Md. Closely Watching Court Case That Could Impact Future of State Lotteries — and Revenues

The attention of lottery directors across the country is turned to a courthouse in New Hampshire, where a federal judge could issue a decision that would have a multi-billion-dollar effect on state budgets.

At issue is a new Justice Department interpretation of The Wire Act that calls into question interstate transmissions related to all bets or wagers – or multi-state lottery games like Mega Millions, though virtually all lottery operations involve interstate transactions.

The New Hampshire Lottery in February filed a court case seeking a ruling that The Wire Act doesn’t apply to state lotteries or their vendors, and was joined by several other states that filed briefs. U.S. District Court Judge Paul J. Barbadoro is expected to issue an opinion by the end of June – just before most states’ new fiscal years take effect on July 1.

Maryland’s lottery director, Gordon Medenica, said the state is paying close attention to the case. If the Justice Department were to ever impose the new interpretation, it would severely hamper state lottery operations across the country, Medenica said.

In the 2018 fiscal year, Maryland’s traditional lottery set an all-time profit record of $575.6 million. About $88.8 million of that profit came from the multi-state games Powerball, Mega Millions and Cash 4 Life.

But little to none of the lottery agency’s work can be done without interstate transactions. In addition to popular and headline-grabbing multi-state games, security requirements also mean that many lottery systems have information backups across state lines.

For the last several years, lotteries have relied on a 2011 opinion from the Justice Department that said 1961’s Wire Act – originally drawn up to combat gambling operations that funded the mafia and other organized crime entities – didn’t apply to state lotteries.

Medenica was the director of the New York lottery in 2009 when the agency appealed to the Justice Department to clarify the meaning of the Wire Act as the agency looked to see if online selling of lottery tickets was illegal.

One of the ways the agency made the argument that state lotteries were able to cross state lines for their operation was with a map of the united states: it showed every lottery and all the communications links to data centers provided by vendors.

“And the map ended up looking like a spider’s web. …You’ve got information bouncing all over the country all the time for all the lotteries,” Medenica said in a recent interview.

Nationally, state lotteries sell over $85 billion in tickets each year and generate over $23 billion in revenue for states, according to Bishop Woosley, president of the North American Association of State and Provincial Lotteries and director of the Arkansas Scholarship Lottery.

“If the reinterpretation is enforced, the devastation to the lottery industry will be far reaching. Enforcement of the opinion could result in actions which would completely shutter state lotteries and require state government bodies to find alternate funding sources due to the lost contributions,” he said in an email to Maryland Matters. “The potential impact will be devastating to those who benefit from the lottery contributions.”

In Maryland, the majority of state lottery proceeds are returned to the state’s General Fund each year.

The Justice Department moved to have the New Hampshire Lottery case dismissed from federal court, though Barbadoro allowed the case to move forward in April.

In filings, the Justice Department has argued that the 2011 opinion was an outlier based on the department’s historical interpretation. The Justice Department also argued that the New Hampshire Lottery Commission’s lawsuit was premature and there was no “credible fear of prosecution” by any state lottery agencies.

“Plaintiffs are not being chilled from engaging in conduct affected with a constitutional interest and have not pointed to any reason to believe that the government is preparing to bring Wire Act charges against them or anyone else, or even that their actions necessarily contravene [the Office of Legal Counsel’s] interpretation of the statute,” the department wrote in one filing.

In the most recent briefs submitted to the court, the New Hampshire Lottery Commission argues that the phrase “whoever” in the Wire Act and the 2018 Office of Legal Counsel opinion shouldn’t apply to states or state vendors. Some vendors have also filed briefs with the court.

The Coalition to Stop Internet Gambling and the National Association of Convenience Stores have filed briefs in favor of the new Justice Department interpretation. New Hampshire’s proposed reading of the Wire Act would “upend” the delicate balance between regulation of lotteries and gambling, the groups wrote in a brief to the court.

“If the Wire Act’s ‘whoever’ language is read not to include States, such a reading would compel the conclusion that no major federal gambling or lottery statute applies to States – upending federal gambling regulation as we know it,” the groups wrote.

The Coalition to Stop Internet Gambling is backed by casino magnate and Republican super-donor Sheldon Adelson.

The Justice Department’s 2018 decision tracks closely with a memo from lobbyists for Adelson, which argued that the 2011 opinion allowing online lottery gambling was wrong.

Medenica and Woosley said if the New Hampshire Lottery Commission case doesn’t end favorably for state lotteries, other legislative and regulatory solutions will be sought. It’s also unknown whether the Justice Department would ever initiate a criminal case against a state lottery for any current operations.

“Nobody expects the Justice Department to shut down the lottery business; that would be met, obviously, with tremendous backlash,” Medenica said. “But this reinterpretation that was made in 2018 is totally misplaced.”

Thus far, the 2018 opinion has not affected the Maryland Lottery operations in any way, he said.

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Danielle E. Gaines
Danielle Gaines most recently worked for Bethesda Beat covering Montgomery County. Previously, she spent six years at The Frederick News-Post as the paper’s principal government and politics reporter for half that time, covering courts and legal affairs before that. She also reported for the now-defunct The Gazette of Politics and Business in Maryland and previously worked as a county government and education reporter at the Merced Sun-Star in California’s Central Valley.

1 COMMENT

  1. I personally would find it humorous if MD was hit legally regarding the state lottery. Though I don’t play daily fantasy sports, the state’s position prohibiting that kind of gambling while allowing and actively advertising lotteries is extremely hypocritical.

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