The Federal Wire Act is a federal law that previously banned US-based online sportsbooks. It is one of two major federal gambling laws still in force in the United States, the other being the UIGEA. The Federal Wire Act is interesting in that its scope has changed quite a bit since the original inception of the law.
- Jan 21, 2021 US Wire Act only applies to sports betting, federal appeals court rules “The lack of coherence in the government’s proposed reading” of the 1961 law “strains common sense,” U.S. Circuit Judge William Kayatta wrote.
- The Wire Act of 1961 did not just apply to sports betting. But in 2011, the DOJ issued an opinion that the act was limited to sports betting. The 2011 opinion led directly to the introduction of state-regulated online lotteries, online poker and online casino games.
- The Wire Act is a major betting law that passed back in 1961 to stop sports betting across states using different forms of wire communication. The act still influences the sports betting industry today in a big way by limiting how states can offer wagering services to people of the United States.
- Jan 20, 2019 The DOJ issued a revision, in the form of this memo, to the 2011 Obama-era DOJ opinion, which stated that the Wire Act of 1961 only applied to sports betting. New interpretation redefines assumptions The news sent shock waves through a segment of the online gaming realm. A quick refresher on what the Wire Act intends to prohibit is in order.
History Of The Federal Wire Act
The Federal Wire Act was passed back in 1961 under the name Interstate Wire Act. At the time of its passing, organized crime ran illegal sports wagering activities, primarily through wire transmission. The law aimed to cut off all forms of illegal bets being placed through wire communications and curtail the illegal gambling activity of crime syndicates.
By clamping down on the communication channels, the US government would stop the mob from sending and receiving any wagers on sports. To be clear, the law blocked transmissions of bets and gambling information between states via wired communication, which at the time included telegraphs and telephones.
The Federal Wire Act’s Reach
The Federal Wire Act regulates the use of wire communication networks by domestic state-based sports betting operations. The Act effectively bans any US-based sportsbooks using wired communications to communicate between states as an attempt to destroy illegal crime networks that profit from game-fixing, racketeering, and wager collecting.
Below is an excerpt from the Federal Wire Act:
“Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest…”
Regarding the implications of the Federal Wire Act, the law’s original language marks several points. For starters, the law targets the business side of sports betting. Gambling businesses are restricted from accepting bets from American bettors over wired communication. The law does not target individual bettors. At the time of the law’s passing, the mob was the organization being targeted.
Another interesting component of the language is the inclusion of the word “information”. This means that knowledge related to sporting events is also prohibited from being transmitted via wire communication. For example, someone could not transmit the results of a horse race to a location where the results have not come out yet. This was a common problem back in the 50s and 60s and helped give the mob an edge on the industry.
The wording of “any sporting event or contest” leaves little to the imagination as far as which aspects of gambling the law applied to. However, some lawmakers perceived that “contest” could technically be applied to other forms of gambling. Most members of Congress knew the law was intended for sports betting at the time of its enactment, however, those who perceived it to encompass all forms of gambling would end up using that loose wording to push their agenda.
Confusion With The Federal Wire Act
The Federal Wire Act was pretty straightforward for the first few decades of its tenure. When online gambling began to take off, things began to get cloudy. The confusion led the Fifth Circuit judges to provide a clarification statement on the law in 2002. They ruled that the Federal Wire Act did, in fact, cover US based online sports betting, however, they could not seem to reach an agreement on whether casino games fell under its reach.
Online gambling was addressed several years later by the Unlawful Internet Gaming Enforcement Act, or UIGEA. The combining of UIGEA's success in complicating payment processing with the Federal Wire Act's prohibitions ended up restricting most online gambling activity in the United States. Despite all this, there was still dispute over the Wire Act's application as states began to consider offering online lottery services. This forced the US Department of Justice to step in.
US Department Of Justice Issues Formal Opinion In 2011
Amidst all the confusion surrounding the Federal Wire Act, including its regulatory restrictions, the US Department of Justice stepped in to issue a Formal Opinion in 2011. They stated that the law only applies to US-based online sports betting, freeing up other online gambling forms including casino games, poker, and lottery.
Their decision reshaped the American online gambling industry and opened doors to online gambling expansion. This interpretation became inconsequential once PASPA was repealed in 2018, changing the application of the law yet again to now only prohibiting the acceptance of bets across state lines.
Modern Effects Of The Federal Wire Act Post-PASPA
After the repeal of PASPA and the opening up of the legal domestic US sports betting market, the scope of the Federal Wire Act seemed to become clear. The law only restricts US-based gambling businesses from accepting wagers across state lines. It does not target individual bettors, but rather the institutions facilitating sports wagering, casino gambling, and poker gaming.
The law also does not target legal US online sports betting options in the form of offshore sportsbooks, but only if the sportsbooks in question are legally operating within the industry, such as the ones listed on this website. Most in the industry thought that this would be the standing application of the law, but as is their nature, the DOJ came along to again reinterpret the law's reach.
DOJ 2019 Reinterpretation of the Federal Wire Act
The nullification of PASPA required that the Federal Wire Act once again undergo clarification by the US Federal Government. In 2019, the Department of Justice issued a new ruling opinion that the law restricts not only interstate wagering but also the sharing of information across state lines, which would impact the locations of data servers for gambling operators as well as states that have existing interstate gaming compacts established for online poker and casino.
The DOJ has given a 90-day window for all parties to comply with the restrictions, which has resulted in a lawsuit launched by New Hampshire to challenge these added restrictions. It is thought by many that this restrictive effort to reclassify the regulations of the Wire Act is being pioneered by anti-online gambling activist Sheldon Adelson. There are allegations that he has influenced this latest position taken by the Department of Justice. As the lawsuit progresses, we will provide updates here.
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Two of the more prominent sweats in the gaming community these past few months haven’t come on a casino floor or sportsbook. Instead, they’ve unfolded in a much more subdued environment: the legal arena.
The first was the Supreme Court’s decision in May 2018 to overturn PASPA (Professional and Amateur Sports Protection Act).
The outcome of the landmark Murphy vs. NCAAcase gave the long-awaited green light for states to begin considering the legalization of sports betting, both in brick-and-mortar locations and online.
Then most recent — which came to fruition Monday — was far less welcome. The Department of Justice followed through on what was a rumor for weeks.
The DOJ issued a revision, in the form of this memo, to the 2011 Obama-era DOJ opinion, which stated that the Wire Act of 1961 only applied to sports betting.
Wire Act Sports Betting
New interpretation redefines assumptions
The news sent shock waves through a segment of the online gaming realm.
A quick refresher on what the Wire Act intends to prohibit is in order.
The law criminalizes the utilization of a wire communication facility:
- To transmit “bets or wagers;” or,
- “Informationassisting in the placing of bets or wagers on any sporting event or contest.”
Additionally, it’s considered illegal to use the transmission of wire communications to provide an individual with any form of remuneration for either:
- “Winningbets or wagers;” or,
- “For information assisting in the placing of bets or wagers.”
One of the key distinctions of either provision: They apply only to interstate transmissions of any degree.
The decision on PASPA helped usher in legal, single-game sports betting in a state other than Nevada for the first time. However, given the Wire Act’s limitations, wagering remains fenced in within each jurisdiction.
Geo-fencing technology helps ensure as much on both the customer and operator side of sportsbooks.
Meanwhile, between the DOJ’s 2011 opinion and Monday’s memo, other forms of online, money-based gaming, e.g., casino games including poker, were tacitly deemed to be out of the Wire Act’s reach based on the previously cited wording.
The same held for online lottery sales.
Multiple states, activities potentially affected
The new reading of the Wire Act shoots down that assumption.
It notes that only one provision of the law singles out sporting events as the subject of the prohibition. The rest, it emphasizes, can be assumed to apply to all forms of money-based gaming.
The 2011 interpretation had led to New Jersey, Pennsylvania, Nevada and Delaware establishing online gaming markets.
Eventually, it also resulted in New Jersey, Nevada and Delaware establishing ongoing, shared liquidity with their online poker player pools.
Given that state lines are crossed in a manner of ways during business transactions under the latter arrangement, it’s precisely the type of activity this reinterpretation now places into legal jeopardy.
Wire Act Sports Betting Indiana
And Georgia, Illinois, Kentucky, New Hampshire and Michiganall offer online ticket sales for Mega Millions, which features a national player pool.
Such activity is now also believed to be outside the law; that is if this latest interpretation is actively enforced as such.
Uncertainty on enforceability abounds
And that is indeed the tipping point.
In the wake of Monday’s announcement, the optimistic view has been to point out the Trump Administration’s DOJ’s similar “walk-back” of an Obama-era memo offering guidance on more lenient enforcement when it came to marijuana-related transgressions.
The current DOJ’s communication on the matter last November directed US Attorneys “to use previously established prosecutorial principles” when enforcing marijuana-related federal law. As with online gaming, the release of that communication prompted initial concerns in a newly legalized and regulated market that remains only a handful of states in size.
However, there has been no subsequent tangible effect on that industry. States that had taken the step of legalizing the activity in some form remain unencumbered by the ruling.
A similar scenario could play out with this Wire Act “redux.”
One vastly important legal component at play — that even the DOJ memo acknowledges — is it represents an opinion and therefore does not carry the force of the law. It further concedes that the opinion could certainly be nullified via a court challenge.
Wire Act Sports Betting Laws
Indeed, there’s already a precedent for such. Both the 1st and 5th Circuit Court of Appeals have previously ruled the Wire Act to strictly encompass sports betting.
So, is there any potential liability for intrastate sports betting?
Sports betting’s limitations under the Wire Act were already clarified under the prior interpretation of the law.
Thus, for the moment, the industry appears far less impacted by the potential fallout of this decision.
Yet, given the avalanche of uncertainty regarding the exact ramifications of the DOJ’s memo — particularly pertaining to what degree it will be deemed legally enforceable — there is still some apprehension.
For example, one significant open question: Whether any leg of an intrastate sports betting transaction digitally crossing state lines constitutes a Wire Act violation.
A strictly literal application of the law may conclude as much. In such a scenario, full intrastate solutions, especially with payment processing, may have to be found.
Intersection with proposed federal sports betting legislation?
Wire Act Sports Betting New York
Then, there’s one other intriguing angle to the entire discussion that involves another branch of the federal government – the Legislative.
The bipartisan Sports Wagering Market Integrity Act of 2018, introduced this past December by Sens. Chuck Schumer (D-NY) and Orrin Hatch (R-UT), interjects the federal government into the sports betting legislative arena as well.
However, it does so while acknowledging “each State may decide whether to permit sports wagering and how to regulate sports wagering.”
Rather than to impose any prohibitions, one of the stated intentions of the bill is to allow Congress to “provide law enforcement with additional authority to target the illegal sports wagering market.”
Wire Act Sports Betting Odds
The latter wording is especially relevant in the wake of the latest developments. Any potential restrictions on regulated sports betting stemming from the latest interpretation would work at cross-purposes with the bill by once again driving the US sports bettor to offshore, unregulated sportsbooks.
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