A federal judge on Thursday gave the U.S. Justice Department two weeks to clarify its stance on laws regulating internet gambling after hearing arguments from New Hampshire officials in a case with potential implications for the future of state lotteries and the programs, often educational, that they fund.
Judge Paul Barbadoro issued the deadline for the department to determine the reach of the federal Wire Act and then another seven days for other parties to respond. After that, Barbadoro is expected to rule on the lawsuit filed by the New Hampshire Lottery Commission.
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It is unclear whether the ruling would apply only to New Hampshire, as the department would like, or more broadly to all 47 states with government operated lotteries. Several of those, including Michigan and Pennsylvania, filed friend-of-the court briefs in this case.
"We have an obligation to protect the revenues for the state, fund education for schools in New Hampshire," Charlie McIntyre, the executive director of the New Hampshire Lottery, said after the hearing. "That is a lot of money. ... Over the next biennium, you are talking $192 million. ... It's real money, so we have to protect it."
The Wire Act was enacted in 1961 to target the mob and prohibits interstate wagering. In 2011, New York and Illinois asked the Justice Department whether selling lottery tickets over the internet violated the Wire Act. The department concluded that online gambling within states that does not involve sporting events would not violate federal law.
In November last year, though, the department issued an opinion interpreting the act as applying to any form of gambling that crosses state lines, not just sports betting. That raised concerns about the viability of online poker and other gambling across states, as well as state lotteries.
New Hampshire law requires that all net lottery profits go toward education funding. Since 1964, that has amounted to more than $2 billion.
Only a small portion of the $90 million the state gets annually from the lottery comes from its iLottery, which brings in $4 million to $6 million in the fiscal year that starts in July. The broadest interpretation of the opinion would prohibit all lottery-related activities that use the internet, including popular games like Powerball. If so, that would jeopardize $80 billion in revenue.
On Monday, the Justice Department filed a memo saying that its opinion didn't address state lotteries and that it was in the process of determining whether the Wire Act applied. It requested more time to consider the reach of the act and said federal prosecutors had been advised not to enforce the November opinion until a decision was made.
The request for additional time didn't sit well with the New Hampshire Lottery Commission, which sued the department in February.
The state argued the prosecutions would still be possible and argued further delays could complicate the state's budget process, since a key source of revenue comes from lottery revenues. It also argued Monday's memo demonstrated how the department failed to consider the impact of its opinion and didn't understand how modern lotteries do business.
It wants the court to vacate the 2018 opinion and rule that the Wire Act does not apply to state-run lotteries.
Meanwhile, vendors who help run the online lotteries argued the 2018 opinion served to harm their efforts to raise capital and expand their gaming businesses.
"Today, we are at risk of being disconnected from the internet," Matthew McGill, a lawyer representing Neopollard Interactive, which operates the state's online lottery, told the court. "We are under all kinds of threats that arise from the 2018 memo. ... We need this declaratory judgment now. It's critical to our business."
On the other side, supporters of the department's opinion include the Coalition to Stop Internet Gambling, which is backed by GOP megadonor Sheldon Adelson, a staunch opponent of internet gambling.
It joined with the National Association of Convenience Stores in arguing in a brief submitted in this case that the two have a "strong interest" in ensuring the Wire Act is applied properly because of the "devastating effect" that online gambling has on "vulnerable individuals."
But in its own brief, the state of New Jersey suggested Adelson, trying to limit the competition to his brick-and-mortar operations, was instrumental in pushing the department to issue its 2018 opinion.
McIntyre echoed those concerns, suggesting that Adelson had turned to the department for help after failing to convince Congress to amend the Wire Act.