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A Reinterpretation With Unintended Consequences: Did the USDOJ Just Declare Your State Lottery Illegal?

Brian Kane, Counsel, Assistant Chief Deputy Attorney General, Office of the Attorney General of Idaho

On Jan. 21, 2019, the United States Department of Justice (DOJ) issued an opinion, Reconsidering Whether the Wire Act Applies to Non-Sports Gambling (“2018 Opinion”).[1] This opinion reconsidered a 2011 opinion in which the DOJ evaluated whether the Wire Act[2] applies to internet and interstate lottery ticket sales.[3] The 2011 opinion interpreted the Wire Act to apply only to sports betting, leaving state lotteries to continue to operate and expand with few concerns as to their legality. But the 2018 Opinion’s interpretation extended the reach of the Wire Act beyond sports betting to include any type of gambling, including lotteries. Recognizing the significant expansion in the scope of the Wire Act created by the 2018 Opinion, the DOJ deferred enforcement under the 2018 Opinion twice, first to April 15, 2019 and then to June 14, 2019.[4] But these deferrals still leave states facing impending federal prohibition of a longstanding form of government-conducted gambling.[5]

In sum, the 2018 Opinion could directly impact one of the state’s most meaningful sources of revenue—the state lottery. The 2018 Opinion directly calls into question internet sales of lottery tickets, which were permitted under the 2011 Opinion. Through its reasoning, the opinion also calls into question the legality of interstate sales of lottery tickets and multi-state lottery offerings such as Powerball and MegaMillions. Significantly, a finding that these lottery offerings are illegal would eliminate a measurable revenue source for states (many of whom dedicate this funding to their education systems).[6] This article will analyze the Wire Act, the DOJ opinions, and the current uncertainty regarding the 2018 Opinion’s application. It will then provide a straightforward interpretation of the Wire Act that does not diminish the applicability of the Wire Act, but appropriately respects state sovereignty within the area of gambling. 

The Wire Act

The Wire Act, 18 U.S.C. §§ 1081 to 1084, was adopted in 1961 as one of a series of proposals by Attorney General Robert F. Kennedy to combat organized crime. The Act was intended to add to allegations of unlawful gambling activity and act as a means to enhance punishments to deter unlawful gambling syndicates. The text of the act is fairly straightforward, but also vague in a manner that demonstrates its purpose as an add-on charge:

Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of 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 which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both. 

As Attorney General Kennedy stated, this legislation was written to assist law enforcement through existing state laws in targeting “organized crime in this country without invading the privacy of the home or outraging the sensibilities of our people in matters of personal inclinations and morals.”[7] In other words, the Wire Act was intended to assist states that had outlawed gambling but simultaneously respect that some states permitted gambling. This is reflected in paragraph (b) of § 1084:

Nothing in this section shall be construed to prevent the transmission in interstate or foreign commerce of information for use in news reporting of sporting events or contests, or for the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a state or foreign country where betting on that sporting event or contest is legal into a State or foreign country in which such betting is legal.

This safe harbor would appear to allow the transmission of information to assist in the placement of a wager from one state where the wager is legal to another state where the wager is legal without incurring criminal liability under the Wire Act. If the safe harbor is interpreted to apply only to sports betting however, the transmission of other gambling information between states where such gambling is legal may be arguably illegal under the Act. This narrow interpretation of the safe harbor is inconsistent with a broad interpretation of § 1084(a) that would cover state lotteries. It makes more sense that Congress intended § 1084(a) and (b) be read consistently to only prohibit (and only provide safe harbor for) the use of wire communication facilities to transmit both bets or wagers and betting or wagering information only in connection with sporting events or contests.   

State and Multi-State Lotteries Have Legally Existed for Decades

With a single exception, state sponsored lotteries came into being after enactment of the Wire Act. The first modern government-run lottery was established by Puerto Rico in 1934. In the continental United States, the first government-run lottery was created by New Hampshire in 1964, three years after passage of the Wire Act. Currently, all but six states offer some version of a government-sponsored lottery. Additionally, many states participate in multistate lotteries, which require the interstate transmission of betting information and prize monies in order to allow the linked operation of the lottery. Multistate lotteries have been in existence since 1985.  

The 2011 and 2018 Opinions in Brief

In 2011, New York and Illinois sought clarification as to whether the Wire Act applied to the use of the internet and out-of-state transaction processors to sell lottery tickets to in-state adults.[8] In response, DOJ concluded in its 2011 Opinion that the Wire Act applied only to interstate transmission of information regarding sporting events or contests, in other words, sports gambling.  In 2018, DOJ sua sponte revisited the 2011 Opinion. After engaging in a lengthy statutory construction analysis, the DOJ reversed itself and reinterpreted the Wire Act to apply to much more than simply sports betting. The 2018 Opinion concluded that the Wire Act applied to interstate transmissions involving all forms of gambling.  Analysis of the 2018 Opinion’s statutory interpretation of the Wire Act is beyond the scope of this article, but it may be summed up by economist Ronald Coase’s general observation that, “if you torture the data long enough, it will yield.” The 2018 Opinion thoroughly dissects the rules of statutory interpretation, but hardly acknowledges the extant legal gambling regime, most of which was enacted after adoption of the Wire Act.[9] This divorce of legal analysis from real world application creates immense legal uncertainty for most states because they are members of multi-state lotteries, have legalized gambling that includes the interstate transfer of data and prize monies through the internet and via wire transactions, and have been engaged in this conduct for decades without any hint that their actions could violate federal law.[10]   

In response to the 2018 Opinion, on February 15, 2019, New Hampshire filed suit against the U.S. Attorney General, asking the court to hold that the Wire Act does not apply to state-conducted lotteries and to permanently enjoin the DOJ from acting in accordance with the 2018 Opinion.[11]   

The Extended Reach of the Wire Act Under the 2018 Opinion

The 2018 Opinion, through its reinterpretation of the Wire Act, may declare illegal activities whose legality was never previously in question.[12] One must consider that the opinion will not apply only to multi-state lotteries. Another area now called into question is multistate progressive slot machines. South Dakota, Maryland, Nevada, New Jersey, and other states participate in slot machines linked across state lines, which may now be covered by the Wire Act. 

The reinterpretation of the statute, which prohibits the use of a wire communication facility to transmit information designed to assist in the placement of bets on sporting events or contests, may also now apply to many sports shows and web page profiles. For example, on March 1, 2019, ESPN announced that it would be producing a show called, “The Daily Wager,” which will air daily beginning March 11, 2019.[13] According to ESPN, the show will focus on content that sports bettors care about, namely point spreads and money lines. Fox Sports has a similar show called “Lock It In,” which provides information and picks regarding sports betting.[14] These shows and web content are transmitted nationwide, and are not limited only to states where sports gambling is legal. Significantly, these shows were developed after issuance of the 2018 Opinion and no one has yet questioned their legality. 

This makes interpretation and application of the DOJ’s 2018 Opinion even more confusing and unpredictable because attorneys will have difficulty advising clients on the fundamental question of what is legal and what is not. 

Does the 2018 Opinion Invade State Sovereignty Impermissibly?

An additional challenge for the reinterpretation of the Wire Act may be that the DOJ’s reinterpretation runs afoul of the anti-commandeering doctrine. That doctrine holds that, under the Tenth Amendment, federal laws are unconstitutional when the federal government compels the states to enforce federal statutes. The Supreme Court’s recent decision in Murphy v. Nat’l Collegiate Athletic Ass’n,  __U.S. __, 138 S. Ct. 1461 (2018) expanded the doctrine. In Murphy, the Professional and Amateur Sports Protection Act (PASPA) prohibited states that banned sports gambling when the law was enacted from ever legalizing sports gambling. The statute was held to violate the anti-commandeering doctrine because although Congress has the ability to expressly prohibit gambling, the Court held it could not do so by prohibiting state legislatures from taking a certain action in the future.[15] In striking the anti-authorization provision of PASPA, the Supreme Court recognized that states were free to establish their own sports gambling regimes, and held that PASPA was invalid because it directed the activities of state legislatures instead of private individuals. 

Applying the teaching of Murphy, it appears that if an outcome of DOJ’s reinterpretation prohibits state authorized lotteries, then that interpretation may violate the anti-commandeering doctrine.[16] Although the Wire Act uses the term “whoever” and not “person,” the Act was directed at organized crime and recognized the authority of States to legalize betting and wagering. States are not engaged in the business of betting or wagering and otherwise cannot be held criminally liable. For example, it is hard to imagine a State Lottery Director or Lottery Commission being arrested for a Wire Act violation for performing the duties assigned by valid state statutes. Applying the law as DOJ suggests in the 2018 Opinion would likely violate the 10th Amendment through the anti-commandeering doctrine. This conclusion is reinforced when one considers that Congress has not acted regarding state lotteries for more than 50 years, while state legislatures have repeatedly authorized state and multi-state lotteries with minimal federal oversight and interference.[17] 

A Pragmatic Solution from the Wire Act’s Origin

Perhaps the simplest approach that would allow the reinterpretation by the DOJ to stand without disrupting the well-settled legal regime of state lotteries, state gambling, and state sovereignty over gambling offerings is to center the reinterpretation in the original purpose of the Wire Act. Specifically, the Wire Act only applies to transmissions regarding illegal wagers. This application would limit the reinterpretation in a manner that is already recognized by the U.S. Supreme Court, most recently in the Murphy case. Within that case, the Court acknowledged the Wire Act: “18 U. S. C. §1084, which outlaws the interstate transmission of information that assists in the placing of a bet on a sporting event, appl[ies] only if the underlying gambling is illegal under state law.”[18]   

This recognition also hearkens back to Attorney General Kennedy’s testimony that the Wire Act was only intended to apply to activities that were already illegal under state law. Applying DOJ’s reinterpretation in this manner would allow the federal government to retain all the tools within its discretion to combat illegal gambling and organized crime, and to partner with the states in doing so, while also fully recognizing state sovereignty within the area of gambling regulation. This revised application could be issued within the deferred enforcement period that now extends to June 14, 2019. 

Recognizing that the 2018 Opinion may have created more problems than it solved with its issuance, it is likely that this issue will remain one that state attorneys general will have to deal with. Letters and lawsuits have been delivered and filed. Most recently, the DOJ issued an additional memorandum on April 8, 2019 indicating that the 2018 opinion “did not address whether the Wire Act applies to State Lotteries and their vendors.”[19] The memo directs DOJ attorneys not to apply Section 1084(a) to state lotteries/state lottery vendors at this time, “if they are operating as authorized by State law.” If DOJ determines that the Wire Act does apply in these contexts, the enforcement forbearance period, currently set to expire on June 14, will be extended an additional 90 days after that determination to allow states to conform their operations to whatever conclusions the DOJ reaches. At a minimum, it appears that DOJ recognizes that the 2018 Opinion’s breadth may require some cabining, but the April 8 memorandum may prove only a brief respite for uncertain state lotteries. Hopefully a workable and understandable outcome is not that far off.

[1] The opinion was formally released on January 21, 2019, but was dated November 2, 2018.  This article will refer to the opinion as of its date on the face of the Opinion: 2018. 

[2] 18 U.S.C. §1084.

[3] Whether Proposals by Illinois and New York to Use the Internet and Out-of-State Transaction Processors to Sell Lottery Tickets to In-State Adults Violate the Wire Act, 35 Op. O.L.C. (2011). 

[4] See Memorandum, Applicability of the Wire Act 18 U.S.C. § 1084, to Non-Sports Gambling, January 15, 2019. (Granting 90 day window to businesses relying on 2011 opinion); Additional Directive Regarding the Applicability of the Wire Act, 18 U.S.C. § 1084(a), to Non-Sports Gambling, U.S. Dept. Just. (Feb. 28, 2019). 

[5] The attorneys general of New Jersey and Pennsylvania sent a letter on February 5, 2019 objecting to the 2018 Opinion and asking for its withdrawal or deferred enforcement, available at https://www.nj.gov/oag/newsreleases19/WireActLetter.pdf (Last accessed April 2, 2019). 

[6] See Letter from 25 Attorneys General to Attorney General William Barr, dated March 21, 2019.  available at https://ago.wv.gov/Documents/03-21-2019%20Letter%20to%20AG%20Barr.PDF (last accessed April 4, 2019). 

[7] Statement of the Honorable Robert F. Kennedy, Attorney General of the United State, Before Subcommittee #5 of the House Committee on the Judiciary, In Support of Legislation to Curb Organized Crime and Racketeering, May 17, 1961 (pp.17-18), available at https://www.justice.gov/sites/default/files/ag/legacy/2011/01/20/05-17-1961.pdf

[8] Id. 2011 Opinion.

[9] This conclusion is reinforced by In re MasterCard Intern. Inc., 313 F.3d 257, 263 (5th Cir. 2002) (“Because the Wire Act does not prohibit non-sports internet gambling, any debts incurred in connection with such gambling are not illegal.”).

[10] Notably absent from the 2018 Opinion is any deference to the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), which generally prohibits the acceptance of payments in connection with unlawful gambling over the Internet.  UIGEA is consistent with the Wire Act’s underlying premise that the underlying gambling activity is illegal and therefore prohibits payments related to illegal internet gambling activity.  The 2018 Opinion expressly states “UIGEA therefore in no way alters, limits, or extends the existing prohibitions under the Wire Act.”  2018 Opinion at 18. 

[11] New Hampshire Lottery Commission v. William Barr, Case 1:19-cv-00163, (D.N.H. Feb. 15, 2019).

[12] The reinterpretation also reveals a troubling inconsistency in application of statutes.  Or, to put it more bluntly, why is the DOJ adopting a laissez-faire approach to marijuana enforcement by deferring to novel state legalization efforts, but challenging well-settled existent state-authorized lottery regimes?

[13] https://www.thewrap.com/espn-sets-its-first-gambling-show-daily-wager/ (Last accessed, April 1, 2019). 

[14] A “Lock” in sports betting is a bet that the bettor is extremely sure of—in other words, Team X is a ‘lock” to win.  https://www.foxsports.com/presspass/shows-properties/show/lock-it-in (last accessed April 1, 2019).

[15] 138 S.Ct. at 1476-77.

[16] If applied this way, the 2018 Opinion may violate the rule of statutory construction that counsels a constitutional interpretation (one that respects state sovereignty through limited application) over one that is unconstitutional (anti-commandeering question with regard to expansive application invading state legislative authority). 

[17] The Federal Trade Commission provides robust oversight and enforcement against private lottery operators.  Operators of Sweepstakes Scam Will Forfeit $30 Million to Settle FTC Charges, March 7, 2019 (available at:  https://www.ftc.gov/news-events/press-releases/2019/03/operators-sweepstakes-scam-will-forfeit-30-million-settle-ftc ). 

[18] 138 S. Ct. at 1483.

[19] Re Notice Regarding Applicability of the Wire Act, 18 U.S.C. § 1084 to State Lotteries and their Vendors, Memorandum from the Deputy Attorney General of the United States to United States Attorneys, Assistant Attorneys General and the Director of the FBI, (April 8, 2019). This statement is perplexing given the express text on pages 22-23. (Some States, for example, began selling lottery tickets via the Internet after the issuance of our 2011 Opinion. But in light of our conclusion about the plain language of the statute, we do not believe that such reliance interests are sufficient to justify continued adherence to the 2011 opinion.)

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