Boom in Internet gambling ahead? US policy reversal clears the way.

The Justice Department has reversed a longtime view that online poker and lottery wagering are illegal. With the move, states are expected to engage in a high-stakes pursuit of new gambling-related tax revenues.

By , Staff writer

Cash-strapped states betting on new online poker and lottery revenues won a major victory with a recent Department of Justice announcement that it is reversing its interpretation of the federal 1961 Wire Act, clearing the way for a potential boom in online gambling.

Until now, the Justice Department had held that the Wire Act makes even intrastate online gambling illegal. Its new interpretation, written by Justice Department attorneys in response to requests for clarification from New York and Illinois, concluded that the law instead specifically outlaws such wagering on sports, not nonsports gambling within states or even across state borders.

"The ordinary meaning of the phrase 'sporting event or contest' does not encompass lotteries," wrote Assistant Attorney General Virginia Seitz. "Accordingly, we conclude that the proposed lotteries are not within the prohibitions of the Wire Act."

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With global online gambling now worth an estimated $30 billion, and with online poker worth a potential $6 billion annually in the US, some are heralding the decision as a means for financially strapped states to leverage new revenue from legalized online gambling – and stave off at least some cuts to bureaucracies, entitlements, and public employee pension systems.

But gambling critics see the move as another major crack in America's moral foundation, opening the way for states to become further dependent upon tax revenues gained from a form of recreation that hits hardest those who can least afford it. In that light, the new US stance may prompt Congress to enact laws aimed at helping to curb addiction and to prevent children from becoming involved in online gambling, even while allowing "casual" gamblers more options and opportunities to play. So far, Congress has folded on a handful of proposed Internet gambling measures.

"The United States Department of Justice has given the online gaming community a big, big present," writes I. Nelson Rose, a Whittier Law School professor who blogs at gamblingandthelaw.com. "My bet is that … Congress will continue to do nothing, while Internet gambling explodes across the nation, made legal under state laws."

The US has outlawed online "real money" poker since 2006, and in April the Justice Department charged three major online operators with fraud and money laundering for disguising bets as every-day credit-card payments. In a letter accompanying its announcement on Friday, the Justice Department noted that the new interpretation of law "will not undermine the Department's efforts to prosecute organized criminal networks. The significant majority of our current and past prosecutions concerning Internet gambling involve cases where the gambling activity is part of a larger criminal scheme." 

Nevertheless, the decision is a boon to states and gambling interests trying to capture revenues from online gamblers, including the 20 percent of college students whom the Annenberg Public Policy Center found play online poker at least a month.

The day before the Justice Department announcement, Nevada gambling regulators voted to approve first-in-the-nation state online poker regulations, aimed only at players within the state. Illinois has also moved forward with online gambling regulations, seeing the DOJ announcement as vindication for its legal arguments about how the Wire Act pertains to online gambling. Under the Bush administration, Illinois was informed that selling lottery tickets online would be a violation of the federal Wire Act.

In addition to Nevada, New York, and Illinois, the early-voting presidential primary states of Iowa and New Hampshire hope to expand state lotteries to include games, predicts Professor Rose. Cash-strapped California is another likely player, as is New Jersey, where a referendum on the issue is likely after Gov. Chris Christie (R) vetoed an online gambling law passed by the Democratic-controlled state legislature.

While the Justice Department ruling does not specifically address interstate gambling, legal experts say it's likely to be allowed, at least between states that specifically regulate online gambling.

"States have felt handcuffed by this ambiguity that surrounded this issue," Melissa Riahei, a former general counsel for the Illinois state lottery and now an online poker lobbyist, told The Wall Street Journal. "What this does is it really removes the handcuffs the states have had on them that prevented them from fully utilizing this asset they've had for the demographic of casual gamers to play the lottery every day."

States' efforts to sanction the growth of online gambling has one unique critic: Sheldon Adelson, owner of Las Vegas Sands Casino and one of the world's richest men. Mr. Adelson said in interviews this month that he sees state-sanctioned online poker partly as a threat to traditional casino gambling.

But he has also couched his opposition in both moral and technological terms, arguing that loosening the reins on online gambling will take a heavy toll on young people, especially because he believes current technology isn't robust enough to keep children from betting real money using their computers.

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