A recent memo drafted by the U.S. Justice Department’s Office of Legal Counsel on whether proposals by New York and Illinois to use out-of-state transaction processors, and the states’ own websites, to sell lottery tickets to in-state adults violated the 50-year-old federal Wire Act could offer some unexpected good news to the online gaming community.

The memo reverses a long-held Justice Department stance that the act prohibits any communications related to Internet gambling by clarifying that the intent of the 1961 law was to hinder sports betting and that “communications that do not relate to a ‘sporting event or contest’ fall outside the reach of the Wire Act.”

Justice’s memorandum does nothing directly to remove the bigger hurdle to online gambling, 2006’s Unlawful Internet Gambling Enforcement Act, which bars most gaming-related transfer payments from being transmitted over the Internet. However, since UIGEA explicitly permits states to legalize in-state online gambling, concerns that such systems would be found in violation of the Wire Act seem, for now, to have been alleviated.

The most immediate impact that would be expected is the growth of on-line sales of state lottery tickets, which New York and Illinois have already petitioned to allow. Granted that freedom, some lotteries – or other state-sanctioned gaming providers — could seek to begin offering other games to in-state residents over the Internet, as well.

The Justice Department also recently published its response to a July letter from Nevada Sens. Harry Reid and Jon Kyl that had been critical of what they perceived as Justice’s lack of enforcement of federal Internet gambling statutes. In his Dec. 23 response to the majority leader, Assistant Attorney General Ronald Weich notes that the OLC memo “provides much needed clarity to those state governments that would like to permit wholly in-state, non-sports Internet gambling, including Internet lotteries.”

Throwing the door open to intrastate online gaming could, ironically, have the effect of strengthening the cause of those who wish to pass legislation limiting online gambling to federally regulated online poker, rather than a further proliferation of pure games of chance. H.R. 2366, sponsored by Rep. Joe Barton, chair emeritus of the House Energy and Commerce Committee, would permit registered online poker sites to operate in compliance with federal licensing, taxation, safety and consumer protection standards.

Barton’s bill has support from the Poker Player Alliance, chaired by former Sen. Alphonse D’Amato, R-N.Y. In a statement responding to the OLC memo, D’Amato said online poker players would prefer “clear, consistent federal legislation to a patchwork of state laws to license and regulate the game they love.”

“State by state licensing and regulation could result in a balkanized online poker world where players across the nation would be limited in their choices of where and against whom they could play. This could potentially reduce the number of total players, reducing revenues state lawmakers project from this activity. At the same time, it would deter entrepreneurs from entering the online poker market, as there would essentially be 50 different sets of laws and rules to which they would have to adhere.”

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