State Lotteries Contend with Reinterpretation of the Wire Act

On Jan. 14, the U.S. Department of Justice issued a memo that reinterpreted a 1961 law designed to combat organized crime involvement in gambling. The Wire Act of 1961 specifically applies to anyone “in the business of betting or wagering” who “uses a wire communication facility 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.” Evolving telecommunications technology raised questions about the law’s applications, especially once online lottery sales became feasible.

In 2009, the New York State Lottery Division and then-Illinois Gov. Pat Quinn wrote to the DOJ separately to ask for clarification concerning interstate transmission of lottery data. New York argued that all lottery tickets would be bought and sold within the state, but that transaction data may be rerouted to data centers in other states to deal with heavy network traffic and weather issues. They also pointed out that New York had used this system since 2005, and over 40 state lotteries used similar systems. Quinn explained that their state lottery was a pilot program implemented to avoid “an unprecedented fiscal crisis,” and the program was “a key part of the State’s strategy to address this crisis and raise additional revenue to fund critical state programs…”

The issue remained in limbo until the DOJ released an opinion in 2011 that put the issue to rest;

Given that the Wire Act does not reach interstate transmissions of wire communications that do not relate to a ‘sporting event or contest,’ and that the state-run lotteries proposed by New York and Illinois do not involve sporting events or contests, we conclude that the Wire Act does not prohibit the lotteries described in these proposals.

State lotteries continued to expand since that reinterpretation. According to the North American Association of State and Provincial Lotteries, or NASPL, as of 2019 there are 47 lotteries in operation in the U.S., Puerto Rico and U.S. Virgin Islands, which bring in over $23 billion in revenue. Each state earns varying amounts from their lotteries. NASPL reported that in 2016, Arizona dispersed $205 million to several state programs, while New York transferred $3.3 billion to their education budget.

The 2019 DOJ reinterpretation concludes that the “statutory prohibitions are not uniformly limited to gambling on sporting events or contests.” This has reversed the 2011 opinion and has led many states to believe their lotteries may be at risk of prosecution, depending on how broadly the opinion is interpreted by the DOJ. Delaware transferred $53 million from lottery proceeds to its general fund in 2016, and former Delaware state representative and current Deputy Director of the DE Lottery Office Helene Keeley is monitoring the situation along with NASPL and the Multi-State Lottery Association.

“If the memo is viewed in the larger sense, meaning including Powerball and Mega Millions, it absolutely will affect our budget, it will affect every state’s budget,” said Keeley.  

Ohio’s lottery vendors and transmission lines are wholly contained within the state and will not be affected by the opinion. Ohio state Sen. Bill Coley, president of the National Council of Legislators from Gaming States, feels that the reinterpretation makes it clear that no bet or wager information can cross state lines, whether it is related to sports betting or any other bets.

“State lotteries that don't have contained payment systems are going to have a problem,” he said. “The idea of cost saving by just having a regional data center, I think that ruling puts those things out of play. But the companies that could come in to the various states and set those up I think are going to be very busy over the next few months.”

Coley said he does not feel that organizations that do business in Nevada will be affected.

“Everybody that uses payment systems in the state of Nevada is wholly contained within the state and I don't think the Justice Department was trying to shut down Vegas.”

On Feb. 5, the attorneys general of Pennsylvania and New Jersey wrote the DOJ to express their objections to the reinterpretations and stated, “DOJ’s latest reversal is wrong, and it undermines the values of federalism and reliance that our states count on. We request that you withdraw the OLC (Office of Legal Counsel) opinion or, in the alternative, guarantee that DOJ will not bring enforcement actions against companies in our states that are acting lawfully under state statutes.”

The 2019 reinterpretation states that the DOJ Criminal Division asked their Office of Legal Counsel to reconsider their 2011 opinion but does not explain why the Criminal Division made the request. The conclusion of the memo specifically says that internet lottery tickets are affected by this opinion, and the memo closes by saying that the reinterpretation is likely to be challenged in court and that Congress retains the ultimate authority over the scope of the statute. As of Feb. 15, New Hampshire has challenged the opinion on behalf of their state lottery, which is expected to raise more than $90 million for education in New Hampshire this year.