Internet Gambling in New Jersey
It’s in the Cards for New Jersey’s Gaming Industry
by Eric G. Fikry, Stephen D. Schrier and Dennis M.P. Ehling
C
urrently, online gambling is legal in approx-
contest” over a “wire communication facility[.]”11 Although
imately 85 countries, and generates nearly
the act predates the Internet, it is generally understood to be
$30 billion annually worldwide.1 Despite
applicable to Internet communications.12 Until recently, there
the fact that legal, online gambling in the
was a question regarding whether the scope of the act
United States is limited to pari-mutuel bet-
extended beyond sports betting, to prohibit other forms of
ting on horseracing and state lotteries,
gambling.
Americans are estimated to have spent nearly $4 billion wager-
This issue was substantially resolved on Dec. 23, 2011,
ing online in 2011. Conversely, gaming revenues generated by
when the Office of Legal Counsel within the U.S. Department
Atlantic City’s brick and mortar casinos continued to decline
of Justice (DOJ) issued a memorandum opinion13 concluding
in the face of increasing out-of-state competition in 2012.3 Pro-
that the act’s prohibition on the use of interstate transmis-
ponents of Internet gaming contend that the introduction of
sions of wire communications involved in betting or wagering
intrastate, online gambling is essential to ensuring the contin-
applied only to betting or wagering related to a “sporting
ued vitality of New Jersey’s gaming industry,4 and that the
event or contest.”
2
state’s substantial experience in gaming regulation will posi-
The DOJ’s memorandum opinion constituted a reversal of
tion it to become the “Silicon Valley of Internet gaming”
its former position on the scope of the act, and its applicabil-
should interstate online gaming become a reality.5
ity to Internet gaming. As a consequence of the DOJ’s opin-
New Jersey recently took a major step toward becoming the
first state to authorize online, intrastate casino gaming. On
6
ion, however, it appears that the act is no longer a significant
impediment to the establishment of online gambling.
Feb. 7, 2012, Governor Chris Christie conditionally vetoed
Another federal statute that impacts online gambling is the
Assembly Bill 2578, which amends the Casino Control Act to
Unlawful Internet Gambling Enforcement Act of 200614
authorize Internet gambling on an intrastate basis, but indi-
(UIGEA), which prohibits the acceptance of payments from
cated his willingness to approve a revised bill that included
individuals who make bets over the Internet.15 It is significant
his recommendations. The amended bill was passed by both
to note that the UIGEA, despite its title, does not itself outlaw
Houses of the Legislature and was returned to the governor,
any gambling activity. Rather, the UIGEA is more commonly
who signed it into law on Feb. 26, 2013.9
understood as applying to banks and other financial institu-
7
8
This article will provide an overview of federal regulation
tions that process payments of customers attempting to utilize
of Internet gambling, New Jersey’s efforts to expand intrastate
otherwise illegal gambling websites.16 Additionally, whether a
online gambling, and the challenges faced by proponents of
transaction constitutes unlawful Internet gambling under the
online gaming. It will also assess the expected impact of Inter-
UIGEA turns on how the bet would be treated under the laws
net wagering on Atlantic City casinos.
of the states in which the bet is initiated and accepted—if it is
illegal under either state’s laws it constitutes unlawful Internet
Overview of Federal Regulation of Internet Gambling
Several federal statutes function to restrict the operation
gambling under the statute.17 The UIGEA effectively constitutes
a significant barrier to interstate Internet gambling.
of gambling enterprises over the Internet. The Interstate Wire
Although the UIGEA effectively serves as a bar to interstate
Act of 196110 prohibits the transmission of information assist-
online gambling, the statute creates an exception for
ing in the placing of “bets or wagers on any sporting event or
intrastate bets or wagers, and bets or wagers authorized by
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state law. As such, the intrastate model
an account and confirm that they are
cretion to the Legislature to determine
being contemplated in New Jersey
both old enough to gamble and physi-
the nature and type of gaming in
would fall outside the purview of the
cally present in New Jersey at all times
Atlantic City.23 In addition, the amend-
UIGEA. Nevertheless, in an attempt to
while they are participating in online
ed Casino Control Act would enjoy the
ensure compliance with the UIGEA,
wagering, which would be verified using
presumption of constitutionality afford-
some payment processors have adopted
sophisticated age verification and geo-
ed legislation generally.24
a policy of refusing to fund gambling
location software.
Since it now appears that both the
transactions altogether. It remains to be
Only licensed casinos would be eligi-
legislative and executive branches of
seen how quickly these companies will
ble to obtain permits or licenses to oper-
state government are in accord, and that
adapt when Internet gambling comes
ate Internet gaming sites. In addition,
online gaming is soon to become a real-
online in New Jersey.
all servers and other computer equip-
ity in New Jersey, the arguments over
ment used by a licensee to conduct
the constitutionality of the legislation
Internet gaming would be required to be
may be academic unless the new law is
located either in a restricted area within
challenged in court.
Efforts to Legalize Intrastate Online
Gambling in New Jersey and the
Challenges Faced by Proponents
The New Jersey Constitution declares
a strong public policy against gambling,
a licensed casino hotel, or in a secure
facility located within the territorial
limits of Atlantic City.
Impact of Internet Gambling on
Atlantic City Casinos
and prohibits the Legislature from
The most recent amendments to the
The substantial detrimental impact of
authorizing any kind of gambling
legislation include a provision declaring
the proliferation of gaming opportunities
“unless the specific kind, restrictions
that, “All Internet wagers shall be
in neighboring states on Atlantic City
and control thereof” are approved by
deemed to be placed when received in
casinos is well documented. Gross casino
public referendum. The constitution
Atlantic City by the licensee. Any inter-
gaming revenue from Atlantic City casi-
establishes exceptions to this rule only
mediate routing of electronic data in
nos reached a high of $5.2 billion in
for: 1) bingo or lotto games or raffles
connection with a wager shall not affect
2006. This compares with a total of
operated by certain groups “when the
the fact that the wager is placed in
$3.565 billion in revenues in 2011,25 and
entire net proceeds of such games of
Atlantic City.”21 These provisions form
$3.318 billion in 2012.26 While economic
chance are to be devoted to educational,
the basis for the legal argument that the
conditions during this period certainly
charitable, patriotic, religious or public-
expanded gambling contemplated by
contributed to that decline, the conven-
spirited uses[;]” 2) the state lottery; 3)
the amendments to the Casino Control
ience and proximity of new gaming facil-
Atlantic City casinos; 4) horse races;
Act is constitutionally authorized as
ities opened in Pennsylvania in 2007 and
and, 5) simulcasts of horse races.19 A-
gambling in Atlantic City casinos.
Maryland in 2010, and the addition of
18
2578 and prior bills that have been
Ironically, the argument challenging
table games in Delaware in 2011, are
introduced seeking to legalize Internet
the constitutionality of Internet gaming
clearly driving the decline of revenue in
wagering in New Jersey are structured to
was most clearly articulated in the gov-
New Jersey.27 Perhaps the most persuasive
fall within the constitutional exception
ernor’s veto statement of Internet gam-
evidence of this can be found just across
to the prohibition on gambling carved-
ing bill S-1565, introduced last year by
the Delaware River in Pennsylvania,
out for the Atlantic City casinos.
Senators Lesniak and Whelan. In his
which went from earning $2.486 billion
A-2578, co-sponsored by Assembly-
veto of S-1565, Governor Christie
in gross casino gaming revenue in 2011,
men John Burzichelli, Vincent Prieto
expressed skepticism that the bill would
to over $3 billion in 2012.28 The contem-
and Ruben J. Ramos Jr., as well as its
survive a constitutional challenge: “In
poraneous decline of revenue in Atlantic
predecessor, S-1565, co-sponsored by
my view, the creation of a legal fiction
City and dramatic increase in revenue in
Senators Raymond J. Lesniak and James
deeming all wagers to have ‘originated’
Pennsylvania is striking, and leaves little
Whalen, establish the parameters for
in Atlantic City cannot overcome the
doubt that the expansion of convenience
online gaming to be conducted in New
clear and unambiguous language of the
gaming is the major challenge facing
Jersey. The proposed amendments to
State Constitution.”22 Proponents of
Atlantic City’s gaming industry.
the Casino Control Act would allow all
Internet gaming counter by arguing that
Proponents of Internet gaming con-
games that may be played at a casino, as
the amendments to the Casino Control
tend that without the additional rev-
well as variations or composites of those
Act sufficiently address the concerns
enue Internet gaming would provide,
games, to be offered through Internet
regarding the measure’s constitutionali-
some Atlantic City casino operators
wagering. Players would have to open
ty, since the constitution gives wide dis-
would be in jeopardy of closing.29 A
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41
2010 study evaluating the potential eco-
regulatory staff and agencies to establish
DOJ’s memorandum opinion. The draft
nomic impact of intrastate gaming in
the state as the business hub for the
legislation expressly prohibits the opera-
New Jersey found that in the short run,
online gaming industry nationally,
tion of “illegal gambling facilities[,]” and
the introduction of intrastate Internet
should Internet gaming continue to
imposes criminal penalties consisting of
gaming in the state would result in
expand.33 The proposed amendments to
fines or up to 10 years imprisonment.37
$210-$250 million in revenues, the cre-
the Casino Control Act lay the ground-
This is a significant deviation from prior
ation of between 1,586 and 1,903 jobs,
work for this by providing that wagers
federal regulation of gambling, which
and additional tax revenues for the state
could be accepted from people who are
customarily relies upon state law to
between $46 million and $55 million.30
not physically present in the state of
determine what sort of conduct consti-
More recent estimates by gaming indus-
New Jersey at the time the bet is made,
tutes illegal gambling. Under the Reid-
try analysts project as much as $1 bil-
provided state regulators determined
Kyl draft legislation, licensed operators
lion in revenue to potential Internet
that doing so would not be inconsistent
would be permitted to host poker web-
gaming operators, as well as suppliers of
with federal or state law.34
sites, and the intrastate lottery sales
New Jersey is by no means the only
expressly authorized in the DOJ’s memo-
Empirical evidence to support the
jurisdiction seeking to assume a leader-
randum opinion would continue to
theories regarding the level of interest in
ship role in Internet gaming in the U.S.,
remain legal.38 The draft legislation also
Internet gaming, and of its potential to
however. The Nevada State Gaming
contains findings likening poker to pari-
impact Atlantic City, is already material-
Control Board has adopted regulations
mutuel wagering, which has been
izing, even before the amendments to
that authorize Internet poker in Nevada,
authorized by Congress, and distinguish-
the Casino Control Act have been enact-
and has already approved license appli-
ing poker from other forms of gambling
ed. The Rational Group—parent compa-
cations for a number of companies seek-
based on the understanding that poker
ny of PokerStars—recently entered into
ing to manufacture and operate online
involves a measure of skill, while “play-
an agreement to acquire the Atlantic
poker sites within the state.
ers of house-banked games will always
Internet gaming platforms.
31
play against odds favoring the house.”39
Club Casino Hotel. PokerStars now faces
the scrutiny of an investigation by the
New Jersey Division of Gaming Enforcement, and a hearing on its suitability
Pending Federal Legislation Could
Frustrate New Jersey’s Efforts to
Legalize Intrastate Online Gaming
Although Senator Kyl retired from the
Senate in January, Senator Reid is reported to intend to take up the issue again
before the Casino Control Commission.
The DOJ’s decision to construe the
next session with Republican Senator
The outcome of that investigation is by
Interstate Wire Act as applying only to
Dean Heller from Nevada.40 The future of
no means assured; however, the transac-
sports wagering—and the implications
the Reid-Kyl draft legislation is uncer-
tion can be a win for both parties, as it
of the memorandum opinion on the
tain, although some speculate the efforts
provides PokerStars with an opportunity
potential for online gaming—does not
to legalize Internet gaming in states like
to enter the New Jersey online gaming
necessarily mean New Jersey’s path to
New Jersey and Nevada may hasten the
market, and the Atlantic Club with a
online gaming will be free from federal
enactment of federal legislation.41
means to improve gaming revenues that
obstacles. To the contrary, last October
The success of Internet gaming
32
have been on the decline since 2011.
it was reported that U.S. Senate Majori-
abroad, coupled with the competitive
That new revenue could allow the
ty Leader Harry Reid (D-Nev.) and Sena-
environment that exists in the gaming
Atlantic Club to reinvest in marketing,
tor Jon Kyl (R-Ariz.) had begun prepara-
industry, suggests that interest in
subsidize upgrades to its facilities, and
tion of legislation titled The Internet
expanding online gaming in the U.S.
undertake other measures to make the
Gambling Protection, Online Poker
will only intensify. New Jersey is current-
property more attractive to customers
Consumer Protection and Strengthen-
ly poised to become a leader in what
than its out-of-state brick-and-mortar
ing UIGEA Act of 2012. The Reid-Kyl
many believe to be the future of gaming,
competitors. Similar deals with compa-
Internet gambling draft legislation was
but time will tell whether online gaming
nies interested in online gaming could
in some respects a response to the DOJ’s
is the key to restoring growth and revi-
help other Atlantic City operators
memorandum opinion, and would
talizing the state’s gaming industry.
attempt to recapture some of the market
serve to legalize online poker while pro-
share lost to out-of-state competitors.
hibiting “house-banked internet games
Endnotes
or sports betting[.]”
1.
The addition of online gaming would
35
36
American Gaming Association web-
also enable New Jersey to leverage the
The Reid-Kyl draft legislation would,
site: www.americangaming.org/gov-
reputation of its experienced gaming
if passed, largely undo the impact of the
ernment-affairs/key-issues/onine-
42
NEW JERSEY LAWYER | April 2013
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gambling. See also, David O. Stewart,
Online Gambling Five Years after
2.
3.
4.
5.
6.
8.
ed States v. Ross, No. 98 CR 1174-1
See Hoa Nguyen, New Jersey Legisla-
(KMV), 1999 WL 782749 (S.D.N.Y.
UIGEA, AGA White Paper.
ture Expects to Approve Amended
Sept. 16, 1999) and People ex rel.
Id. See also, An Insider Look at New
Internet Gambling Bill by Feb. 26,
Vacco v. World Interactive Gaming
Trends in Gaming, Vol. 10 (2012).
Atlantic City Press (Feb. 11, 2013).
Corp., 714 N.Y.S.2d 844 (1999), both
9.
See DGE Announces December 2012
10. 18 U.S.C.A. §1081.
of which held that bets took place
Casino Win Results (Jan. 10, 2013)
11. 18 U.S.C.A. §1084(a).
in New York where the bettor was
(Reporting that “[f]or the full year of
12. See Benham Dayanim, Internet
located, not just in Antigua where
2012, casinos won $3.05 billion,
Gambling Under Siege, 11 Gaming
the betting operator was located.
which is down 8 percent from 2011”).
L. Rev. 536, 537 (Oct. 2007) (citing,
23. See Article, IV, Section 7, Paragraph
See NJ Seen as $1 Billion Online
United States v. Ross, No. 98 CR
2(D) of the New Jersey Constitution:
Market, Fantini Report (Feb. 11,
1174-1 (KMV), 1999 WL 782749
2013).
(S.D.N.Y. Sept. 16, 1999); People ex
It shall be lawful for the Legislature
See Martin Bricketto, Internet Gam-
rel. Vacco v. World Interactive Gaming
to authorize by law the establish-
ing On the Horizon for NJ, Lawmak-
Corp., 714 N.Y.S.2d 844 (1999)).
ment and operation, under regula-
er Says, Law360 (May 16, 2012)
13. U.S. Dep’t. of Justice, Mem. Op.,
tion and control by the State, of
(“‘We’re trying to make Atlantic
Whether Proposals By Illinois And
gambling houses or casinos within
City the Silicon Valley of Internet
New York To Use The Internet And
the boundaries, as heretofore estab-
gaming,’ [Senator Raymond] Lesni-
Out-Of-State Transaction Processors
lished, of the City of Atlantic City,
ak said.”).
To Sell Lottery Tickets To In-State
county of Atlantic, and to license
In Dec. 2011, the Nevada Gaming
Adults Violate The Wire Act (Sept.
and tax such operations and equip-
Commission promulgated new reg-
20,
at,
ment used in connection therewith.
ulations
www.justice.gov/olc/2011/state-lot-
Any law authorizing the establish-
teries-opinion.pdf.
ment and operation of such gam-
authorizing
interactive
gaming, permitting the operation of
7.
Conditional Veto Statement at 4.
2011)
available
online poker within Nevada. See
14. 31 U.S.C.S. §§ 5361-5367.
bling establishments shall provide
generally, NGC Reg. 5A.
15. Interactive Media Entertainment and
for the State revenues derived there-
N.J.S.A. 5:12-1 et seq.
Gaming Association, Inc. v. Attorney
from to be applied solely for the pur-
The amendments to A-2578 pro-
General of the United States, 580 F.3d
pose of providing funding for reduc-
posed by Governor Christie include
113, 116 (3d Cir. 2009) (citing, 31
tions in property taxes, rental,
the following: 1) extending existing
U.S.C.S. §§ 5362(10)(A), 5363).
telephone, gas, electric, and munici-
casino-related
16. IMEGA, 580 F.3d at 116 (citing 31
pal utilities charges of eligible senior
employment and representation for
U.S.C.S. §§ 5362(10)(A)) (footnote
citizens and disabled residents of the
state employees and legislators to
omitted).
State, and for additional or expand-
prohibitions
on
Internet gaming licensees and their
17. Id. at 117.
ed health services or benefits or
promoters and affiliates; 2) estab-
18. N.J. Const., Art. IV, §7, ¶2. See also,
transportation services or benefits to
lishing a sensible requirement that
State v. Fiola, 242 N.J. Super. 240, 242,
enable senior citizens and disabled
state elected officials promptly dis-
576 A.2d 338, 339 (App. Div. 1990).
residents, in accordance with such
close their past and present repre-
19. N.J. Const., Art. IV, §7, ¶2.
formulae as the Legislature shall by
sentations of entities seeking or
20. Senate State Government, Wager-
law provide. The type and number
holding Internet gaming licenses; 3)
ing, Tourism & Historic Preservation
of such casinos or gambling houses
an enhanced level of funding for
Committee Statement to S-1565
and of the gambling games which
compulsive gambling treatment programs and additional financial support for other beneficial purposes for
(March 5, 2012).
21. See A-2578 at 14, proposing amendments to N.J.S.A. 5:12-100.
which casino gaming was originally
22. Governor’s Veto Statement to Sen-
authorized; and, 4) a ‘sunset’ provi-
ate Bill 490, at 3. The governor’s
sion after a period of 10 years, to
position in the veto statement to S-
may be conducted in any such establishment shall be determined by or
pursuant to the terms of the law
authorizing the establishment and
operation thereof.
provide state government with an
490 is arguably consistent with ear-
24. See generally, Testimony of Professor
opportunity to re-evaluate Internet
lier case law involving the interstate
John B. Wefing, Seton Hall Law
gaming as appropriate. See generally,
transmission of wagers. See e.g. Unit-
School before New Jersey Wagering
WWW.NJSBA.COM
NEW JERSEY LAWYER | April 2013
43
and Tourism Committee (March 12,
2012).
25. American
112hr2366ih/pdf/BILLS112hr2366ih.pdf.
Gaming
Association,
36. Id. at §101(b)(1).
2011 State of the States at 19. See also,
37. The Internet Gambling Protection,
Charles V. Bagli, Simple but Local,
Online Poker Consumer Protection
Queens Slots are Hurting Gambling
and Strengthening UIGEA Act of
Meccas, New York Times (Oct. 23,
2012, Draft Legislation, at §§102-
2012).
26. American
103.
Gaming
Association,
2012 State of the States at 19.
38. Id. at §101(b)(4), §102.
39. Id. at §101(a)(10).
Association,
40. David Bain, Don’t Bet on a Federal
2011 State of the States at 12, 16, and
Online-Gambling Bill, Barrons.com
21.
(Dec. 18, 2012) (http://online/barons.
27. American
Gaming
28. Id. at 21; American Gaming Association, 2012 State of the States at 19,
com/article/SB500014240527487043
7960457818501571171538.html).
41. Id.
21.
29. Martin Bricketto, Internet Gaming
on the Horizon for NJ, Lawmaker
Eric G. Fikry is a partner in the Princeton
Says, Law360 (May 16, 2012).
office of Blank Rome LLP, and is the immeFiscal
diate past chair of the Casino Law Section
Impacts of the Proposed New Jersey
of the New Jersey State Bar Association.
Intrastate i-Gaming Bill, Submitted
Stephen D. Schrier is a former regulator
to Interactive Media Entertainment
and partner in the firm’s Princeton office,
and Gaming Association by Econ-
who also teaches gaming law at Rutgers
sult Corporation.
law school. Dennis M.P. Ehling is a
30. Potential
Economic
and
31. See, Fantini Report, NJ Seen as $1 Bil-
partner in the firm’s Los Angeles office,
lion Online Market (Feb. 11, 2013).
whose practice includes online gaming,
32. See Donald Wittkowski, PokerStars’
sweepstakes and promotions, horseracing,
Purchase of Atlantic Club Casino
sports, and credit card and electronic pay-
Hotel to Face Tough Licensing Scruti-
ments industries.
ny, Atlantic City Press (Feb. 18, 2013).
33. See Potential Economic and Fiscal
Impacts of the Proposed New Jersey
Intrastate i-Gaming Bill, at 16-24.
34. See A-2578 at 32, Sue Zeidler, MGM
Expects Online Gaming License,
State Compacts, Reuters.com (Oct.
31, 2012).
35. The Internet Gambling Protection,
Online Poker Consumer Protection
and Strengthening UIGEA Act of
2012, Draft Legislation, available at,
www.jdsupra.com/legalnews/internet-gambling-prohibition-pokercon-58305/. A similar bill, H.R.
2366, was introduced in Congress
by U.S. Representative Joe Barton
(R-Tex.) in June 2011. H.R. 2366
112th Cong. (2011-12) is available
at, www.gpo.gov/fdsys/pkg/BILLS-
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