prohibition (barring any such persons from transmitting wire communications “for information assisting in the placing of bets or wagers”) extend to non-sports-related betting or wagering. The DOJ’s latest opinion also concludes that the Unlawful Internet Gambling Enforcement Act (UIGEA) does not modify Section 1084(a).

The DOJ has delayed implementation of its new interpretation for 90 days to allow businesses that have relied on the prior opinion “time to bring their operations into compliance with federal law.” The three-month delay also allows impacted entities to wage legal challenges. Critics contend that the DOJ got it right in 2011, while the 2019 opinion ignores the Wire Act’s legislative history, which demonstrates that the law was intended to address sports betting.  

Impact on New Jersey’s Gaming Industry

Since the U.S. Supreme Court struck down the federal ban on sports wagering in May 2018, New Jersey, Pennsylvania and Rhode Island have legalized gambling.  In New Jersey, legalized sports betting and Internet gaming are credited with revitalizing Atlantic City and bringing life back to the state’s gaming industry. According to the Division of Gaming Enforcement (DGE), online gaming generated $298 million in revenue for the state’s casinos in 2018. Of the $1.2 billion that patrons bet on sports wagers in 2018, $780 million of the bets were made via online or mobile apps, according to the DGE.

The DOJ’s 2019 opinion seriously threatens New Jersey’s internet gaming legislation. Because Internet connections and payment processes cross state lines, the state’s legalized online gambling could violate the Wire Act under the new interpretation.

On February 5, New Jersey Attorney General Gurbir Grewal and Pennsylvania Attorney General Josh Shapiro sent a letter to the DOJ that requested agency rescind its latest opinion. “We can see no good for the DOJ’s sudden reversal,” the AGs wrote. “This decision puts jobs and livelihoods at risk for the thousands of people who work in the online gaming industry and jeopardizes critical state funding for the public good that is generated by lottery sales and other internet activity that is legal within our states.” The letter further argues:

We can see no good reason for DOJ’s sudden reversal. First, it runs contrary to plain language of the Wire Second, DOJ has recognized that it should “employ considerable caution in departing from … prior opinions,” in light of the “strong interests in efficiency, institutional credibility, and the reasonable expectations of those who have relied on our prior advice.”3 Here, however, DOJ acknowledges that states were relying on its prior advice and did not provide any intervening facts or information to justify such a major departure.

Former state Senator Ray Lesniak, who played a key role in New Jersey’s efforts to strike down the PASPA, has called on state lawmakers to also take action to protect the New Jersey’s resurging gambling industry. In a letter to Senate President Steve Sweeney, Lesniak noted that the DOJ’s new Wire Act interpretation “casts an ominous cloud over our internet gaming operations and potentially over our internet sports betting operations.” He urged the New Jersey Legislature to challenge the DOJ’s 2019 opinion by filing a Declaratory Judgment Action in the U.S District Court.

As highlighted above, the DOJ’s latest Wire Act interpretation will likely be the subject of a protracted legal battle. For businesses looking to enter New Jersey’s legal sports betting industry, we encourage you to work with a knowledgeable New Jersey business attorney who can help you navigate the regulatory framework, which could soon become even more burdensome.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Charles Yuen, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.