30-second summary

• US Department of Justice does U-turn on legality of online gambling
• Country’s gambling sector could suffer major consequences
• Major bookmakers see their share prices take a hit following the news

Department of Justice backtracks on online gambling

There was a lot of positive movement in the US gambling sector in 2018, as many states changed their gambling laws to allow casinos, online gambling, and sports betting.

Even traditionally conservative states such as West Virginia and Mississippi are embracing these new policies. However, now it looks like the sector is taking a step backward. The US Department of Justice (DOJ) is backtracking on its original opinion that the Wire Act is applicable only to sports betting. Since many states have legalized online gambling, there will certainly be some interesting debates in the near future.

In December 2011 that the Office of Legal Counsel at the DOJ expressed an opinion that the Wire Act of 1961 is applicable only to sports betting. This meant that states were able to launch online casino, poker, and lottery operations.

Opinion seems to have changed

Now it seems that the DOJ is backtracking on this issue. The question comes down to the interpretation of the 1961 Wire Act and specifically to the absence of a comma. Some believe that the wording implies that only online sports betting is not allowed. However, others think that online poker, lotteries, and casinos also fall under this prohibition.

This law was created many decades before online gambling came into existence, so many say that it is outdated and new legislation is needed on the matter.

The DOJ’s opinion in 2011 was that it is a logical assumption that the measure only relates to sports. However, the opinion now is that there is no ambiguity and that the opinion from 2011 “incorrectly interpreted the limitation.”

While this recent opinion was reached last November, it was only made public on January 14. It looks likely that the scope of the law will have to be decided by the courts.

There are obstacles to the DOJ’s change in opinion. Past legal cases established the precedent that the Wire Act is only applicable to sports betting. Many states have launched their online gambling operations based on the 2011 opinion.

Whom will this effect?

Three states in the US offer online gambling and Pennsylvania is close to approving it. Six states have online lottery operations.

There is no idea yet about how the DOJ’s changed opinion may hurt these states. Financial institutions may be reluctant to continue processing transactions for online gambling. There is always the possibility that Congress will consider legislation to solve the problem.

However, some in Congress are strictly anti-gambling, as was seen with the proposed federal sports betting bill that would establish a strict new federal regulatory framework for gambling.

Bookmakers’ stocks drop following the news

After the DOJ’s new opinion was made public, gambling sector shares dropped. European bookmakers who are expanding into the United States market particularly felt the brunt of the news. Paddy Power, 888 Holdings, and William Hill have all been trying to expand in the US market following the end of the federal ban on sports betting.

Paddy Power Betfair is one of Europe’s leaders in sports betting. The company got into the US market by purchasing a majority stake in FanDuel, which was one of the leaders in the fantasy sports market in the US before sports betting became legal. It now operates sportsbooks in several states, as well as having online operations in New Jersey. Their stock fell by as much as 3% following the news.

William Hill also has a significant presence in the US sports betting market. In addition to operating sportsbooks at various venues, it has an online offering in New Jersey. The company also has a 25-year deal with El Dorado Resorts that gives them access to a wide range of new markets.

Their share price also dropped about 3% following the news. Finally, 888 Holdings, which is only getting started in the region, saw its shares fall by as much as 7% following the announcement.