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Justice Department opinion could clear states to authorize online gambling

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In an opinion dated in September but published just before the Christmas holiday (PDF), the U.S. Justice Department appears to be reversing almost half a century of policy on online and “wire” gambling, offering a new interpretation of law that may make it legal for states to authorize online gambling—and, if they do, the federal government would have to go along with it.

The opinion, which ostensibly only applies to proposals from New York and Illinois to use out-of-state transaction processors to sell in-state lottery tickets, finds that interstate wire communications that do not relate to a “sporting event or contest” fall outside the reach of 1961’s Wire Act, which barred wagers placed across state lines using telecommunications. Although initially written to target wire communications used in sports gambling—like off-track betting on horse races—the Wire Act has been the basis for the illegalization of online gambling in the United States, with the subsequent Unlawful Internet Gambling Act of 2006 used to pursue and prosecute operators of online poker sites. The upshot of the new opinion is that if individual states legalized intra-state games like poker—which Nevada and the District of Columbia have already done—the Wire Act could not be applied against the games’ operators.

“The ordinary meaning of the phrase ‘sporting event or contest’ does not encompass lotteries,” wrote Assistant Attorney General Virginia Seitz, in the opinion. “A statute enacted the same day as the Wire Act expressly distinguished sports betting from other forms of gambling, including lotteries.”

The apparent move towards a policy change may be about revenue: many states already operate lotteries as a way to finance education and other state programs. If Illinois’ and New York’s proposal to use of of state processors goes through, more states will likely consider offering online versions of their lotteries—and, if that flies, states may be tempted to give their coffers to boost by authorizing online gambling within their boundaries, even if the game operator is not located in the same state. Of course, states would be free to tax legal online gambling operations in any way they see fit.

Critics of online gaming have consistently cited the dangers of online gambling, including gambling addiction and exploitation by online casino operators. Just as with gambling in the real world, individuals with gambling problems often resort to theft, fraud, and even violence to feed their addiction. Studies have also linked online gambling to increased risks of emotional and health problems, including substance abuse, depression, risky sexual behavior, and circulatory diseases. Some studies have found online gamblers may be more prone to developing serious gambling problems than others.

The Isle of Man-based Global Betting and Gaming Consultancy estimated the online gaming business has grown to about $30 billion in 2011, an increase of nearly 12 percent from 2010.

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