LOTTERY
A s jurisdictions continue to search for both revenue streams and innovative ways to broaden the scope and audience of their lottery products, regulators are faced with an increasing number of questions from stakeholders about the legality and availability of products and services. Savvy regulators recognize that discussions around lottery expansion often draw the attention of the public and the press. Additionally, while many states have been in a surplus budget state for a number of years coming out of the 2019-20 pandemic period, forecasts appear to suggest that revenue will decrease over the next several fiscal years, which will coincide with the end of federal pandemic related funding that is bolstering many state budgets. Now seems the ideal time to lay the groundwork for revenue streams that will begin to meaningfully impact their states as other streams fade and spending gets leaner. However, many legislators are unwilling to expand controversial revenue raising policies when times are good to avoid potential constituent backlash, instead preferring to push these policies through during lean times. This practice results in revenue gains coming too late to save many legislative programs and projects. Therefore, being able to identify meaningful, manageable, and profitable options that require minimal additional legislative action or regulatory rulemaking is a vitally important skill as the revenue landscape will likely shift away from large surpluses before states have time to react. While U.S. lotteries are run and regulated almost entirely at the state level, some important federal oversight remains. Federal prohibitions on the interstate traffic of lottery tickets dates back to the late 1800s with 18 U.S.C. § 1301, the current prohibition on interstate traffic in lottery tickets, initially becoming law in 1895. At its inception, section 1301 prevented the physical transportation or receipt of any part of a lottery scheme in interstate commerce. In the early 1990s, Pennsylvania struggled to prevent a company from avoiding “the longstanding prohibition on the interstate traffic in lottery tickets by keeping the tickets themselves in the state of origin and transferring only a computer-generated “receipt” to
the customer.” 1 The Federal Government responded by passing the Interstate Wagering Amendment in 1994, which added language to section 1301 prohibiting the transmission in interstate commerce of information to be used for the purpose of procuring a lottery ticket, to account for technological advances such as internet purchasing. The updated language reinforced a state’s right to regulate lottery sales within its borders, closed the loophole for non-physical transmission of lottery tickets, and protected state revenue through the federal government’s control of interstate wagering. Federal oversight also touches on the advertisement of lotteries. 18 U.S.C. §§ 1302 and 1304 combine to prohibit the use of the mail system, radio, or television to advertise a lottery by any type of publication or broadcast, unless the information concerns a state-run lottery and is contained in a publication published in that state or in a state which conducts such a lottery, or is broadcast by a radio or television station licensed to a location in that state or a state which conducts such a lottery. 2 Additionally, while it appears that for now the U.S. Department of Justice will apply the Wire Act only to sports betting 3 , participants must still contend with the specter of the Unlawful Internet Gambing Enforcement Act of 2006 (31 U.S.C. §§ 5361- 5367, “UIGEA”). UIGEA prohibits any person engaged in the business of betting, as defined, from knowingly accepting credit, electronic fund transfers, checks, or any other payment instrument involving a financial institution from a person participating in unlawful internet gambling. State lotteries are neither specifically referenced nor specifically excluded from the provisions of UIGEA. However, the term “unlawful internet gambling” is defined as including bets or wagers involving the use of the internet where the bet or wager is unlawful under any federal or state law. Consequently, it appears accepting any form of payment involving a U.S. financial institution for lottery activities conducted using the internet either in violation of 18 U.S.C. § 1301, another federal law, or any state law prohibition could subject an entity to prosecution under UIEGA.
1 Pic-A-State, Pa., Inc. v. Reno , 76 F.3d 1294, 1297 (3d Cir. 1996) 2 18 U.S.C. § 1307(a)(1). Section 1307(a)(2) permits the advertisement of lawful lottery schemes by non-profit organizations, or by commercial organizations where the lottery activity is clearly occasional and ancillary to the primary business of the organization. 3 See New Hampshire Lottery Comm’n et. al v. Rosen , 986 F.3d 38 (1st Cir. 2021)
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IMGL MAGAZINE | OCTOBER 2023
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