Pennsylvania Officials Clarify Online Gaming Rules After Federal Wire Act Reversal Opinion, Experts Weigh In

Posted on: January 24, 2019, 02:58h. 

Last updated on: January 24, 2019, 03:01h.

Ed Silverstein @casinoorgedsilv Read More

Expertise: Legal, Tribal Gaming.

Pennsylvania operators and online gaming applicants have been given a warning this week to comply with the latest federal interpretation of the Wire Act.

Released on Jan. 14, the new opinion formulated in November of last year by the Department of Justice (DOJ) has led to “intense scrutiny” by the gaming sector, Kevin F. O’Toole, executive director of the Pennsylvania Gaming Control Board (PGCB), said in a recent letter. “The … [DOJ] opinion … places significant restrictions on the future conduct of internet-based gaming.

“It is your obligation to comply with … federal law in all respects in establishing your gaming operations which must now be entirely ‘intrastate,’” O’Toole said.

So far, no actual online gaming is in operation in the Commonwealth yet, Doug Harbach — a spokesman for the state’s Gaming Control Board — noted on Thursday.

Hurry Up and Wait

In 2017, a new law permitted up to 39 online gaming certificates to be issued by the PGCB board — 13 each for poker, tables games, and slot machines.  This number was derived because 13 brick-and-mortar casinos had licenses at the time. The board opened the applications resulting in 27 of the 39 being claimed.

The law also permitted companies that did not hold a casino license to petition the board for any unclaimed certificates.  In a second period, two companies claimed five more of the certificates, bringing the total to 32.

The current operators include:

“We have approved the petitions of all 10 casino license holders who applied, but have not approved the outside gaming entities,” Harbach said. Those outside companies are MGM Casinos and Golden Nugget.

Meanwhile, the new DOJ opinion reverses the 2011 opinion which held that the Wire Act’s prohibitions only applied to sports wagering.

“All firms that want to offer online gaming could be impacted by the DOJ opinion, though we believe our market will be in compliance when ready to launch, since servers for these games must be located within Pennsylvania and players can only be within the borders of Pennsylvania,” Harbach said.

O’Toole’s letter explains it is “no longer … consistent with law … to locate the interactive gaming devices and associated equipment in any jurisdiction other than in Pennsylvania.”

The letter also recommends examining earlier applications to see if they could be impacted by the new opinion, and to let state officials know about any changes. They should also examine payment processing of wagers, and any impact on banks, O’Toole said.

The PCGB director requested that operators provide plans for complying with the Wire Act “within the next 30 days,” even though the DOJ set up a 90-day grace period nationally.

Lawyers Interpret Pennsylvania Directive

When asked for comment on O’Toole’s letter, Joseph W. Grad — a gaming attorney based in Pennsylvania — told Casino.org that the DOJ’s new interpretation “created uncertainty and fueled speculation as to whether, and under what conditions, the PGCB was going to proceed with the launch of non-sport wagering interactive gaming. The PGCB’s letter was sent to clarify its position in light of the new DOJ interpretation and provide a path forward — which is that all interactive gaming must be conducted on an intrastate basis.”

Eric G. Fikry — an attorney at Blank Rome’s Philadelphia offices who both serves as the New Jersey State Bar Association’s vice-chair and legislative coordinator of the NJSBA’s Casino Law section and is an adjunct professor at the University of Pennsylvania Law School, where he teaches Introduction to Gaming Law — said that gaming applicants and licensees must “take steps to ensure that their operations satisfy all requirements under federal law.”

He points out that Pennsylvania is not part of any interstate agreement allowing poker to be played among customers from multiple states, so operators “already expected to be limited to serving in-state customers exclusively.”

New DOJ Opinion Leads to Ambiguity

Fikry told Casino.org that the DOJ’s new opinion “creates ambiguity that is certainly unhelpful to the industry.”

Specifically, he notes that casinos cannot use servers or other equipment housed out of state, if they are used for Pennsylvania operations. For instance, servers cannot be stationed in neighboring New Jersey.

There is still a chance that the DOJ’s new opinion could be overturned by a legal challenge. But even if a court challenge is filed and meets with success, the Wire Act will likely remain in place — and further barriers to interstate player pools already exist regardless.

“Hypothetically, even if the Wire Act wasn’t an issue, the Unlawful Internet Gambling Enforcement Act [UIGEA] would still present an impediment to interstate online gambling,” Fikry said.

In the next 90 days, Fikry suggests that operators review agreements with service providers, and “engage regulators and counsel in a dialogue to ensure that their operating plans are in compliance with all regulatory requirements — state and federal.”