Opening the Web as a Frontier for Gambling in the U.S.

An opinion published by the U.S. Department of Justice’s Office of Legal Counsel in late December has opened the way for state lotteries to sell tickets via the Internet. And now people are wondering if poker, casinos, and other online gaming enterprises can be far behind.

The opinion [PDF] was written to answer specific questions about state lotteries. Illinois lottery officials, as well as William Murray, general counsel of the New York lottery, had written letters asking if the states could use the Internet and out-of-state transaction processors to sell lottery tickets to in-state adults, without being in violation of the International Wire Act of 1961.

In the past, the Wire Act was interpreted as outlawing all forms of gambling across state lines. And DOJ had relied on the act to prosecute the founders of three offshore online poker sites in 2011—PokerStars, Full Tilt Poker, and Absolute Poker.

The 13-page opinion says the Justice Department’s criminal division believed the Illinois and New York plans to use the Internet would violate the act because they would transmit gambling data across state lines. But the Office of Legal Counsel, which advises the U.S. attorney general and the federal administration, disagreed.

After analyzing the act’s legislative history, the opinion concludes “that the criminal division’s premise is incorrect and that the Wire Act prohibits only the transmission of communications related to bets or wagers on sporting events or contests.”

A state lottery does not fit the “sporting events or contests” category, it explains.

The opinion, signed by assistant attorney general Virginia Seitz, leaves open the possibility that state lotteries could use the Internet for any number of non-sports purposes, including interstate sales of lottery tickets.

Jay Lapine, general counsel of Intralot, Inc., in suburban Atlanta, was pleased with the ruling. Intralot, based in Greece, is a major supplier of gaming services and products in the U.S. and worldwide, including to several state lotteries.

“It wasn’t exactly a surprise,” Lapine said, “because there has been a controversy over the law for some time. But it was a hoped-for and well received announcement.”

Lapine said the ruling will add another major dimension to the services and products that companies like his provide. “It’s now up to each state lottery commission and legislature to decide whether to go forward,” he added. “We and our competitors have the equipment and systems ready and available.”

Several blogs have suggested online poker and casino games will not be far behind. For example, The Motley Fool asked in response to Justice’s opinion: “Will Online Poker Actually Be Legal?”

Lapine said it already is. Last April, Washington, D.C.—where Intralot provides lottery services—passed a law authorizing Internet poker within the district. Lapine has been working with Intralot’s government affairs unit to help the district write rules to implement the law. “We are in the process of setting it up now,” he said.

Then in late December, the Nevada Gaming Commission established rules for intrastate Internet poker and other games. At this time, it will be up to each company seeking a license to show that it is only allowing play within the state’s borders. It remains to be seen how Justice’s opinion may change that requirement.

Another big question is how soon Congress will jump in to control the action. Many of the top gambling resorts in Las Vegas last year supported a federal online gaming bill that would have legalized Internet poker and other games. What’s happening in Nevada and Washington D.C., along with Justice’s recent opinion, is expected to increase the pressure on Congress to act soon.

But at least one group wants the feds to leave the control of gambling in the states’ hands. The North American Association of State and ProvincialLotteries (NASPL) claims to represent all 52 legal lotteries in the U.S.and Canada. A statement on its website says it opposes “federal legislation that would encroach on the traditional state prerogative to regulate gaming within each state’s borders.”