Caveat Vendor

Outlook for U.S. Internet Gambling Under President Trump: Rough Times Ahead?

December 19, 2016

Behnam Dayanim

You’d think the first casino magnate as president would have the U.S. gaming industry rejoicing, but there is one segment of the industry that likely is holding its collective breath – the internet gambling sector.  President-Elect Trump’s appointment of Sen. Jeff Sessions (R-AL) as his Attorney General nominee has triggered the most concern.  Sessions has been a leading crusader for legislation designed to stamp out state-regulated internet gambling.  The support Trump received during his campaign from noted anti-internet gambling casino uber-magnate Sheldon Adelson adds to the anxiety.

How Did We Get To This Point?
Here is a brief recap (skip if you already know all of this):

• The Unlawful Internet Gambling Enforcement Act (UIGEA), tacked on to the Safe Ports Act in late 2006, clarified the applicability of U.S. state gambling prohibitions to internet gambling but allowed states to legalize and regulate internet gambling if they so chose. 

• However, that statute did not clear up all legal ambiguity given the U.S. Justice Department’s then-position that the Wire Act, a 1961 statute, independently prohibited internet gambling.  That position, although rejected by the only federal appellate court to consider the issue, caused states interested in regulating internet gambling to hesitate for fear of violating federal law.

• Then, in Dec. 2011, the DoJ’s Office of Legal Counsel released an opinion stating that the act only prohibited sports betting, leaving casino and poker free of any federal prohibition, so long as they complied with state laws. 

• Nevada, New Jersey and Delaware all promptly moved ahead with licensing and regulating various forms of internet gambling.  Since that date, several additional states – including California, Pennsylvania, New York and Michigan – have considered legalization, and several others allow online lottery sales or play.

Almost since the release of the opinion, voices in Congress – among them Sessions – have pressed for reversal of the DoJ opinion.  Other advocates of reversal include Rep. Jason Chaffetz (R-UT), chair of the House Government Oversight and Reform Committee,  and Sens. Tom Cotton (R-AR) and Lindsay Graham (R-SC).  Las Vegas Sands Corp. chairman and CEO Sheldon Adelson, a prominent opponent of internet gambling and major GOP donor, similarly has spared no expense in pressing for a ban. 

GOP members eager for Adelson’s approval have introduced legislation on multiple occasions designed to stop or roll back state-sponsored internet gambling.  Those bills have taken one of two principal forms:

• Outright amendment of the Wire Act to “restore” what its sponsors refer to as its “original” intent to prohibit all forms of internet gambling; or

• A simple statement that the DoJ opinion lacks force of law and should not be considered by the courts in construing the statute.

Why Internet Gambling Opponents Are Wrong

Adelson and other opponents of internet gambling claim that their efforts are designed to protect states that do not want internet gambling from being forced to permit it, that internet gambling preys on children and offers a haven for money laundering and criminal activity – many of the same arguments that led to enactment of UIGEA over a decade ago.

Whatever little merit those positions held in 2006, they lack all credence today.  The UIGEA makes clear that internet gambling is not permitted unless states affirmatively decide to permit it; what opponents would do is to take away that ability of states to decide what gambling to permit and to prohibit.  That is precisely how gambling regulation in the United States always has operated.

Under an Adelson-esque Justice Department, the federal government would intrude into an arena that has rested with the states since our Nation’s founding.

Moreover, state-licensed internet gambling companies operate under stringent restrictions and regulatory oversight.  There are virtually no reported cases of children gambling online with state –licensed operators, or of money laundering or other illicit activity.  It is the unregulated black market that allows for the possibility of underage play and other evils.  Yet it is the unregulated market to which Adelson and his supporters would return us.

As for the argument that the Wire Act was “intended” to ban all forms of gambling, I’ve written extensively elsewhere as to why that is simply not the case.  Suffice it to say here that the U.S. Courts of Appeal for the First and Fifth Circuits – the only appellate courts to have considered the question – have agreed with me (or perhaps, more accurately, I with them!).  U.S. v. Lyons, 740 F.3d 702 (1st Cir. 2014); In re Mastercard Int’l, Inc., 313 F.3d 257 (5th Cir. 2002).

So Where Does That Leave Us?
Unfortunately, with GOP majorities in both House and Senate, and a sympathetic Attorney General at DoJ, the opportunities for mischief abound.

• First and most simply, Sessions might simply reverse the 2011 opinion.  That, in itself, would not technically kill the industry.  After all, the courts would remain the arbiters of the statutory meaning.  However, a department intent on an expansive interpretation of the law well could deter other states from entering the space, and would present Nevada, New Jersey and Delaware licensees with an immediate conundrum – continue to license and operate internet gambling and risk prosecution, or shut down.

• Moreover, Congress – with a clear GOP field in both houses and a potentially receptive Administration – could revisit legislation.  That might take the form of the minimalist “ignore the DoJ opinion” approach, which would leave the industry in a similar spot to what reversal of the opinion would mean, or it might involve amendment of the Wire Act itself to prohibit all forms of internet gambling.  That latter step would mean the end of the industry.

What does President-Elect Trump think of all this?  He hasn’t said, but his chumminess with Adelson and his expected “hand’s off” approach to many policy issues would seem to bode ill for internet gambling.  We can only hope that either Mr. Trump proves more interested in and sympathetic to internet gambling than many currently fear or that Congress and the Administration decide they have “bigger fish to fry” and decline to expend the political capital needed to advance this particular issue.
If not, we soon may face the ultimate irony:  a casino-industry president who ends one of the most innovative forms of gambling today.
The next few years will be interesting.

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