By Byron La Fleur
On January 14, 2019, the $86 billion U.S. lottery industry received shocking news. The Office of the Legal Counsel (OLC) for the Department of Justice (DOJ) reversed its 2011 opinion that made various forms of gambling legal, including betting on the internet. And it’s all because of commas.
Or rather, the lack of commas.
“I think it was surprising that a thorough opinion, only seven years old and supported by case law, would get overturned,” declared Illinois Lottery Interim Director Harold Mays.
In 2010, the DOJ was asked to clarify the conflict between the Wire Act and the Unlawful Internet Gaming Enforcement Act (UIGEA), particularly if the Wire Act prohibits the New York and Illinois lotteries from using the internet and out-of-state transaction processors to sell lottery tickets to in-state adults. UIGEA seems to suggest they can.
The OLC gave a succinct answer to the question: The Wire Act only pertains to sports betting, eliminating any confusion. “UIGEA creates an exception for intrastate wagering where it is state-authorized, aged control, and there’s geolocation. The Wire Act has no exception,” Mark Hichar, Shareholder, Greenberg Traurig, LLP said.
The OLC reversed this decision in 2019. “Having been asked to reconsider, we now conclude that the statutory prohibitions are not uniformly limited to gambling on sporting events or contests,” wrote Steven A. Engel, Assistant Attorney General, OLC, in the 23-page opinion entitled “Reconsidering Whether the Wire Act Applies to Non-Sports Betting. It was issued on November 2, 2018; it was announced on January 14, 2019.
The DOJ’s reversal of its 2011 opinion could waste millions—if not billions—of dollars that private and public companies spent on creating infrastructure to improve their gambling operations and expand into new sales channels. Even more critical is the subsequent loss of funds benefiting good causes. With such a devastating consequence, ignoring precedence would have to reach a high bar to be justified.
Law and Comma
(Warning: My editor has deemed this section “extremely boring.”)
Both the DOJ’s 2011 and 2018 opinions hinge, at least in part, on the grammatical structure of the Wire Act, particularly this clause:
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 (1) bets or wagers [,] (2) or information assisting in the placing of bets or wagers on any sporting event or contest, (3) or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, (4) 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.
While the legalese is dense, it says that the DOJ can prosecute if a company uses the interstate wire communication systems to do four different items (each are enumerated with parenthesis). The confusion sets in with the modifying phrase “on any sporting event or contest.” Does it only apply to the second item, or to each item?
The 2011 opinion argued if there was a comma after the first “bets and wagers” (hypothetical comma marked in ) then it would have been plausible that the sports-event modifier would only apply to the second item on the list. Without a comma, the phrase would modify both the first and second prohibitions.
This is important because “the Series Qualifier Canon” interpretation can then be applied. That would allow for the sports-event modifier to apply to every other prohibition item (1-4). But it cannot be applied if the modifier only applies to the second item.
If it applies to all four, then the Wire Act would only make sports betting illegal.
With its 2011 opinion, the OLC used other rationale to justify their approach to the Wire Act. It asks why Congress would only limit just one of the four prohibitions to sports gambling. It seems odd that Congress would have felt the need to specifically prevent the use of wire communication facilities to transmit information about sporting events but not other gambling activities.
Furthermore, it seems in line with original intent of the Wire Act. John Holden, in Legal Sports Report, pointed out that Sen. Estes Kefauver, in 1961, asked why the Wire Act did not incorporate more activities. In an on-the-record conversation between Kefauver and Assistant Attorney General Herbert Miller, Miller explains to Kefauver: “This bill [the Wire Act], of course, would not cover that because it is limited to sporting events or contests.”
It is also important to note that the Judicial branch at the circuit court level has agreed two separate times with this interpretation in 2002 and in 2014.
The 2018 OLC opinion takes the opposite stance. It argues that the “Last-Antecedent Rule” instead should be applied, which suggests that modifiers should only be applied to the phrase that it immediately follows. In this case, it would only apply to the second prohibition. The opinion points to Lockhart v. United States, which applied the Rule of the Antecedent in its 2016 opinion.
It also points out that if Congress had intended for the sports-event modifier to be used in the way they intended, then they could have easily done so with the use of commas. “The road not taken is also illuminating. By adding two commas, Congress could have unambiguously extended both prohibitions in the first clause to sports-related gambling: ‘. . . 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.’”
Who could have expected some missing commas to decide the fate of lotteries being able to sell over the internet?
Not Just the Internet
Because the OLC ruled that the Wire Act was limited only to sports betting, the 2011 opinion ignored the second part of the New York and Illinois lotteries’ question: does the Wire Act affect “out-of-state transactions processes to sell lottery tickets to in-state adults? With the 2018 opinion, however, the conflict between UIGEA and the Wire Act resurfaces.
UIGEA appears to allow for lawful internet gambling that is geo-fenced within state boundaries. It also ignores issues that arise due to the way information is typically transferred online. Even if I send an email next door to my neighbor, it may be routed to a different state before he receives it (this process is called intermediate routing). Because of this, an “intra-state” wager could easily turn into a interstate one, despite both ends of the wager taking place within the same state. UIGEA’s language ignores this problem.
The Wire Act directly prohibits the transfer of information that facilitates bets and wagers. Language in UIGEA also states that it does not amend or affect the Wire Act. ““There is language that says the UIGEA doesn’t amend any other law, but nevertheless, prior to the recent DoJ opinion, the UIGEA seemed to give comfort that Congress wasn’t concerned with intermediate routing of state-authorized otherwise intrastate transmissions,” said Hichar.
For lotteries, interstate routing is a primary issue. Every lottery system is connected to an interstate infrastructure system through the major system vendors, and almost every lottery ticket purchase travels outside of the state in some capacity.
“It’s not only iLottery bets that are purchased using the internet. It’s traditional bricks-and-mortar purchases as well … Depending on how it’s transmitted, a traditional sale which is processed at a data center within the state could travel outside the state before it reaches its destination at the end state data server,” Hichar said.
This was the New York and Illinois lotteries argued. “When we first made the argument to the DOJ in 2009, one of the exhibits was a map of the U.S. showing all the different lotteries and how the data flowed to all the vendor data sites,” said Maryland Lottery Director Gordon Medenica (who was serving as director of the New York Lottery in 2009). “IGT has the big facility in Austin, and there’s Scientific Games in Las Vegas or Alpharetta and Intralot in Ohio. The data is flying all over the country. One of the points we made is that if you really believe the Wire Act needs to cover this sort of thing then what you’re saying is the basic back-end operating model of the entire lottery industry is in jeopardy.”
With the 2018 reversal, the opinion had to revisit the original question if lotteries’ processing systems are in conflict with the Wire Act.
Ultimately, the 2018 opinion found that while UIGEA excludes from its coverage lawful, intrastate, geo-fenced bets or wagers, it officially has no bearing on the Wire Act. “Congress has confirmed it with a reservation clause stating that ‘[n]o provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States. UIGEA therefore in no way ‘alter[s], limit[s], or extend[s]’ the existing prohibitions under the Wire Act.’”
The 2018 opinion ends with the reasons why it was necessary to reverse the 2011 opinion. Despite not being held to the Judicial Branch’s Stare Decisis, the opinion admits that adherence to it allows the office to improve “efficiency, institutional credibility, and the reasonable expectations of those that relied on our prior advice.”
The opinion ends with a sentence directed at the lottery industry: “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.”
The repercussions for the industry could be devastating, depending on how strictly the DOJ adheres to the Wire Act. As mentioned, nearly every lottery draw game transaction in the U.S. could be problematic. However, a strict interpretation would cause even the vendor networks to come under scrutiny; these systems were in place well before the DOJ’s 2011 opinion or UIGEA.
Any future technology implemented in the industry—whether internet sales or brick and mortar— might be in trouble. For instance, the new in-lane gift card solution being implemented by the Kentucky Lottery Corp. with Kroger is at risk.
“The Kroger pilot involves a gift card and phone. To receive your ticket information, the transmission is sent out of state and back to the phone user. Using the recent DOJ interpretation, this would technically be in violation of the Wire Act (as would potentially every other lottery transaction),” Kentucky Lottery Corp. President Tom Delacenserie said.
The industry is in limbo waiting for clarification on exactly how much of its infrastructure will be considered in violation of the Wire Act. According to the DOJ memo that came out on January 15, 2019, there will be guidance issued as how it will be enforced.
The Pennsylvania and New Jersey Attorneys General have issued a letter to Honorable Matthew Whitaker, Attorney General of the United States, and Rod Rosenstein, Deputy Attorney General, decrying the opinion and vehemently asking for the DOJ to withdraw the opinion.
For now, the industry can take some comfort, albeit shaky, that their current lottery systems will not be in jeopardy. “The change here will have some impact, but it doesn’t mean that large swaths of gambling that were once legal are now illegal and vice versa,” said a Justice Department official in a Washington Post article, quoted anonymously to discuss internal deliberations.
Lottery officials should proceed with caution. “We shouldn’t jump too far ahead and assume there is going to be enforcement or prosecution for lotteries that are simply transmitting backup data to out-of-state facilities,” Medenica said. “Given that online lottery revenues are fairly modest, I’m not sure if there is going to be an appetite for that level of enforcement because it could threaten to shut down existing operations. Of course, if a lottery has all of its data facilities located in-state, they are probably fine.”
Until guidance is issued on how the DOJ will enforce the Wire Act, experts can only speculate on the future. The cannabis industry may be a good place to understand how they will proceed. Possession and sale of cannabis is illegal under federal law.
“There may be an analogy in the way legalization of marijuana has been handled. It’s still illegal federally, but states have taken their own routes to legalize it, and there has been no federal action against any of those states. If there is no enforcement or prosecution then it may be irrelevant and we will all keep doing business,” Medenica said.
The Obama Administration offered guidance that the Justice Department would not prosecute state-licensed businesses. But Attorney General Jeff Sessions revoked that guidance in 2018. Sessions was ousted on November 7th, five days after the reversal was offered. Now the new Attorney General Nominee, William Barr, in January stated that he will not go after legal marijuana businesses, asking Congress instead to address the conflict between federal and state cannabis policies.
First and foremost, consistency as seen in both the cannabis and gambling cases has been notably lacking. Furthermore, even if [the] DOJ does not enforce the Wire Act, other organizations/industries may not be willing to work with the lotteries as long as there is ambiguity.
For instance, while legal cannabis stores may be safe from federal prosecutors, they aren’t allowed to deposit their earnings into banks. The lottery industry has long struggled to find legitimacy in financial institutions, particularly with the use of credit cards, and has made significant progress. If this decision undid any of that work, it would be a considerable loss. As long as the industry channels are on tenuous legal footing, it cannot really be sure how to proceed, even after guidance is issued.
There are two official solutions. The recent PASPA decision by the Supreme Court has given some people hope that there may be a solution through the Judicial Branch. “If you go through the courts, you can see how long it took to get sports betting legalized. It only resulted because New Jersey kept pushing through seven negative rulings before they got the right ruling out of the Supreme Court,” Medenica said.
The other is legislative. Congress could enact a law or clarify the Wire Act and officially eliminate any ambiguity. “ . . . hopefully they just repeal the Wire Act. It’s 58 years old. It was created when Bobby Kennedy was running the Justice Department and dealing with the mafia placing horse-racing bets on telephone lines. Obviously, the world has moved way past that, and the 2011 opinion was right. In 1961, there was no Internet. How can you apply an archaic law to the way technology and business operate today?” said Medenica.
In the current political environment, it appears to be a long shot. The hostility between the two parties is at all-time high. Coupled with the resurfacing of old fault lines on gambling, there would be little appetite to spend political capital to clarify a bill. “Positive opinions about gambling have improved tremendously. This is a good reminder it is not held by everyone. There is a reserve of traditional or hostile attitudes to legalized gambling,” Keith Whyte, Executive Director, National Council on Problem Gambling, said.
In the interim, the industry’s best hope is for the DOJ not to enforce the new opinion. In the long run, the industry needs official clarification from this untenable situation. If that avenue to success is through Congress, then we must all hope they know a thing or two about commas.