The new interpretation issued by the Department of Justice (DOJ) pertaining to online gambling sent a shock through the industry, while at the same time creating worry and uncertainty.
The opinion, which was heavily lobbied for by billionaire casino magnate Sheldon Adelson, states that The Wire Act pertains to all forms of interstate online gaming, not just sports betting.
While relatively vague, the new opinion could create huge problems for PA online casinos, poker sites, and sportsbooks, which have been gearing up to launch sometime in the coming months. It could also have an effect on the hundreds of millions of dollars the state has already banked in fees from casinos interested in participating in those verticals.
Here’s who stands to lose the most from the DOJ’s unprecedented iGaming reversal.
Operators interested in online poker will probably be hit hardest by the new opinion, which seemingly prohibits the transmission of online gambling data interstate. This could kill the online poker compact between New Jersey, Nevada, and Delaware, which allows all three states to share player pools and increase overall liquidity.
PA was said to be next in line to join the alliance, which would give a major shot in the arm to an industry which has been hampered by the state-by-state approach to legalization.
In New Jersey, poker has been on a downward slide for several years, although PokerStars made a splash with its entrance in 2016.
When the tri-state compact went live, WSOP.com/888 benefited the most, as it could now link up with sister sites in other states.
Now, all of that is in question. Reverting poker back to an intrastate model could effectively dismantle the industry, which has been Sheldon Adelson’s goal for the last several years.
To make matters worse, in PA, eight casinos have purchased online poker permits, either included in a $10 million package deal, or for $2 million a pop. If interstate poker is banned, it’s likely that many of these companies will be seeking a way out. Whether they could get those fees returned remains an open question.
The developers providing the software for these poker sites are also exposed. GAN, IGT, GVC, PokerStars and 888 are all suppliers which could feel the pain from the DOJ’s decree.
PokerStars and WSOP.com
When the interstate poker compact went live, WSOP/888 was finally able to surpass PokerStars, becoming the biggest legal U.S. poker site in the country. And while the addition of Pennsylvania would have grown WSOP’s player base, it would have also allowed PokerStars to break out of New Jersey, and link up with its nascent site hosted by Mount Airy. It’s very likely that PokerStars would regain its position as the king of online poker were that to happen.
Gaming sites aren’t the only ones that will be affected by the DOJ reversal. Payment processors, which provide the crucial service of facilitating deposits and withdrawals, will be no doubt be spooked by the new opinion.
Payment processing has always been an issue in U.S. online gambling. Even in states where iGaming is legal, banks have been wary of processing related transactions. This has led to a high decline rate for players attempting to load money via credit cards.
If banks, and processors like PayPal, deem it to be no longer worth the risk to work in the sector, they will pull out of the industry, dealing a huge blow to PA’s forthcoming online casino, poker and sportsbook sites.
Comparing the revenue they make through online gambling with the potential fines they might be forced to pay, processors may feel compelled to bow out.
The Pennsylvania iLottery was the first legal online gaming product to launch in the state. Currently, it just offers instant win games (effectively virtual scratch-offs), which are only accessible to players within Pennsylvania borders.
Now, due to the reinterpretation of The Wire Act, the iLotto’s aims of expansion may be put on hold. Notably, draw games like Powerball and Mega Millions, which often feature eye-watering jackpots in the hundreds of millions of dollars, are fed by players in many states.
Going further, it’s plausible that lottery purchases, where the wagers originate and are processed in one state, but are routed intermediately to another state, could be in violation. This is a difficult issue as it could theoretically threaten lottery sales at retail outlets in addition to online.
If gambling data can no longer cross state lines, states might be forced to shut down these types of games, especially if they exist online, stripping them of vital tax revenue.
PA government and taxes
The new DOJ opinion throws a wrench in PA’s online gambling plans, which were already at an advanced stage. In 2018 alone, the government collected $322 million in fees from casinos interested in offering some forms of iGaming. While they would likely be loath to give that money back, some casinos may try and back out, especially those who originally bought poker licenses.
In addition, the DOJ memo will further push back the launch of PA online gambling, which is already behind NJ’s 2013 timetable. This week, PGCB Executive Director Kevin O’Toole sent a letter to casino licensees advising them that it was their “obligation to comply with federal law in all respects in establishing your gaming operations which must be entirely intrastate.”
He added that licensees have 30 days to “provide plans” for complying with the new DOJ interpretation.
Both online casino and sportsbooks now must go back and make sure that data stays entirely within the state, even though a provision in the original bill allowed for servers to be located out-of-state in some circumstances.
These new burdens will push back the industry launch date even farther, depriving the state of much-needed tax revenue. PA stands to gain tremendously from play at online slot machines alone, which it will tax at a whopping 54%.
The DOJ reversal has caused a lot of confusion in the PA online gambling industry. Hopefully, during the next PGCB meeting, slated for February 6, we will learn more.
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