As a gaming lawyer, I get asked a lot of questions about what is legal and what is not legal. A lot of folks end conversations with me by scratching their heads and saying “that doesn’t make sense at all.” The most recent head scratcher? A lot of online sites recently offered to sell Powerball tickets to out-of-state residents. Is that legal? The answer unfortunately is no. Once again, the reason doesn’t make sense at all – at least not in today’s society.
There is a federal law (yes, there is a federal law for everything, but bear with me) that prohibits the sale of lottery tickets from one state to another. Essentially, the federal law known as Title 18 Section 1301 prohibits buying tickets, for example Powerball tickets, in Maryland and selling them to residents of New Jersey.
Not surprisingly, American entrepreneurs quickly found a work-around: hold on to the tickets on behalf of the owner rather than shipping them out of state and violating the law. And a few state courts held there was nothing wrong with that at all.
However, in 1994, President Clinton closed that loophole in an amendment to Title 18 Section 1301 and effectively ended interstate sales of lottery tickets.
But really, what is with all the fuss about buying and selling lottery tickets to out-of-state residents? Like everything else that keeps our gaming industry lagging behind that of the rest of the world, it is all about the self-interests of the state-sponsored lotteries and the fear of out-of-state competition.
Years before the concept of a pooled lottery like Powerball, many states feared the competition of allowing their citizens to have the option of participating in anything other than their own state sponsored lottery. The most concerned states of course were the small states who feared that state residents would rather pay a surcharge to enter a larger lottery than play their own state’s lottery, thereby taking away revenue from the state. Georgia was cited as a notable example of a state with a small lottery pool, and with lottery funds earmarked for schools, the concern was that state residents would try to play other states’ lotteries if given the opportunity. However, this argument seemed to go beyond just small-lottery states, as even New York was pretty concerned about loss of revenue. At root, it looked like the lottery had become a predictable source of revenue in most states and even states that stood to gain from interstate sales of lottery tickets were concerned about the loss of that predictability.
Powerball is a lottery available in many states and the states participating in Powerball have agreed on how revenue is shared between them. But while Powerball participating states have abandoned the fear that larger prize pools help some at the expense of others, the federal law prohibiting out of state sales remains in full force and effect. So while, some states may offer their own residents the opportunity to buy lottery tickets online (no interstate commerce there), all out of state online lottery sales – such as online sales to residents of a state who don’t participate in Powerball, or even sales to our neighbors to the North looking to get rich – remain prohibited.