Jackpot in Jeopardy

6/7/2019

Cards on a keyboard

Federal Opinion Threatens States’ Rights Over Online Gambling

By Jackson Brainerd

Gambling contributes a relatively small percentage to state budgets, typically between 2% and 2.5%, but that can amount to hundreds of millions or even billions of dollars, depending on the state. Gambling revenues are often earmarked for important spending categories—education, retirement programs, historic preservation—so states have an interest in ensuring that their gambling revenue streams are robust or at least stable. The reality, however, is that gambling revenues in many states have been relatively flat or even down because of increased competition and shifts in consumer preferences.

To bolster gambling revenue some states are offering casino gaming or lotteryplay over the internet. It’s a way to increase gambling opportunities and appeal to millennials, who, surveys suggest, are less interested in traditional forms of gambling.

Delaware, Nevada, New Jersey, Pennsylvania and the U.S. Virgin Islands allow internet gambling. Another 11 states allow some form of internet lottery play. That appears to be paying off. New Jersey, for example, has taken in $178.9 million in tax revenue since internet gambling began in 2013 and brought in $44.9 million in 2018 alone. After launching an online lottery in 2015, Michigan reaped $48 million in online sales in fiscal year 2016 and $77.9 million in fiscal 2017.

States with online gambling

Last year, in Murphy v. NCAA, the U.S. Supreme Court declared the Professional and Amateur Sports Protection Act—which prohibited most states from autho-rizing or licensing sports betting within their borders—unconstitutional. This opened a whole new frontier in which states could legally offer online sports bet-ting. Since the ruling, New Jersey, Pennsylvania, Rhode Island and West Virginia have done just that, including on mobile devices. Nevada accepts online bets anywhere in the state if the bettor has registered in person at a sportsbook.

Uncertainty Ahead

As attractive as the revenue potential of internet gambling is, there’s a big caveat: It might soon be illegal again. Internet gam-ing was initially legalized in 2011, when the U.S. Department of Justice decided that the Wire Act of 1961 outlawed only sports betting, not online gambling.

NCSL passed a resolution at the time supporting the decision. In January, how-ever, the Justice Department argued the 2011 opinion was a misinterpretation and reversed it, throwing state internet gaming operations into jeopardy. Deputy Attorney General Rod Rosenstein subsequently released a memo asking the department not to enforce the new opinion for 90 days.

Although the ramifications of enforcement are still unclear, it could mean the end of traditional online gaming, multistate lottery drawings like Powerball and Mega Millions, and online sales of instate lottery tickets. However, because the Wire Act applies to wagers placed across state lines, intrastate mobile sports betting is likely safe.

The state attorneys general of New Jersey and Pennsylvania issued a joint response to the Justice Department on Feb. 5, requesting that it withdraw the opinion, arguing that the agency did not provide a compelling enough reason “to trample over the law and states’ rights, and to upend the settled expectations on which we have been relying for nearly a decade.” Soon after, New Hampshire and New Jersey filed a lawsuit against the department, seeking an injunction on the new Wire Act opinion.

Stay tuned. All bets are off on how this will end.

Jacksons Brainerd is a policy specialist with NCSL’s Fiscal Affairs Program.

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