Will Trump Policy Change Put a Crimp in New Jersey’s Online Gambling Industry?

John Reitmeyer | February 13, 2019 | Politics
Murphy administration, lawmakers vow to protect state’s lucrative online-wagering sector. Attorney General Grewal weighs in with forceful letter of protest to his federal counterparts

Credit: BagoGames/flickr
Online gambling
After getting off to a slow start, online gambling has become an important part of Atlantic City’s ongoing revitalization and a reliable source of revenue for the state. But recent action by President Donald Trump’s administration has created uncertainty in the gambling industry that threatens to sink the state’s success.

That would be a sizable loss: New Jersey just enjoyed its strongest year for online gambling, with more than $350 million in annual revenue generated in 2018.

Everyone from Gov. Phil Murphy to lawmakers who represent the Atlantic City region has spoken out against a new Trump administration policy that seeks to rein in online gambling and possibly even interstate lotteries. Announced last month with little warning, the new policy could be enforced as early as April.

State Attorney General Gurbir Grewal — who hasn’t been bashful when it comes to suing the Trump administration over policy changes — has also gotten involved. He recently sent a forceful letter to his federal counterparts that alleged their new policy “jeopardizes critical state funding for the public good that is generated by lottery sales and other Internet activity that is legal within our states.” According to his letter, annual tax revenue generated by online gambling now tops $60 million.

Billionaire in the background?

Meanwhile, Grewal has also raised concerns that the policy change could be linked to billionaire casino mogul Sheldon Adelson, a top Trump donor who has lobbied for it in the past. The attorney general filed a Freedom of Information request with the U.S. Department of Justice that seeks any correspondence the agency has had with Adelson or top lobbyists pressing the online-gambling issue.

“We want to know who Justice Department officials spoke with, and why they decided to change their minds,” Grewal said.

While gambling has been legal in Atlantic City for decades, New Jersey’s online-wagering law was enacted in February 2013 by then-Gov. Chris Christie. It established a 15 percent tax on online-gambling revenues — nearly double the 8 percent on brick-and-mortar casinos — and it also required online gambling servers to be located in Atlantic City.

A winning federal policy change

Online gambling was pitched by sponsors as a way to help revitalize the casino resort city in the wake of the Great Recession. It got a boost from a policy issued in 2011 by then-President Barack Obama’s administration. The policy addressed the federal Wire Act, a decades-old statute written well before the internet that was originally designed to help prosecutors fight illegal sports-betting rings.

The Obama administration’s 2011 policy determined that the act generally did not cover online gambling legalized by the states. In response, New Jersey and Pennsylvania established online gambling and entered into pacts that allowed games to be played across state lines.

Although online-gambling revenues started out slowly in New Jersey, they’ve gained traction. The industry is also getting a boost from sports wagering, which was legalized last year.

It’s unclear what will happen next in the wake of the Trump administration’s new online-gambling policy, which has also been viewed as a threat to popular lotteries like Powerball that are played across state lines. Announced in late January, the U.S. Department of Justice has indicated it will wait 90 days before the new policy will be enforced. Since the Wire Act is part of the criminal code, it means those who run afoul of the new policy could face prosecution.

“There’s just a whole lot of uncertainty,” said Tommy Shepherd, an attorney from Mississippi who is a national expert on gambling laws, including online wagering. He suggested the issue may ultimately end up being decided by a federal judge.

“I really think what’s going to happen is it’s going to be resolved in the courts,” Shepherd said.

Turning back time on Wire Act

An effort to block the Obama administration’s interpretation of the Wire Act was first tried unsuccessfully in Congress by several Republicans who sponsored legislation called the “Restoration of America’s Wire Act.” Reportedly backed by Adelson, the legislative effort raised concerns about gambling addiction and protecting against children gaining access to online gaming. But it was also viewed by many as a way for Adelson to preserve more of the gambling market for his brick-and-mortar casinos.

In addition to seeking documents related to any interaction the U.S. Department of Justice has had with Adelson or his lobbyists on the online-gambling issue, Grewal’s letter calls on the Trump administration to drop its new policy or issue a guarantee that there will be no effort to enforce it against companies acting legally in New Jersey under existing statutes. The letter was also endorsed by Pennsylvania Attorney General Josh Shapiro.

Lawmakers who represent Atlantic City are praising Grewal for jumping into the fray.

“The loss of online gambling would mean a loss of jobs, state revenue, and a staple attraction of Atlantic City,” said Assemblyman John Armato (D-Atlantic). “I applaud Attorney General Grewal for taking steps to challenge DOJ’s opinion and protect online gambling in New Jersey and across the nation.”

Murphy also raised economic concerns in a public statement.

“Our growing online gaming industry is a key component in revitalizing Atlantic City and strengthening New Jersey’s economy,” Murphy said.

Meanwhile, Senate President Steve Sweeney (D-Gloucester) said he’s asked former longtime Sen. Ray Lesniak (D-Union) to begin preparing a response to the new federal policy. No stranger to court battles, it was Lesniak, an attorney, who sponsored the original online-gambling law that was enacted by Christie in 2013. His efforts were also instrumental in the case that eventually paved the way for legalized sports betting.

“This opinion is outrageous,” Lesniak said. “If Congress won’t fix it, I will through the judicial process.”