Lawmakers in New Jersey are warily eyeing the Department of Justice’s recent strict interpretation of the Wire Act, which critics say could heavily weaken the state’s online gambling and sports betting markets.
In November 2018, the DOJ’s Office of Legal Counsel announced it would broaden the scope of the Wire Act, a federal law prohibiting certain kinds of gambling and wagering activity, so that any form of online gambling will be in violation of the act if it crosses state lines.
Then on Jan. 15, the DOJ announced businesses and state governments have 90 days to fully comply with law. It is not immediately clear how New Jersey’s gambling industry, handled by the Division of Gaming Enforcement, will respond to the new ruling.
A DGE spokesperson did not return requests for comment.
Former state Sen. Ray Lesniak, who played a heavy hand in a U.S. Supreme Court case knocking down the near-nationwide ban on sports betting, said that alone could prove troubling for New Jersey’s gambling industry, even if the patrons are physically located in New Jersey when gambling.
“If I go online to gamble on my phone [and] my internet connection goes through a transmitter out of the state, that can be considered a violation of the Wire Act,” Lesniak told NJBIZ. “Same thing with payment processes.”
Online sportsbooks such as DraftKings, SugarHouse, Caesars Entertainment and FanDuel, as well as fantasy leagues, depend on payment methods which at some point in the transaction could end up beyond state lines, such as PayPal, credit and debit cards.
The impact on the state’s gambling economy, especially in Atlantic City, would be “disastrous,” Lesniak said.
In 2011, the Obama-era DOJ ruled that in the gambling world, the Wire Act online applied to sports betting-related activities.
Since then, Delaware, Nevada, New Jersey and Pennsylvania have begun online gambling in varying forms.
In 2018, online gaming generated $298 million in revenue for the state’s casinos, according to DGE data from January. And of the $1.2 billion patrons bet on sports wagers in 2018, $780 million of the bets were made via online or mobile apps, according to the DGE.
“The new [DOJ] opinion threatens the significant boost enjoyed by New Jersey casinos, the jobs and state revenues from online gaming and it could have a negative impact on sports betting at our casinos and racetracks,” Senate President Stephen Sweeney, D-3rd District, said in a Monday statement.
“We don’t want to lose the hard fought gains that are helping to revive Atlantic City and the state’s gaming industry,” Sweeney added.
Lesniak said he plans to issue an opinion to the DOJ within the next month urging them to reverse course on its interpretation of the Wire Act, and may consider legal action before the 90-day period elapses, because “the damage done by the opinion is already occurring and [we] can’t wait to see if the Justice Department backs off from its opinion.”
“I am urging the State, the Legislature and New Jersey’s casinos to file a lawsuit now and not wait the 90 days because the overhang of the proposed new Wire Act opinion is already damaging internet business investment and operations,” Lesniak told NJBIZ.