Jim Ryan: Biggest risk from new Wire Act opinion is payments

Pala Interactive CEO says new DOJ opinion could give payment processors cold feet

When news surfaced last week that the DOJ had reversed its 2011 opinion on the 1961 Wire Act and that the law doesn’t only just apply to sports betting, shockwaves were felt throughout the gambling industry.

The revised opinion says the Wire Act covers all forms of interstate gambling, which would suggest the prognosis is bleak for interstate online poker, while interstate lotteries and possibly daily fantasy sports could be on shaky ground. For online gaming industry veteran Jim Ryan, CEO of Pala Interactive, the digital arm of California’s Pala Band of Mission Indians that operates PalaCasino.com and PalaPoker.com in New Jersey, his immediate concern is payments.

In essence, will banks and payment processors now get cold feet and cease facilitating the movement of money on and off sites and mobile apps? “If you are a bank where the online gaming business is not meaningful in terms of the grand scheme of your operation, why would you take the risk?” Ryan says. “You have to understand that I have been doing this for a long time and that’s the last thing I want to have happen but being long in the tooth and pragmatic, that’s my most fundamental concern.”

In theory, online sports betting and online casino could feasibly be wholly intrastate – even though it would require a radical and expensive rejig to back-end infrastructures – yet at some point along the line, transactions between a player and an operator currently leave the state. “I could get my head there as to how it could be intrastate, but a payment transaction? I don’t know if you can guarantee, and I don’t know if it’s even realistic, that a transaction can be wholly processed within the state of New Jersey,” says Ryan.

“I hope to be completely wrong on that and I self-profess not to be an expert. But I’ve been around it for long enough to know that those transactions are probably leaving the state of New Jersey to get approved in order to go through aggregators to get to the ultimate issuing bank.” On 15 January, US Deputy Attorney General Rod Rosenstein released a memo stating that there will be a 90-day window for businesses that relied on the 2011 opinion to “bring their operations into compliance with federal law”.

Afterwards, Pennsylvania Gaming Control Board executive director Kevin O’Toole warned licensees to comply with federal law and to ensure that all online gaming operators are “entirely intrastate.” He also wrote how the opinion “places significant restrictions on the future conduct of internet-based gaming.” Pennsylvania is set to become the fourth state to roll out regulated online gambling (slots, table games, poker and sports betting), more than five years after the third state, New Jersey, went live.

Ryan, who served as co-CEO of online giant bwin.party prior to joining Pala Interactive in 2013, says: “Let’s hope that we get support from the attorney generals of New Jersey and Pennsylvania – these are the guys that have got the most to lose – and they take the government to task on this and seek to get clarity for regulatory regimes.”

He adds: “If a consumer is in state, the wagers are placed in state, and the servers are in state is it unreasonable to request there be a carve out to allow the payment transactions to get processed for states where it is legal for intrastate gaming? That’s where I hope this is going and that, to a logical person, it will end up given the investments and size of the markets. But logic doesn’t always prevail. I’ve been there, seen it and done it.

While this reinterpretation of a law created almost 60 years ago – long before the internet and online gambling – probably doesn’t mean regulated US egaming is facing an existential crisis, it certainly throws a spanner in the works. The fear is that the industry’s wings will be clipped, in part by payment processors getting spooked, and in doing so it will play right into the hands of the black market, particularly the offshore sites taking bets illegally from gamblers in the US for years.

Right now, though, the confusion and lack of clarity makes it difficult to anticipate how this situation will play out, in the short term at least. “I think we are in for 90 days of silence right now as everybody tries to figure out if it’s déjà vu all over again with the United States,” Ryan suggests. “In other words, is this market going to go the way of the dodo bird on the back of this opinion letter?” The déjà vu he refers to is when many major online gambling companies were forced to beat a hasty retreat from the booming unregulated US market after President George W Bush signed the Unlawful Internet Gaming Enforcement Act (UIGEA) into law in October 2006.

UIGEA prohibited banks from facilitating gambling transactions for unlicensed online operators, so London-listed PartyGaming, which Ryan became CEO of in 2008, exited the market and lost roughly three quarters of its group revenue overnight. “I would hate to have to withdraw again,” he declares. “Two strikes and I’m out; I think I’m going to go into the T-shirt business or something like that.”

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