A final decision on the legality of The Wire Act could be imminent



Concern over the uncertainty of the Wire Act is holding back some states from moving forward with online betting.

The recent reversal of the DoJ on the Wire Act is already being fought by NJ

When the UIGEA was passed in 2006, the law had a provision that allowed states to offer online gambling provided that it was completely intrastate. The exact wording of the Intrastate allowance is in 120 STAT 1954 (b) and is worded as follows:

"(B) INTRASTATE TRANSACTIONS.—The term ‘unlawful Internet gambling’ does not include placing, receiving, or otherwise transmitting a bet or wager where— ‘‘(i) the bet or wager is initiated and received or otherwise made exclusively within a single State; ‘‘(ii) the bet or wager and the method by which the bet or wager is initiated and received or otherwise made is expressly authorized by and placed in accordance with the laws of such State, and the State law or regulations include— ‘‘(I) age and location verification requirements reasonably designed to block access to minors and persons located out of such State; and ‘‘(II) appropriate data security standards to prevent unauthorized access by any person whose age and current location has not been verified in accordance with such State’s law or regulations;"

The law is clear. If an online bet is made completely in-state and if the law of the state allows it then it is legal. One would have thought that upon passage of that law states would have gone crazy trying to get online gambling introduced, yet that didn’t happen. Not one state attempted to offer online gambling in the four years following the passage of the UIGEA. The reason for the lack of action, according to many analysts was that the Wire Act seemed to contradict the UIGEA and states believed the Wire Act still took precedence. As well, states believed it is impossible to ensure every transaction is completely intrastate, since the nature of online gambling will have some cross-state transmission of information and most banks have no way to ensure that every deposit or withdrawal never crosses state lines. Analysts seemed to believe that the states wanted confirmation from the DoJ that if they introduced online gambling it would not be challenged by the feds.

DoJ Wire Act opinion New JerseyStates got that confirmation in 2011 when the DoJ under the Obama administration issued an opinion that the Wire Act was only meant to apply to sports betting. The decision was a well thought out and argued opinion and clearly adhered to the wording of the Wire Act which said “sporting events and contests” were illegal per the 1961 law. In January 2011 the New Jersey Assembly passed a bill to allow online gambling, but Governor Chris Christie vetoed that bill for various reasons, albeit the main one was that he was worried the DoJ would view New Jersey’s attempt to legalize online gambling as a violation of the Wire Act and he didn’t want that stain on his record entering a presidential race. Following the DoJ opinion and his decision not to run for President in 2012, Christie told the Assembly he would pass their bill provided they agreed to a few concessions, including a requirement that only Atlantic City casinos or their partners could offer online gambling and that player accounts had to be created with the physical casino. Christie passed the law in 2012 and Nevada shortly followed suit offering online poker.

Yet few states followed New Jersey and Nevada’s lead. In fact, as March 2019 only Delaware and Pennsylvania have started offering online casino gambling and only a handful of states, including Massachusetts and New York, have bills on the table. The concern, according to sources, for most states is the uncertainty over the Wire Act.

Most state Attorney Generals realize that the 2011 Opinion is just that, an opinion, and does not change the 1961 federal law which still takes precedence over any opinion or law passed since. They also realized there has been a concerted effort underway, predominantly by Sheldon Adelson and his cohorts in Congress, to get the 2011 opinion reversed and have courts rule that the Wire Act does indeed apply to all forms of gambling, which would make the UIGEA effectively impotent. Those concerns turned out to be prophetic when it was revealed in mid-January that the Republican Department of Justice (DoJ) issued a new opinion in 2018, just prior to Jeff Sessions leaving as Attorney General, which indicated that the Wire Act applies to all forms of online gambling. The new opinion didn’t say whether the sites that are currently operating would be grandfathered in or if they will be forced to shut down.  That decision was made public on January 15, 2019 and gave the states 90 days to comply with the new opinion. The new decision, of course, affects the four states that have introduced online casinos and poker the most, although it affects all states that have any plans to introduce online gambling in the future. But if the DoJ believed states would just comply without any pushback they were wrong.  Several states said they will fight the new opinion and leading the way is the state of New Jersey, which of course was instrumental in convincing the Supreme Court to repeal PASPA and allow sports betting in the U.S. because it was a violation of the 10th amendment.

"Since numerous states are offering online gambling, the issue is ripe for a judicial decision. "

New Jersey State Senate leader Steve Sweeney sent a letter to the DoJ in February informing them that they will not adhere to the new opinion and that the DoJ either needs to rescind that new opinion or the state will take the DoJ to court. The DoJ unsurprisingly has not responded, but simply told the states that they must comply or face the consequences.

With the 90-day deadline now less than a month away, it appears the fight will be on. So, I asked Larry Walters, a first amendment attorney specializing in online gambling, what he believed will happen with New Jersey’s threatened suit:

"The threatened suit would likely be filed in Federal District Court, seeking a Declaratory Judgment under 28 U.S.C. § 2201. That statute allows a plaintiff to ask the court to declare the rights of the parties with regard to the proper interpretation of a law or regulation. In order to file such an action, the plaintiff must have legal standing. That typically means the plaintiff is faced with a credible threat of enforcement under the law. Since the Department of Justice could potentially pursue enforcement action against states that are promoting or facilitating online gambling under the DOJ’s new interpretation of the Wire Act, the federal court may find that legal standing exists, and proceed to decide whether the statute applies to all forms of online gambling or just sports betting. The court’s interpretation would carry more weight than the DOJ’s interpretation, since it would become legal precedent. If the case was then appealed to the Federal Circuit Court of Appeals, the decision would be binding in that particular circuit. Ultimately, the case could be reviewed by the U.S. Supreme Court, which would then settle the issue, nationwide.

Since numerous states are offering online gambling and considering online sports betting, the issue is ripe for a judicial decision." 

Chances are the DoJ would agree to a grandfathering clause if New Jersey agreed to drop their threat of a lawsuit, but New Jersey no doubt is looking at reality and looking to the future. If the DoJ prevails with this new opinion, then the DoJ will look at every online transaction with a fine-tooth comb and will try and force those states to shut down sites by citing violations of the intrastate clause. After all, as mentioned, it’s nearly impossible to ensure that every payment doesn’t involve any entity outside of the state and I’m sure they will be able to identify a transaction or two that was not blocked by the location or age verification requirements. And if even one 18-year-old is able to place a bet online in New Jersey or if a New York resident who was able, say, to place a wager at a New Jersey casino via a proxy, the DoJ will no doubt argue that all online gambling is now illegal, including existing sites, because verification procedures are not foolproof. And perhaps more importantly, it could cause banks and payment processors to rethink their presence in the online gambling schematic. And if they back out, it could devastate the industry as has been evident with offshore gambling, which found out that if payment processing is not quick and easy, customers will hesitate to deposit and wager. Most banks in the four aforementioned states allow bettors to deposit with various methods now, but that was only because the 2011 DoJ opinion let them off the hook.

After the passage of the UIGEA, where banks were told that they could be held liable for processing illegal online gambling payments, the vast majority opted out and said they didn’t need the hassle of trying to discern what was a legal transaction and what wasn’t. Instead they simply said that they wouldn’t process any online gambling transactions, which meant they could not be held liable. But the 2011 DoJ opinion made that concern more manageable since the opinion said that all online gambling was legal and thus any transactions that originated in states that allowed online gambling were ok. But changing that interpretation would put the banks in the same situation they were in prior to the DoJ opinion and no doubt many would say it isn’t worth the hassle. And the legal e-Wallet companies in New Jersey, Skrill and NETeller, would have to rethink their presence as well, since much of their operations involve the parent companies in England and the Isle of Man.

DoJ opinion online gambling deadlineSo, the 90-day deadline is only a month away and it appears states are going to fight this new opinion hard. Despite Trump’s previous declarations that he believes online gambling should be legal in the United States and despite the fact he developed Atlantic City casinos that would lose out the most with this opinion, the states can forget about his help. It’s obvious that Trump doesn’t really care that much about gambling as he is completely focused on Russia, North Korea and a border wall and moreover is indebted to Sheldon Adelson who contributed a great deal of money to his campaign and to various Republicans in the midterm elections. So, Trump can’t afford to upset his biggest contributor.

It will be up to the courts to decide, but that’s not necessarily a bad thing. SCOTUS shocked the world by agreeing to repeal the Professional and Amateur Sports Protection Act, so they may indeed strike down the Wire Act for the same reasons they repealed PASPA. If that happens, then there will no longer be any barriers to online gambling in the United States and at that point one could expect to see a flurry of states offering online gambling. That will help all states as they can create interstate pools which could help casinos by offering progressive nationwide jackpots and would certainly help poker sites since coordinated tables and tournaments would ensure that games are always full and the U.S. would see the benefits of the game that PokerStars and Full Tilt did for years.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!


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