A screen shot of the betandwin.com website taken in London, U.K. (Photographer: Adrian Brown/Bloomberg News)

U.S. Online Gambling Reversal Puts ‘Chill’ on Industry

(Bloomberg) -- The U.S. Justice Department’s decision to expand a federal prohibition on internet gambling will cast a pall on the industry as businesses and state lotteries evaluate the implications of the change and the government’s plans to enforce it.

The U.S. now says the U.S. Wire Act bars all internet gambling that involves interstate transactions, reversing its position from 2011 that only sports betting was prohibited under the law passed 50 years earlier.

While the federal law specifically prohibits transmission of wagers and related information across state lines, the Justice Department’s new interpretation will impact all online gambling because as a practical matter it’s difficult to guarantee that no payments are routed through other states, said Aaron Swerdlow, an attorney with Glaser Weil Fink Howard Avchen & Shapiro LLP in Los Angeles.

“This will have a chilling effect on investment and expansion in the industry,” Swerdlow said. “You are going to see legal challenges.”

Shares of casino operators and suppliers fell on Tuesday. That included MGM Resorts International, down as much as 1.3 percent, and International Game Technology Plc, which dropped as much as 3.7 percent.

For more on the 2011 opinion: Wire Act Applies Only to Sports Betting, , DOJ Decides

The reversal was prompted by the department’s criminal division, which prosecutes illegal gambling. The opinion issued about seven years ago that the 1961 Wire Act only banned sports gambling was a misinterpretation of the statute, according to a 23-page opinion by the department’s Office of Legal Counsel dated Nov. 2 and made public Monday.

The new reading of the law probably will be tested in the courts as judges may entertain challenges to the government’s view of the law’s scope, the Justice Department said. It may also affect states that began selling lottery tickets online after the 2011 opinion, as well as casinos that offer online gambling.

A coalition backed by billionaire casino executive Sheldon Adelson lobbied the Justice Department in 2017 to reconsider its 2011 decision that cleared the way for states to allow online gambling.

The businesses that will be most directly affected are interstate lotteries that have become well established after 2011, said Dennis Gutwald, an attorney with McDonald Carano LLP in Las Vegas. The Justice Department’s new reading of the law won’t affect intrastate online wagering, where patrons bet only from within a single state.

The U.S. Supreme Court ruled last year that states other than Nevada could also permit sports betting. New Jersey and other states that now allow sports wagering restrict those activities to individuals physically within the state. The Justice Department’s change of heart will be an obstacle to an exemption between Delaware, Nevada and New Jersey that allows people from those states to play poker against each other online, Gutwald said.

Online poker and blackjack operations are much less developed than the lotteries, but they will have to examine how they can continue to be run in light of the Justice Department’s opinion, according to Gutwald.

“Every company has got to take a close look at what they’re doing,” Gutwald said.

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