States Stand to Lose Billions if DOJ Targets Lotteries
The recent Department of Justice decision regarding the Wire Act does more than reverse a simple opinion and ban online gambling-type activities going forward. It can take away significant revenue streams upon which states have grown dependent.
New data shows that states selling online lottery tickets stand to lose more than $220 million. And if the DOJ chooses an even broader interpretation of the new decision that includes sharing lottery pools across state lines, states could lose more than $23 billion.
There were many reasons that organizations, state governments, and citizens alike opposed a change to the Wire Act interpretation that took effect in 2011. That particular decision from the DOJ narrowed the relevance of the Wire Act to sports betting only, giving states the opportunity to offer lottery tickets online as well as online poker and casino games.
But when casino mogul Sheldon Adelson finally found an amenable administration into which he could exert his influence, he was able to convince the DOJ’s Office of Legal Counsel to reinterpret the Wire Act. That new opinion was written in November 2018 but not made public until January 2019.
And said opinion reversed the 2011 interpretation, essentially removing the rights the DOJ gave to states more than seven years ago.
While the official meaning of the new opinion and its applicability to states’ actions regarding various types of online gambling remain on hold – US Deputy Attorney General Rod Rosenstein continues to extend the effective date in order to sort out enforcement details – data shows the potential effects could be even more detrimental than anticipated.
The Associated Press looked into the states in jeopardy of losing their lottery revenue. There are currently seven states that sell lottery tickets online, but others offer internet-based subscription services that could also be at risk. In addition, a broader interpretation could mean that multi-state lotteries like Powerball and Mega Millions could also be targeted by the DOJ. While this is unlikely, legal experts have indicated the possibility and corresponding concerns.
State officials fear lottery profits are in jeopardy because of a recent Justice Department decision. https://t.co/YLXIRv3wFp
— The Associated Press (@AP) April 25, 2019
North American Association of State and Provincial Lotteries Executive Director David Gale told the AP, “It’s like trying to run a business and not knowing the rules about it. That clarity is the most important thing to us now as far as the DOJ issue goes.”
All in all, the AP reported that states could lose more than $220 million in net profits each year on internet-based single lottery tickets alone, but the broader interpretation that could involve multi-state lotteries could impact states to the tune of more than $23 billion.
These funds are used by states to fund everything from college scholarships services to other education funds, and from senior activities and numerous social programs.
— Howard Stutz (@howardstutz) April 25, 2019
Reasons for Concern
Many state lotteries have opted to legalize online sales because of the convenience factor, but there are also ways that the internet plays an integral role in general lottery sales. The AP points out that payment processing companies handle lottery payments online, and there are lottery backup systems based online in some states. And some of the online systems can cross state lines without intention due to simple routing and cloud-based processes.
While the DOJ seems unlikely to target multi-state lotteries, legal experts have been concerned about the new wording of the Wire Act document since it was published in January. It is the reason that so many states filed amicus briefs in the ongoing civil case brought by the New Hampshire Lottery Commission.
And if the states are this worried about their lotteries, it should be no surprise that states offering online poker and casino games are even more worried.
New Jersey has the most to lose thus far, as it has been operating its interactive gaming business alongside its land-based casinos for about 5.5 years, and the state has benefited greatly from the endeavor. Not only has internet gaming collected more than $1 billion in revenue thus far, it has contributed to the state’s coffers and to the reversal of a generally negative trend in Atlantic City.
Nevada offers online poker and shares its player pools with New Jersey and Delaware. Pennsylvania is preparing to launch online gaming this year. And West Virginia just legalized online gaming, as Michigan seems likely to do the same in 2019. All of them have a stake in the final interpretation of the Wire Act by the DOJ.