Worries of Online Gambling Crackdown Spur States to Action

TRENTON, N.J. (CN) – One year after the U.S. Supreme Court legalized sports betting, the Trump administration is digging in for a new showdown with states that want online poker and other forms of internet gambling to also get a green light.

The Office of Legal Counsel at the Justice Department, normally considered a referee within the executive branch, fired the first shots with an opinion dated Nov. 2 that was made public earlier this year.

“While 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,” the opinion states.

This conclusion ran counter, however, to one the Justice Department reached in 2011 under former President Barack Obama. Though the policy reversal lacks the force of law, its suggestion of a pending government crackdown has left online gaming companies confounded. Politicians have eyed ulterior motives meanwhile in the Trump administration’s sudden reliance on a 1961 law used by Attorney General Robert Kennedy to fight the mafia. 

“I think there is no doubt that this issue will go all the way to the U.S. Supreme Court,” Ray Lesniak, a former New Jersey senator, said in an interview. “Attorney General Barr is driven by politics and not by the law, and the politics of this is that the Justice Department of going to do the bidding of Sheldon Adelson.”

The OLC issued its policy reversal on the heels of intensive lobbying by Adelson, a noted Trump supporter who owns the Sands Hotel and Casino in Las Vegas, and New Jersey Attorney General Gurbir Grewal hammered the apparent conflict of interest here when the state filed suit under the Freedom of Information Act. 

“It’s especially important that we figure out whether this federal crackdown is the result of a lobbying campaign by a single individual seeking to protect his personal business interests,” Grewal warned.

New Jersey has said revenue from online gaming brings in more than $350 million a year, a welcome boon to the state’s beleaguered casino industry. The state’s Department of Gaming and Entertainment reported in April that online gaming revenue is up nearly 60 percent from the same time last year, and that roughly 60 companies having applied for online gaming licenses. 

Because of the OLC opinion, however, Lesniak said New Jersey’s expansion in the industry is being delayed.

“They want to drag it out as long as possible,” Lesniak said, referring to the Trump administration.

Another problem for the industry is conflicting guidance on how phones or mobile devices are used to place wagers. Intermediate routing, as such transactions are known, technically cross state lines, and Jennifer Roberts, associate director of the International Center for Gaming Regulation in Las Vegas, noted in an interview this complicates the full sweep of the OLC’s opinion.

“There’s so many questions that have been raised,” Roberts said. “Will they shut down every mobile wagering operation?”

In New Hampshire, the concern has even spread to intrastate activity such as online state-run lotteries.

After New Hampshire demanded an injunction against the OLC opinion this past February, the Justice Department declared the new opinion does not apply to lotteries and moved to dismiss the case.

“That just adds to the confusion,” Roberts said, noting the previous policy from 2011 DOJ had been written in response to concerns about lottery wagering.

The American Gaming Association called the new OLC opinion “unfortunate” earlier this year but said it believed it did not affect intrastate online gaming, known in the industry as i-gaming.

“With over 4,000 regulators and billions of dollars allocated to compliance, casino gaming is one of the most highly regulated industries in the country and for decades has provided its customers with cutting-edge products in a safe, regulated environment,” AGA Senior Vice President Sara Slane said in a statement.

The AGA declined to offer any updated comments on the DOJ opinion, the New Hampshire lawsuit, or other state actions on the issue.

With the Justice Department agreeing to postpone enforcement of its new policy until June 14, all eyes now await the ruling by U.S. District Judge Paul Barbadoro in New Hampshire.

“It won’t stand for long,” attorney Jeff Ifrah said of the OLC policy shift.

A lawyer for the iDevelopment and Economic Association, which filed an amicus brief in the New Hampshire case, Ifrah called it clear from Judge Barbadoro’s “body language that he is going to get rid of it.”

“The question is how does DOJ react to his decision,” Ifrah added.

Ifrah also noted that uncertainty has not stopped the industry from pushing ahead with online gaming, pointing to growing interest among states to work with online gaming companies. 

On the programming side meanwhile, Ifrah said “the people who do the data servers have designed compliance systems to comply with this opinion to keep transactions intrastate.”

George Rover, the former deputy director of New Jersey’s Division of Gaming Enforcement, predicted that the feds are unlikely to intervene now.

“I can’t imagine that the DOJ, with all the pressing matters on its agenda — drugs, gangs, terrorism — would want to use its resources to prosecute licensed entities in New Jersey, where [online gaming] is highly regulated,” Rover said in an interview. “It makes no sense.”

Though New Jersey is expected to file its own constitutional suit, state Senate President Stephen Sweeney appears inclined to wait for the New Hampshire case to resolve before doing so. Lesniak called this the “wrong strategy,” meanwhile, since it is unlikely that the Judge Barbadoro will issue a national injunction.

“I think [Sweeney] is keeping his powder dry because he’s been asked by Atlantic City casinos to hold back until the New Hampshire case is decided,” Lesniak said in an interview.

Lesniak urged Sweeney in a letter earlier this year to have state gaming officials begin gathering data from New Jersey online gaming operators to determine the negative impact of the DOJ’s ruling.

“The DOJ 2019 opinion threatens the substantial benefits to New Jersey from Internet gaming and must be challenged by the Legislature by filing a declaratory judgment action in U.S. District Court to protect and preserve the significant benefits accruing to the state of New Jersey and our residents from Internet gaming,” Lesniak wrote.

Sweeney wrote in his own February letter to the Justice Department that the policy shift “casts a dark cloud” over online gaming.

“The 2019 opinion, which took 26 pages of tortured analysis of sentence structure and comma placements to determine that the clear language of the Wire Act applied to all forms of gambling, was contrary to the much better reasoned opinion of the 5th Circuit and the ‘thorough review’ of the Department of Justice in 2011,” Sweeney wrote.

Meantime in the New Hampshire case, New Jersey argued in an amicus brief that the DOJ opinion represents a “true injustice.” 

Noting that payment for games played in New Jersey may still route through a company based elsewhere, the state predicted that it would be nearly impossible to limit online gaming to merely intrastate wires.

“It is simply the nature of the Internet that purely intrastate transactions may travel through channels that cross state lines,” the amicus brief states.

Adelson’s group, the Coalition to Stop Internet Gambling, filed an amicus brief in the New Hampshire case as well.

The filing says states are “woefully unprepared” to handle regulation of interstate gambling, and giving permission to one state like New Jersey will lead to online gaming spreading across the country.

As with the sports gambling case, any ruling on the issue of online gambling could eventually make its way to the U.S. Supreme Court.

“The risk is that if [Barbadoro] rules only narrowly on the Wire Act’s impact in the First Circuit, then I’m concerned it won’t be an issue that can get to the Supreme Court,” Roberts said. “All it would do is create another circuit that says what it already has said on the issue.”

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