As the last days of 2011 came to a close, the Department of Justice issued a bombshell opinion changing its longstanding interpretation of the Wire Act of 1961 (“Wire Act”) that paved the way for the legalization of Internet poker in the United States. While industry insiders and players across the country had hoped for federal legislation ushering in a uniform, nationwide legalized Internet poker framework, the relevant bills stalled in Congress leaving local government bodies to make progress on a state-by-state basis.
Several states, from Nevada to New Jersey, are in various stages of exploring legalized Internet poker, opening up pieces of a market that already boasts upwards of 10 million players wagering approximately $35 billion annually – and that is before Internet poker has been sanctioned as legal. With a potentially friendlier legal environment and increasing popularity of the game itself, including highly publicized tournaments and celebrity poker stars, there is no telling just how big an industry Internet poker could become. Either way, online poker promises to be a windfall for an Internet marketing industry in desperate need of the next big thing.
However, due to the sensitive nature and moral uneasiness with respect to any form of gambling, including poker, when the green light comes on, the industry is likely to be highly regulated. Any marketing entity hoping to cash in on the substantial opportunities associated with generating customers and other traffic for Internet poker websites could incur substantial legal liability (including possible criminal sanctions) if it violates any of the subject laws and regulations. In order to help avoid industry-related legal pitfalls, it is essential to first understand the background of how the laws have evolved and, then, what to expect going forward.
Right Down to the Wire
For the past 50 years, the Justice Department has consistently interpreted §1084(a) of the Wire Act to “ban the interstate transmission of bets or information assisting in the placing of bets or wagers, even where the wire communication, such as a telephone call or Internet transmission, occurs between a sender and receiver in the same state but is routed out-of-state before the recipient receives the transmission.” In other words, it was illegal to use technology like telephones or, later, the Internet, to place wagers or engage in gambling activity, whether across state lines or within the same state.
However, in 2006, the Unlawful Internet Gambling Enforcement Act (“UIGEA”) created a carve out from the Wire Act’s seemingly extensive reach: the use of technology like the Internet would be permissible for gambling activity entirely within a given state even if communications are routed across state lines.
Because of the apparent tension between the Wire Act and the UIGEA, the States of Illinois and New York asked the Department of Justice, Office of Legal Counsel (“OLC”) for clarification. What came next was both unexpected and groundbreaking: the OLC concluded that the Wire Act applies to the transmission of bets or information assisting in the placing of bets or wagers relating “only” to sporting events or contests. Thus, any gambling activity that is not related to sporting events or contests, such as poker and other casino games, is not regulated by the Wire Act at all.
This letter opinion did not have the effect of legalizing non-sports gambling under federal law, but it did remove some prior restrictions which gave lawmakers on the state and federal levels more leeway to try different approaches.
The State I’m In
With the passage of the UIGEA opening up the possibility of intra-state Internet poker, and the new interpretation of the Wire Act removing past federal obstacles, several states have begun the process of establishing legal Internet poker within their respective confines. To clarify, state laws on this subject only permit residents of (or visitors to) a given state to partake in that state’s Internet poker offerings – they do not allow residents of one state to participate on Internet poker websites operated from another state.
The emerging consensus is that legalized Internet poker could provide a wellspring of economic activity that could generate much needed tax revenue in an era of lean budgets and fiscal uncertainty. The early leader, Nevada, has already passed a law and has begun accepting applications from various would-be operators. Expectations are that some of those Nevada-based ventures will go live by the end of 2012.
New Jersey is close on Nevada’s heels. Although Governor Chris Christie vetoed the last Internet poker bill that came before him, New Jersey State legislators believe the most recent iteration wending its way through both state houses has addressed Christie’s concern and could become law by year’s end.
California is similarly positioned with a bill that, if passed, would extend beyond just poker, allowing several traditional casino games such as blackjack and baccarat. Illinois already passed a law permitting the sale of lottery tickets online, but the state has been less active on the Internet poker front.
While states including Connecticut, Iowa and Massachusetts are slightly farther behind, there has been some legislative action to go along with strong indications of interest amongst lawmakers and constituents alike.
The State of Utah, on the other hand, frowns upon gambling and has taken an alternative approach by passing a law that specifically prohibits Internet poker – even if the federal government was to pass a law permitting it nationwide.
Because so many states have been quick to draft legislation that would legalize, regulate and tax online poker, key members of the US Senate and House of Representatives now have a sense of urgency to get a federal law on the books. Any such federal action would likely have to wait until some time after the conclusion of the presidential election this November.
Getting a Piece of the Action
In many ways, the shifting Internet poker legal landscape represents the ideal opportunity for Internet marketers: a very large and growing pool of customers that is known to spend significant amounts of money on the product and that is, as of yet, unattached to any of the soon-to-be legal online casinos. Further, while online casinos do have knowledge of the gaming industry (many proposed state laws, such as Nevada’s and New Jersey’s, only allow brick and mortar casinos to operate Internet poker sites), they unlikely have a thorough understanding of the world of Internet marketing and what works in terms of generating traffic and customers.
The newly-minted Internet poker outlets will be looking to attract as many customers as possible, in as short a period of time as possible, in order to gain first-mover advantage and a dedicated customer base ahead of the inevitable next waves. This could potentially inspire large payouts to marketers capable of helping to generate those end-users.
However, due to the stigma attached to gambling, and the resulting heavy regulation that accompanies its official practice, there are several potential legal ramifications facing the uninitiated – including the specter of criminal liability. Given the stakes, a careful and conservative approach would be the most prudent way to proceed. For example, it is essential that any entity performing marketing activity on behalf of a legal gambling operation in a given state avoid marketing any type of gambling activity that could be considered illegal in that same jurisdiction. Similarly, the marketing entity should take precautions to avoid marketing Internet poker in any state in which it remains illegal.
Compliance will not be easy. Given the state-by-state patchwork of laws, it is likely that marketers will need to familiarize themselves with the particular requirements of each participating state and try to adhere to all at once. This type of due diligence will only be possible when more states finalize their regulations in coming months and years. But with a pot that size, it may just be worth being dealt in.
Please note that this is only a brief overview of some of the legal issues surrounding Internet poker and associated marketing activity. Remember to obtain guidance from a licensed and experienced legal professional prior to entering this space.