Poker, tribes and DFS to bear brunt of new Wire Act changes

16 January 2019

Tribal gaming groups, online poker, daily fantasy sports and iLottery operators could face years of uncertainty following the Department of Justice’s (DoJ) opinion shift on the Wire Act, gaming experts have warned.

The DoJ reversed its 2011 opinion on the Wire Act on Monday, effectively ruling that its language prohibits all forms of gambling, and not just sports betting. The DoJ says it will not enforce the new interpretation for 90 days, in order to allow operators to comply.

Analysts at Regulus Partners said the opinion reversal could lead to a series of long-running court challenges and potential cease and desist orders against online gaming operators. They said the DoJ’s ruling presented clear long-term risks for operators, although little is likely to change in the short term.

“The courts are likely to be busy for years to come resolving these issues (which will eventually lead to the only views on the issue that really matter); at which points some outcomes may be unpleasant both for existing operations and the future progress of state legislation,” Regulus explained.

While Regulus said sports betting would not be directly impacted as it was already captured by the Wire Act, there is a significant risk for DFS operators' interstate competitions.

“Breaking DFS into a state-by-state framework is likely to be practically unworkable outside the very largest states, in our view: undermining liquidity, critical commercial synergies and stakeholders’ perception of what is acceptable regulatory risk,” Regulus analysts said.

While a small market and perhaps only affecting 888 and Caesars' All-American Poker Network, liquidity poker sharing faces the biggest threat, Regulus said.

“Another area that will need dumping from state legislation or testing is the ability to accept play from other authorised states where online gaming has been legalised,” analysts added. They also said shared or cloud infrastructure services in the iLottery vertical could be affected, leading to costly operational changes.

Tribal gaming groups face considerable threat as their borders are arguably legal boundaries that would trigger the Wire Act, Regulus continued. It said that this could result in tribal venues withdrawing support for state legislation to allow online gambling, for example in Michigan where 24 of 27 casinos are operated by Native American tribes.

“The ability of Tribal casinos to offer gaming in-state may now need testing,” Regulus said. “If a critical mass of Tribes become even less supportive of online gambling (by state), then this is likely to be the end of a number of prospective bills.”

The revised opinion, issued by Assistant Attorney General for the Office of Legal Counsel Stephen Engel, was issued following a request from the DoJ’s Criminal Division to reconsider the 2011 ruling, which paved the way for the roll-out of online gambling in a number of US states. The 2011 opinion explicitly stated that only sports betting was banned across state borders.

“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,” Engel explained.

Engel acknowledged on Monday that the 2011 opinion has been used as a basis for states and state lotteries to regulate online gaming and online sales. However, he added, having concluded that the statute’s language plainly prohibits all forms of gambling, these interests do not justify adhering to this stance on the Wire Act. Instead, he said, it was down to the US Congress to amend the law.

The Wire Act, or Interstate Wire Act of 1961, was drafted on the recommendation of then-Attorney General Robert Kennedy to make interstate gambling illegal in a bid to tackle organised crime in the US. It was then signed into law by his brother, President John F. Kennedy, in September 1961.

Image: Lee Davy