Reposted from DLA Piper’s Media Intelligence Bulletin

Editorial Team: Nick Fitzpatrick, Duncan Calow and Patrick Mitchell

The Department of Justice has published a landmark legal opinion that could pave the way for internet gambling in the United States.

On 20 September 2011, the Department of Justice’s Office of Legal Counsel reached its decision on whether the proposals by the states of Illinois and New York to use the internet and out-of-state transaction processors to sell lottery tickets to in-state citizens would violate the Wire Act 1961 (the “Wire Act”). The Wire Act prohibits wagering over telecommunications systems that cross state or national borders, therefore preventing use of the internet by states to sell lottery tickets even to adults within their own borders.

In 2009 and 2010, New York and Illinois requested clarification of the Wire Act provisions due to New York Lottery officials’ plans for extension of its current online lottery and research by the state of Illinois that indicated that online sales could drive up participation in the Illinois Lottery. Following consideration of the Criminal Division’s views and letters from both New York and Illinois, the DoJ concluded that “interstate transmissions of wire communications that do not relate to a ‘sporting event or contest,’ … fall outside of the reach of the Wire Act”.

Despite specifically dealing with lottery tickets, the opinion, which was only made public on 23 December 2011, has opened the door to states to allow for internet poker and other forms of online betting that do not involve sports as long as the gambling operator and customer are within the state’s jurisdiction. The opinion differs from the Department of Justice’s longstanding position that all forms of online gambling in the United States are illegal, with the only exception being that sports betting is still prohibited under federal law.

Some groups note that the opinion’s clearance for states to govern online betting within their own jurisdiction is only a starting point in the transformation of the US position on online gambling. The American Gaming Association, the representative of the commercial casino entertainment industry, insisted there is a need for federal law as the opinion “validates the urgent need for federal legislation to curb what will not be a proliferation of domestic and foreign, unlicensed and unregulated gaming websites without consistent regulatory standards and safeguards against fraud, underage gambling and money laundering”.