With PASPA Gone, Wire Act Ruling Becomes Gaming’s New Threat

With PASPA Gone, Wire Act Ruling Becomes Gaming’s New Threat

The U.S. Supreme Court’s decision to repeal the Professional and Amateur Sports Protection Act on May 14, 2018, has changed the American sports betting landscape.

As we hit the one-year anniversary, Gambling.com looks at the impact of PASPA’s repeal, where sports betting stands in America and what the future holds.

The Supreme Court’s repeal of the Professional and Amateur Sports Act opened up the legal sports betting market and the potential for a $150 billion industry. A year later, an unwanted reinterpretation of an arcane law could clip that progress before it gets off the ground.

Six months after PASPA’s repeal, the Department of Justice began reinterpreting a prior decision on the Federal Wire Act of 1961, which was designed to curb organized crime by outlawing the transmission of betting across state lines. In 2011 the Obama Administration ruled the Wire Act, written decades before the internet was available to the public, didn’t apply to the nascent online casino gaming and poker industry, but only to interstate sports betting.

At that time several states began regulated internet gaming markets, and PASPA’s repeal in May 2018 jumpstarted further legislative action. But in January 2019, the DOJ unexpectedly reversed the decision, arguing the law restricted all forms of interstate gaming, sending shockwaves through legal gaming entities and statehouses across the country.

In theory, the DOJ now has the right to ban any gaming-related activity between states. With nearly every online gaming provider featuring some sort of server, money service or any other components of operation in two or more states, this could effectively outlaw any form of mobile sports, casino, slot, poker or any other type of offering. A previously agreed upon player pooling compact, such as the poker agreement struck by Nevada, Delaware and New Jersey, could also violate the law.

State lotteries, far and away the most lucrative gaming entity in America, could also be at stake. The games are increasingly dependent on online sales, meaning the DOJ ruling could cost them hundreds of millions of dollars in annual revenue if banned.

Sports betting was explicitly banned in the language of the law, but the PASPA repeal meant states were free to take bets within their own borders. Several jurisdictions have either opened online sports betting markets or plan to do so, and since components of these internet transactions are almost entirely conducted in some manner across state lines, they too could be in legal jeopardy.

Details Remain Sparse

Formulated last November and announced in January, Deputy Attorney General Rod Rosenstein gave affected parties 90 days to come in compliance with the law. That timeline was further extended, and as of May there still hasn’t been a clear indication of how, or even if, the DOJ will enforce this legislation.

Rosenstein’s departure from the Justice Department in May further clouds developments, as does the relative silence from new Attorney General William Barr about this bill. Barr has given little indication on his stance toward gambling or the Wire Act, and gambling issues are low on the list of current priorities in Washington.

State officials are not waiting in the meantime, leading legal challenges that further cloud the future of the latest Wire Act interpretation. Much remains unknown as legal internet gaming hangs in the balance, but it's clear state government and gaming purveyors will not let the industry become illegal without a fight.

Reinterpretation Leads to Newfound Scrutiny

As affected parties began to fight the new ruling, the nation’s leading online gaming adversary has taken an increasingly important role.

Sheldon Adelson, the billionaire casino magnate behind the Las Vegas Sands Corporation, has crusaded against online gaming for years. Pumping millions of dollars into his Coalition to Stop Internet Gambling, Adelson has repeatedly decried internet gaming as a "life-destroying vice."

Critics have seldom seen his moves as an act of good-faith benevolence. Adelson feels online gaming will take away foot traffic, and revenue, from his properties. Though embracing online gaming would assuredly expand his own financial bottom line, the 85-year-old has worked incessantly to stop the games, with his influence part of why his home state of Nevada doesn’t permit them.

He is also one of the largest benefactors of Donald Trump, donating more than $100 million to the Republican party in 2018 alone. Both a rabid online gaming opponent and one of the largest influences on the president, it didn’t take observers long to connect the dots on the DOJ’s unlikely move to revise its precedent.

The Fight Continues

Adelson’s sway on the Justice Department is a key point of contention in the legal battles erupting since the revised decision was announced. Earlier this month New Jersey Attorney General Gurbir Grewal sued the DOJ for documents relating to the Wire Act decision. The suit doesn’t mention Adelson specifically, but it references multiple media reports about the casino magnate’s impact on the department.

If documents revealed Adelson interfered with the objectivity of the Justice Department it would be a bombshell for not just gaming but the entire federal government.

Meanwhile New Hampshire officials await the results of an April hearing before a federal judge. The state’s lottery commission challenged the ruling in U.S. circuit court, where presiding judge Paul Barbadoro dismissed a motion from the U.S. Attorney's Office to throw out the plaintiffs’ suit, but didn’t give a time frame for when he would make a decision.

Barbadoro said he couldn’t find any legal precedent against online lottery ticket sales specifically, but reportedly acknowledged that regardless his ruling, the case would get challenged to the Supreme Court.

This is the consensus of many industry observers. Speakers on the Wire Act issue at last month’s Betting on Sports America conference agreed Congress wouldn’t take any steps to legislate the issue, so gaming’s fate would be left to the courts.

A court ruling would also need to clarify if the current challenge applies only to the New Hampshire Lottery, all state lotteries or all gaming purveyors, or that ambiguity on the existing law would continue to linger. Until then, it means more months of uncertainty with billions of dollars hanging in the balance.

Governments, Purveyors Move Cautiously

With no clarification imminent, gaming purveyors have had to prepare for the worst.

Penn National, which owns properties in states with online betting including Pennsylvania and West Virginia, are working to house servers in each state they serve so information doesn’t cross state lines. Other organizations are proceeding cautiously with online gaming, or postponing any investment until and if the law is clarified.

Lawmakers have not let the issue impact them this year when discussing sports betting, which was always explicitly banned by the Wire Act. More than two dozen states have considered bills during their respective legislative sessions this year and at least five or expected to pass sports wagering measures before the end of 2019.

However the Wire Act indecision could be a factor in why only one state, West Virginia, passed an online casino law this year. Even if states are allowed to promulgate these games exclusively within state lines, they would be at a major financial disadvantage if they are unable to pool players from other states. An intrastate offering dramatically limits the customer base, and subsequently revenue potential.

The possibly nefarious impetus for the DOJ ruling and the shaky legal ground for doing so have bolstered gaming backers hopes that the revised Wire Act interpretation won’t stand the test of law. But that hope is far from guaranteed, and the decision could be years for completion.

May 14, 2018 brought the gaming industry its biggest win in many years, invigorating not just sports betting but the entire realm of regulated gambling. The Wire Act may not spell its demise just a year later, but the clouds loom large over every lawmaker, operators and player in America.

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