A recent opinion issued by the U.S. Department of Justice (DOJ) brought New Jersey residents one step closer to being able to participate in legal online gaming. In order for the games to begin, however, the State Legislature will need to pass a bill that Gov. Christie believes satisfies state constitutional requirements.

On Dec. 23, 2011, the Office of Legal Counsel, within the DOJ, issued a surprise “memorandum opinion” addressing the application of the Wire Act (18 U.S.C. § 1084) to wagering that does not relate to a “sporting event or contest.” In the opinion, the Office of Legal Counsel (which is primarily responsible for providing senior legal advice to the attorney general himself, as well as to the president and his administration) concluded that the Wire Act’s prohibition on the use of interstate transmissions of wire communications involved in betting or wagering applied only to betting or wagering related to a “sporting event or contest.”

The opinion was surprising because, for nearly two decades, the Criminal Division of the DOJ has taken the consistent position that the Wire Act’s prohibitions apply to all betting or wagering over the Internet, not just to wagering on sporting events or contests. While this opinion is significant in many respects, however, the landscape for legal Internet wagering in the United States is still uncertain, and there is much more to be decided — including modification to the laws of individual states — before widespread legal Internet wagering can become a reality in this country.

The specific question that the memorandum opinion sought to address was whether the online sales of lottery tickets by the states of New York and Illinois, to residents within their own borders, violated the Wire Act’s prohibitions. The implications of the analysis adopted by the Office of Legal Counsel, however, are far broader than just the potential sale by individual states of lottery tickets over the Internet to their own residents. In light of the memorandum opinion’s conclusion that the Wire Act’s prohibitions are limited to wire transmissions associated with bets or wagers relating to “sporting events or contests,” all manner of online gaming activities unrelated to sporting events or contests (e.g., lotteries, poker, bingo or even casino games) could potentially become legal in the United States. But, before concluding that a new age of legal Internet gaming in the United States is imminent, it is important to look at precisely what has changed and what has not changed in light of the memorandum opinion.

What Has Changed?

It appears that the DOJ will no longer take the position that all forms of gambling over the Internet are per se illegal simply because they involve the use of telephones or the Internet. The Wire Act is the only clear federal prohibition on specifically Internet gaming which is not dependent on an underlying state-law prohibition of such gaming. From here forward, it appears that the DOJ will take the position that the Wire Act only prohibits Internet wagering relating to sporting events or contests.

It further appears that the DOJ will no longer attempt to dissuade individual states from selling lottery tickets online. In fact, if appropriate bilateral or multilateral compacts are put in place, it is conceivable that multistate sales of lottery tickets over the Internet could now be permissible.

Likewise, it seems that the DOJ will no longer attempt to dissuade individual states from pursuing the legalization, within their own borders, of other online wagering businesses unrelated to sporting events or contests.

What Has Not Changed?

Although the DOJ will apparently no longer take the position that the Wire Act applies to all forms of wagering over telephones or the Internet (i.e., to nonsports wagering), there is no indication that this new policy will affect any other federal prosecutions of Internet-based wagering arising under other federal laws. Thus, for example, the DOJ could still initiate prosecutions under the Illegal Gambling Business Act, 18 U.S.C. § 1955, which, if its conditions are met, makes it a federal crime to operate a gambling business that violates the law of the state or political subdivision in which it is conducted.

In New Jersey, as in most states, the legality of most types of online gambling is at least uncertain. In order for online gaming to become a reality, New Jersey will need to affirmatively legalize one or more forms of Internet gambling, otherwise there can be no certainty that any individual form of online wagering business will not draw further scrutiny or potentially even prosecutorial activity from the DOJ. Senator Raymond J. Lesniak has sponsored a bill that would authorize Internet gaming in New Jersey, but due to concerns expressed by the Christie administration regarding whether gaming outside of Atlantic City is constitutional, Senator Lesniak agreed to reintroduce the bill in the next legistative session.

Additionally, as a practical matter, in light of the policies and procedures implemented by the credit card associations and other payment systems in light of the enactment of the Unlawful Internet Gambling Enforcement Act, 31 U.S.C. §§ 5361-5367, it will still be necessary to overcome the practical difficulties of completing online financial transactions associated with legal Internet gaming before any widespread Internet gaming operations, even those conducted entirely in an intrastate basis, can be successful. Experienced legal counsel can help to navigate the myriad of state laws that currently exist, and those that are being or will be considered in the coming months and years.

It is still possible that, given the new position in the memorandum opinion, Congress will feel compelled to step in and establish at least some consistent standards for legal Internet gambling across the several states. One option might, of course, be for Congress to define a uniform system of laws legalizing and regulating online gambling in all 50 states. The various bills relating to Internet gambling, which have been introduced in Congress in recent years, however, and the general history of state-level gambling laws in the United States, would probably suggest that any move which Congress is likely to make would still leave to the states quite a number of questions relating to the types and extent of online gambling to permit within their individual state borders.

The new memorandum opinion by the DOJ’s Office of Legal Counsel could portend a new era of development in legal online betting and wagering in the United States. But, absent Congress stepping into the fray to define a uniform system of laws for Internet gambling in every state, the dawning of that era in New Jersey will depend upon, and be largely shaped by, developments in the treatment of Internet gambling within the state’s borders.

Next Week…

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