Online Poker Regulation in the US: Q1 2019 Review

US Online Poker RegulationThere has been plenty of regulatory activity during the first quarter of 2019, but all of it has been overshadowed by the DOJ´s revised opinion of the Wire Act.

Back in January, the Department of Justice´s Office of Legal Counsel (OLC) revised its legal opinion of how the 1961 Wire Act should be applied. Rather than being limited in its scope to just sports betting – the opinion given in 2011 which sparked the first wave of online poker regulation in the U.S. – the OLC stated the Wire Act applies to all gambling activities.

If the Department of Justice (DOJ) applies the revised opinion to the letter, Not only would interstate poker compacts be affected, but any form of online gambling would be stopped unless a way is found to prevent Internet routing crossing state lines. The threat of DOJ enforcement action hasn´t stopped lawmakers from proposing and passing legislation, but it has certainly cast a shadow over the progressive regulatory activity during the first quarter of the year.

A Chronological Snapshot of the Year to Date

Lawmakers certainly weren´t slow in getting their proposals into the spotlight. We were barely a week into the New Year when Sen. Joseph Addabbo pre-filed a bill to regulate online poker in New York. Unfortunately the Senator still has to overcome the objections that online poker represents an unconstitutional expansion of gambling and will cannibalize the state´s underperforming brick-and-mortar casinos. To date, a companion bill has been introduced in the Assembly, but revenues from online poker (and – significantly – mobile sports betting) have not been included in the state budget.

Just days after the ink dried on the bill in New York, an online gambling bill was introduced in West Virginia. It was subsequently dropped, re-introduced, and passed within the space of a month, and allowed to pass into law by Governor Jim Justice last week. There are concerns that, if interstate poker is prohibited by the DOJ, the market will be too small to attract any interest from online poker operators; plus, a strict interpretation of a bad actor clause prohibits most operators from applying for a license. Consequently, regulated online poker in West Virginia is still a bit of a long shot.

Connecticut was the next state to get involved in the regulatory merry-go-round – dropping a “Statement of Purpose” into the proceedings at the end of January. However, before the proposals can do any further, there is a mountain of logistic and political issues to overcome – not least on the Committee on Public Health and Security, which has the task of padding out the proposals, but whose Chair and Vice-Chair have opposing views on which operators should be eligible for licenses.

Going into February and the state of Kentucky made a surprise appearance on the roster with the introduction of a gambling expansion bill.  The bill is exceptionally light on detail, and what detail there is implies that the bill´s focus is on regulating sports betting and DFS. If online poker survives the first edit of the bill, Kentucky faces similar problems to West Virginia inasmuch as it will be difficult to sustain a ring-fenced online poker market with a population of just 4½ million.

The state most people considered would be the first to regulate online poker this year – Michigan – waited until February to start its efforts for 2019. Bills were introduced simultaneously in the Senate and House of Representatives that overcame the (alleged) objections cited by former Governor Rick Snyder when he vetoed last year´s bill. However, the same constitutional issue remains, plus the increased financial burden on operators may dissuade some from seeking licenses if the bills pass again this year.

To cap the quarter off, Governor Ralph Northam last week signed into law a bill that starts the process for regulating online poker in Virginia. The bill is extremely convoluted and, before regulated online poker becomes a reality in the Old Dominion State, potential operators would have to build brick-and-mortar casinos before they could apply for licenses – and then only after their proposals had been approved in a city-wide referendum. As long shots go, this is way out there.

Bits and Pieces from Elsewhere around the Country

While regulated states wait to find out what level of enforcement action will be taken by the DOJ, a couple of other states have made moves towards regulating online gambling. In Illinois, new Governor J. B. Pritzker has expressed a desire to raise revenues from regulated gambling to fill a chasm in the state´s budget; and in Florida Senator Bill Galvano has proposed the state circumnavigate the constitutional right of voters to approve new casino gambling measures by expanding gambling through the state´s dog and horseracing tracks.

How much any of this regulatory activity matters is subject to whatever action the DOJ decides to take. Originally, the DOJ gave online operators until the 15th April to comply with the reinterpretation without explaining how they were supposed to comply with it. The “non-prosecution period” has now been extended to June 14th, but still nobody knows whether they can continue to offer online gambling once this deadline passes or not – and the deadline could be further extended due to a legal challenge to the reinterpretation going through the courts.

My Q2 review of online poker regulation in the U.S. could be very interesting indeed!

Jacqueline Packett
Jacqueline Packett