U.S. Cracks Down on Online Gambling Market

The U.S. Department of Justice's decision to expand the federal ban on online gambling is expected to have a negative impact on the industry as businesses and state lotteries assess the implications of these changes and the government’s plans for their implementation.

Cracking Down on Illegal Gambling in the U.S.

Currently, the United States asserts that the Unlawful Internet Gambling Enforcement Act (UIGEA) prohibits all forms of interstate online gambling transactions, thus altering its stance from 2011 when only sports betting was deemed illegal under this law enacted 50 years ago.

Federal law explicitly bans the transmission of bets and related information across state lines, so the new interpretation by the Department of Justice will affect all online gambling because it is practically impossible to ensure that no payments cross state borders, said Aaron Swartz, an attorney at Glaser Weil Fink Howard Avchen & Shapiro LLP based in Los Angeles.

On Tuesday, shares of casino operators and gaming service providers fell. This includes shares of MGM Resorts International, which dropped 1.3%, and International Game Technology Plc, which declined 3.7%.

These changes were initiated by the criminal division of the Department, which has been prosecuting activities related to illegal gambling. About seven years ago, an opinion was drafted stating that the Unlawful Internet Gambling Enforcement Act of 1961 prohibited only sports-related gambling, but ultimately this turned out to be an incorrect interpretation of the legislation according to the conclusion reached by the Office of Legal Counsel on November 2nd, published Monday in a 23-page document.

The Department of Justice stated that the new interpretation of the law is likely to be challenged in court, as judges may face difficulties regarding the government's view of the scope of the law. This could also affect those states that began selling lottery tickets online after the 2011 opinion, as well as casinos offering online gambling.

A coalition backed by casino billionaire Sheldon Adelson had been pushing the Department of Justice since 2017 to reconsider the 2011 opinion, which gave states the green light to allow internet gambling.

How Will the Wire Act Impact the Gaming Industry?

The business most directly affected will be interstate lotteries, which have thrived since 2011, said Dennis Gutwald, an attorney with McDonald Carano LLP in Las Vegas. The Department of Justice's new interpretation of the law will not affect intrastate online betting where players place wagers within a single state.

Last year, the US Supreme Court ruled that all states except Nevada can also permit sports betting. New Jersey and other states that now allow sports betting restrict these activities to individuals within their own state boundaries. Gutwald noted that the change in the Department of Justice's opinion would hinder the benefits shared between Delaware, Nevada, and New Jersey, which allows people from these states to play poker against each other online.

Online poker and blackjack are used less than lotteries, but according to Gutwald, lawyers will need to examine how they can continue operating in light of the Department of Justice's opinion.

“Every company needs to take a close look at what they're doing,” Gutwald said.