by Sarah Reeves, Chapman Hopkins, and Andrew Donovan
The online gambling industry received some positive news last week when the First Circuit ruled that the federal Wire Act applies only to betting on sporting events and contests. The decision rejected a 2018 U.S. Department of Justice (“DOJ”) legal opinion interpreting the Wire Act as applying to gambling more broadly.
At issue was 18 U.S.C. § 1084 of the Wire Act, which prohibits using interstate communications to transmit “bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication . . . to receive money or credit as a result of bets or wager …” The DOJ’s 2018 opinion concluded that the qualifier “on any sporting event or contest” only applied to the first clause of the section, meaning the prohibition on interstate transmissions used to “receive money or credit as a result of bets or wagers” was not limited to sports-related wagers, but extended to all forms of gambling. This interpretation reversed a prior 2011 opinion from the same office which held that the “on any sporting event or contest” language applied across the entire section.
In response to the DOJ’s 2018 opinion, the New Hampshire Lottery Commission and various lottery suppliers filed suit against the DOJ seeking a declaration that the Wire Act did not apply to lotteries conducted over the internet. Attorneys general and state agencies from 21 states, including Kentucky, joined briefs urging the court to overturn the new DOJ opinion.
On January 20, 2021, the First Circuit affirmed a lower court ruling striking down the DOJ’s 2018 opinion. The First Circuit found that under “the government’s view, either Congress outlawed lottery betting over the wires while simultaneously allowing lotteries to provide assistance over the wires in placing lottery bets, or Congress allowed lottery betting over the wires while outlawing use of the wires to tell the winner the results of his bet.” Thus, while the First Circuit agreed that the Wire Act’s language contained some ambiguity, the court found that the DOJ’s interpretation “poses unharmonious oddities” and its enforcement “would lead to odd and seemingly inexplicable results.”
This decision is a major win for state online lottery operators, as well as the gaming industry in general. Uncertainty surrounding the scope of the Wire Act has long clouded the growth of online gaming. This uncertainty has been fueled, in part, by DOJ’s broad and inconsistent interpretations of the statute’s scope. By rejecting the DOJ’s 2018 opinion, the First Circuit opinion arguably confines the Wire Act to its intended (and narrower) scope.
Experts predict that the First Circuit’s decision will be the first of several significant developments in the gaming industry this year. With state and local governments facing the economic consequences of COVID-19, expanded wagering represents a key source of potential tax revenue. At the federal level, President Biden (who was, of course, part of the administration that issued the 2011 DOJ opinion) has publicly stated his disagreement with the DOJ’s 2018 opinion, and experts are predicting that the new administration will adopt a more industry-friendly approach
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