Ill. Online Lottery? Senator Thinks So, Lawyer Thinks No

18 February 2009
As one state politician in Illinois explores the idea of selling the lottery online, one lawyer questions the United States government's willingness to let it happen.

In an interview with the Associated Press Monday, Senator John Cullerton, Democrat of Chicago, commented on a potential scheme to put the Illinois Lottery's Lotto product online as a way to boost revenues for the state's ailing budget.

For now, Mr. Cullerton's plan is merely in the idea phase, according to Rikeesha Phelon, the Senate president's spokesperson, but taking the lottery online is a project in which he's been interested for several years.

"He tried to move legislation on this about six years ago," Ms. Phelon told IGamingNews Wednesday. "So, it's not a new idea for him, but something that he thinks could be one small way that we can work to bring some more revenue to the state."

Mr. Cullerton also said that he would like to see the lottery managed by a private company.

"He thinks that it could be managed by private industry just because he doesn't believe that the state government is always the best at being creative and innovative when it comes to the lottery," Ms. Phelon said. "He believes that over the past 25 years they've constantly marketed to the same folks, so having a private management company with fresh ideas and a fresh take might help to infuse more sales and bring more people to the table."

Mark Hichar, a partner with Edwards Angell Palmer & Dodge in Providence, R.I., sees two issues with an online state lottery.

He wonders, first, to what extent a private operator can be given control of a state lottery before running afoul of certain federal laws relating to those lotteries.

In general, lotteries are prohibited from engaging in interstate promotion and advertisement. State lotteries are exempted from this prohibition, however, as long as they are "conducted by the state acting under the authority of state law," according to federal law.

But according to an advisory opinion issued in 2008 by the United States Department of Justice, all significant management decisions must be made by the state, Mr. Hichar said.

Secondly, Mr. Hichar sees a potential conflict between the Justice Department's interpretations of the Wire Wager Act of 1961 and the Unlawful Internet Gambling Enforcement Act of 2006, which includes an exemption for intrastate lotteries.

According to the UIGEA, as long as intrastate Internet wagering is expressly authorized by state law (and certain age and location control measures are in place), such wagering does not fall within the scope of UIGEA's "unlawful Internet gambling" definition, he said. Under those circumstances, state lotteries could theoretically offer their games, online, on an intrastate basis.

But Mr. Hichar is concerned that the Justice Department's prior statements confuse the situation and suggest that the department could consider Internet games operated by a state lottery on an intrastate basis illegal under the Wire Act.

The Justice Department has not provided any specific guidance in this regard or clarified its enforcement policy, Mr. Hichar said.

The Justice Department has gone on record, however, as saying that any data or transactions involving gambling that crosses state lines constitutes interstate gambling, he added.

In 2004, the Justice Department sent a letter to the Casino Control Commission in the United States Virgin Islands, which said intrastate online gambling activity would be considered "illegal interstate online gambling" if the data was routed outside of the jurisdiction.

"We believe that the acceptance of wagers by gambling businesses located in the Virgin Islands from individuals located either outside the Virgin Islands or within the Virgin Islands (but where the transmission is located outside of the Virgin Islands) would itself violate US Federal law," the letter read.

A handful of state lotteries, like those in North Dakota, New York and New Hampshire, have programs enabling customers to purchase online subscriptions to their favorite games. With these programs, however, subscribers do not actually play the lottery online.

And while New Hampshire and North Dakota have run into problems with Visa and MasterCard blocking payments to online subscription transactions, thus far the Justice Department has remained silent on these programs -- at least to Mr. Hichar's knowledge.

"The DOJ, interestingly, has not written any threatening letters that have come to public light," Mr. Hichar said.

For the time being, Mr. Cullerton has not drafted a proposal for an online lottery, but his office is reviewing the legality of the proposal, and the senator hopes to introduce legislation this session, Ms. Phelon said.

Emily Swoboda is the senior staff writer at IGamingNews. She lives in St. Louis, Mo.