The US online gaming market
in 2012: legislative efforts
Legislative efforts in the United
States regarding online gaming
changed on 23 December 2011, as
the US Department of Justice
concluded that the Wire Act is not
to be implicated by online wagering
on activities other than sports.
Linda J. Shorey and Anthony R.
Holtzman, of K&L Gates LLP,
evaluate the current situation and
examine the possibility of an internet
gambling bill in light of the
forthcoming presidential election
pressures this year.
The landscape surrounding
legislative efforts to license and
regulate internet gaming in the US
changed on 23 December 2011,
when the US Department of
Justice (DoJ) made public the
Opinion of the Office of Legal
Counsel (OLC), concluding that
the Wire Act is not implicated by
online wagering on activities other
than sports. That conclusion led
the OLC to determine that New
York and Illinois - since their State
Lotteries did not concern wagers
on sports-related activities - would
not run afoul of the Wire Act by
permitting the online sale of daily
lottery tickets to persons located in
their respective states, even if data
related to the sale was transmitted
by telephone or over the internet
and stored at a location outside the
state. What the change means,
however, is the subject of much
discussion. As of the drafting of
this article, no consensus has
emerged.
The DoJ’s position before 23
December 2011
The OLC's conclusion that the
Wire Act comes into play only in
connection with interstate or
foreign wire transmission of
wagers or information assisting in
the placement of wagers on sports-
related activities drastically
changed DoJ's public position on
internet gaming. Since at least
1998, DoJ representatives had been
telling Congress that the Wire Act
is implicated by online wagering
on all types of activities, whether
sports (including horseraces),
casino games, or poker.
In 2003, DoJ advised entities
displaying advertising for online
gaming that, by doing so, they were
illegally 'aiding and abetting'
gaming operators in the violation
of the Wire Act and other federal
laws triggered by a Wire Act
violation. DoJ, in turn, reached
settlement agreements with a
number of those entities. Between
2001 and 2005, DoJ sent letters to
states and territories that were
considering or had enacted
legislation to license and regulate
internet gaming, positing that even
if the transmission of online
wagers began and ended in the
same state, there was nevertheless
an 'interstate' transmission and,
therefore, a violation of the Wire
Act. As a result, not one state or
territory, including those that had
enacted legislation, allowed
internet gaming to proceed. Other
states, such as Washington and
Louisiana, passed legislation that
makes internet gaming for money
- i.e. 'pay-to-play' - illegal, while
still other states interpreted their
already-existing laws as prohibiting
the activity.
UIGEA
After the Unlawful Internet
Gambling Enforcement Act
(UIGEA) became effective in 2006,
hundreds of online gaming
operators and many entities that
processed online payments for
them - stopped accepting wagers
from or stopped creating accounts
for US-based punters. DoJ, at the
same time, shifted its attention
from sending letters that chilled
state legislative efforts to
negotiating settlement agreements
- which included hefty
disgorgements of allegedly illegal
profits - with operators and
payment processors such as
Betonsports, Partygaming,
Sportingbet, and Neteller, among
others.
Another thing that occurred after
UIGEA, however, was that the DoJ
stopped publicly proclaiming that
the Wire Act prohibited online
transmissions of wagers that
started and ended in the same
state. This sudden silence,
presumptively, was a result of the
fact that UIGEA exempts from its
definition of 'unlawful internet
gambling' among other things,
state-authorised internet wagering
that meets certain conditions,
including that the wagering
transmission begins and ends in
the same state. Even though
UIGEA does not establish that its
definition of 'unlawful Internet
gambling' embraces the same
conduct that is illegal under the
Wire Act, many states concluded
that it does and began to think
about authorising internet gaming.
Legislative efforts before 23
December 2011
By 2011, at least six states, the
District of Columbia, and
Congress were actively considering
legislation that would authorise
one or more forms of internet
gaming.
On the state-side, at the end of
2011, only Nevada (in 2001) and
the District of Columbia (in 2011)
had actually enacted legislation
that, when (and if) implemented,
would result in the conduct of
authorised internet gaming. While
the New Jersey legislature enacted
legislation that would authorise
licensed New Jersey casinos to offer
their approved games online, its
Governor vetoed the bill on
grounds that, among others, it
might violate the New Jersey
published in World Online Gambling Law Report, January 2012. www.e-comlaw.com. Twitter @WOGLReport LinkedIn: ‘World Online Gambling Law Report’ group. London, UK
Constitution. It looked as if New
Jersey voters would need to adopt a
state constitutional amendment
permitting the legislature to
authorise internet gaming before
its Governor would sign an
internet gaming bill. California with two bills pending - deferred
consideration until 2012, as it
continued to pursue efforts to
reach compromise, including
finding a position on the
regulation of online gaming that
would be acceptable to Californiabased Tribes.
Two bills were introduced in the
U.S. House of Representatives in
2011 - the Campbell/Frank bill which would authorise online
wagering on most activities except
sports, and the Barton bill - which
would authorise only online
wagering on poker. There was also
a widely-held belief that Senator
Harry Reid (D-NV), the Senate
Majority Leader, was continuing to
attempt to work with Senator John
Kyl (R-AZ), a leading opponent of
online gaming, to find common
ground and craft legislation that
would authorise internet poker
and strengthen UIGEA. When
Congress did not enact legislation
before recessing for the holidays,
however, most commentators
believed it would not move an
internet gaming bill until 2013,
given the potential political risks of
doing so during a presidential
election year (2012) and the
demand by State Lotteries and
Tribes to be heard on the subject.
What might happen next?
With the announcement of the
OLC opinion, the previouslyaccepted, relatively weak prognosis
for the enactment of online
gaming legislation began to be
questioned. An immediate
response was an increase in stock
prices for some online operators
and lottery vendors. This point,
however, was countered by the
In an election
year for state
legislators, as
it will be in
many states,
there may be
little appetite
to move
quickly on
internet
gaming even with the
states'
continuing
need for new
revenue
reality that the OLC opinion is
only binding on the DOJ - not the
courts - and does not change any
state criminal law or any federal
criminal law triggered by a
violation of state law.
Election year
As to the impact on state legislative
efforts - some commentators
predict states will rush to authorise
their State Lotteries to offer games
of chance and poker online - with
some pundits suggesting that many
states will, in turn, enter into
compacts allowing their residents
to play the same online games at
the same time, increasing the size
of the prizes. Some suggest that
states with land-based commercial
and tribal casinos will authorise
those entities to make their casino
games - slots and table - available
online. Others caution that states,
with the possible exception of New
Jersey, are not likely to rush to take
action. Until recently, only a
handful of states had key legislators
and Governors who were paying
attention to internet gaming and,
for key officials in other states,
there will be a substantial learning
curve. And, in many states, even
those with a State Lottery or landbased casinos, gambling expansion
is likely to be a 'political hot
potato.' In an election year for state
legislators, as it will be in many
states, there may be little appetite
to move quickly on internet
gaming - even with the states'
continuing need for new revenue.
forms to be conducted by different
entities. Those suggesting Congress
will not act in 2012 point primarily
to the pressures associated with the
typical presidential election year.
In short, it is too early in the year
to make good predictions of what
may actually happen. The
possibilities are still being
identified and examined. As
Congress and State legislatures
return to session in 2012, a better
sense of the situation should
emerge.
Linda J. Shorey Partner
Anthony R. Holtzman Associate
K&L Gates LLP
linda.shorey@klgates.com
anthony.holtzman@klgates.com
Congress
There is also a divergence among
commentators on whether the
OLC opinion will give
Congressional leaders a reason to
pursue an internet gambling bill.
Those suggesting Congress will act
in 2012 point, among other things,
to the patchwork of legislation that
will result if states start authorising
internet gambling in differing
published in World Online Gambling Law Report, January 2012. www.e-comlaw.com. Twitter @WOGLReport LinkedIn: ‘World Online Gambling Law Report’ group. London, UK