NATIONWIDE: An Introduction to Gaming & Licensing

Practice Area Overview: Gaming & Licensing (USA – Nationwide)

In both legal and financial terms, the gambling industry in the United States is undergoing a period of rapid and monumental change. Online gaming has experienced a meteoric rise in popularity and revenue in recent years, and lawmakers, government authorities, and entrepreneurs are hard at work trying to keep up with everchanging technology.

Of course, traditional gambling still remains a cornerstone of the gambling and licensing industry. Twenty-five states currently operate independent gaming and licensing boards, and 24 state—as well as the territories of Puerto Rico and the U.S. Virgin Islands—allow for the operation of commercial casinos in some capacity or another. In 2017, these age-old institutions of craps tables, card games, and slot machines accounted for over $40 billion in revenue, a 3.4% rise compared to the previous year.

That being said, all current signs point toward the future of gambling being digital, to the tune of $90 billion in global market value by 2025, according to some predictions. Key to this expected growth—as well as the growth which has already occurred—is a 2011 opinion from the Assistant Attorney General of the United States regarding the Interstate Wire Act of 1961.

After some dispute over whether the Wire Act prohibited the use of wire communications for the limited purposes of sports gaming versus all gambling or gaming, the Department of Justice (“DOJ”) in 2011 took the position in a legal opinion clarifying that the Wire Act as written only applied to sports-related gambling. Accordingly, online non-sports betting has since been legalized in five states—Delaware, Michigan, New Jersey, Pennsylvania and West Virginia.

Furthermore, 2018 saw the U.S. Supreme Court hand down a decision in the case of Murphy vs. the National Collegiate Athletic Association (NCAA) that had a monumental impact on the American sports betting industry. Prior to this ruling, the Professional and Amateur Sports Protection Act of 1992 made sports betting illegal nationwide. The Supreme Court’s ruling overturned that Act, and since the ruling, 19 states have expressly legalized sports betting (13 of which have enabled it through comparable legislation) with 21 more states considering propositions to follow suit.

In the same vein, the federal government’s position on the Unlawful Internet Gambling Enforcement Act of 2006 is somewhat unclear. While the text of this Act prohibits online gambling service providers from being involved in electronic financial transactions in the United States, it does not specifically declare online gambling to be illegal. As a result, its enforcement is inconsistent, and some internationally-based Internet betting platforms continue to serve US-based customers in potential violation of existing regulations.

After many states legalized online betting in reliance on the DOJ’s 2011 Wire Act opinion, the DOJ released yet another opinion regarding the Wire Act in early 2019, in which it reversed course from its 2011 opinion. In this new opinion, the DOJ claimed that the Wire Act, in fact, prohibits the transmission of all sorts of betting and gambling information at an interstate level, rather than only sports bets.

Due to the critical and contentious nature of the legal definitions and sovereignty of states, the New Hampshire Lottery Commission filed a lawsuit in early 2019 challenging the 2019 opinion. A federal judge in 2019 concluded that the Wire Act, in fact, is limited in its application to sports betting, and it therefore set aside the DOJ’s new Wire Act opinion, restoring the 2011 reasoning. However, the decision is currently on appeal.

Given these and other vagaries of current federal and state gambling laws, the services of experienced legal experts will continue to be crucial to companies operating in the gaming and licensing industries, especially those offering services through primarily or exclusively electronic platforms. Failure to comply with gambling rules and regulations can have broad negative effects on a business and its owners. Disgruntled bettors can bring civil claims. Government regulators could challenge operations as violating gambling and/or licensing law.

Beyond addressing active legal disputes, though, seasoned gaming and licensing attorneys can provide assistance with numerous other aspects of operating within this sector. For example, the General Data Protection Regulation enforced by the European Union does not currently have a direct federal American equivalent, but it could be a portent of further changes to come regarding expectations of data privacy from online industries, including, and especially, gambling. Furthermore, state laws (such as the California Consumer Privacy Act) impose significant requirements on companies doing business in California and collecting California residents’ personal information, including in the gambling context.

On the financial side of things, it is critical for both potential and current participants in this sector to understand how legal and social trends may impact the viability and sustainability of proposed operations. Examination of revenue projections, online statements, licensing costs and anticipated expenses from a legal professional could ensure not only compliance with current regulations, but also ensure preparedness for likely shifts in government policy and public expectations.

Furthermore, gaming licensing typically requires the submission of extensive information regarding the credit and criminal histories of the presumed operator(s), accounting and financing plans, and the particular field of gaming in which the business intends to operate, which could cover online gaming, lotteries, poker, sports betting, bingo, or even blockchain projects. Guidance from seasoned legal counsel is often essential to anyone seeking to navigate the licensing process effectively and efficiently. Companies also rely on counsel to guide them through the regulatory process, which can include in-person meetings with gaming regulators and other key contacts.

Ultimately, though, perhaps the most important factors impacting the gaming and licensing sector are not what has already happened, but what is yet to come. By all accounts, the scope of online betting will soon expand far beyond the traditional realms of sports and table-gaming—already, betting markets have opened up around political elections, popular entertainment, and even competitive video games in the form of cosmetic “skins” betting. Real-world sporting organizations have begun to embrace the online betting market as well, as demonstrated by the newly launched XFL’s day-one online betting integration.

Even the economic and operational foundations upon which online betting markets are built are not necessarily static. Cryptocurrencies like Bitcoin are becoming more and more widely accepted within Internet-based betting markets, and constant advances in artificial intelligence have allowed for the creation of extremely personalized betting experiences for individual consumers. As mentioned before, legal questions about online privacy and information storage will continue to arise, requiring counsel with deep knowledge in gaming and privacy.

What this all boils down to is a single, simple concept: flux, and lots of it. As the gaming and licensing sector continues to embrace and embody the Internet Age, industry participants can expect more states to legalize online gambling practices and more entrepreneurial experiences to crop up. Consequently, and as a direct result, more legal challenges and complications will develop as legislative bodies reinterpret outdated regulations and update them to match our new technological reality.

Ensuring compliance and promoting success within this landscape will take concentrated, experienced, and customized legal guidance and support, as well as engagement in the legislative and regulatory process to ensure new laws and regulations are fair to consumers and businesses.