What is the Federal Wire Act Of 1961?

The federal wire act actually has quite alot to do with legal sports betting and why it is illegal to bet in most states. The Interstate Wire Act of 1961, or simply the Wire Act, as it is more commonly known, was passed by the U.S. Congress with the intention to suppress organized crime by hitting the mob where it hurt most: in the pocketbook. It was signed into law on September 13, 1961 by John F. Kennedy and did not change for years.

Over the course the next four decades, the Wire Act’s original goal of preventing the criminal use of America’s increasingly advanced communications infrastructure to place sports bets across state lines was largely a success. However, the ascendance of internet gambling in the 1990s muddied the waters as to the Wire Act’s applicability. Attempts by the U.S. Department of Justice during the Clinton and Bush administrations to broaden the scope of the Wire Act to include all forms of online gambling – not just sports betting – culminated in a 2001 declaration that all internet gambling was indeed covered by the bill.

The matter was far from settled, though. The Wire Act, as originally written and as understood by lawmakers and law enforcement for the better part of 40 years, only specifically applies to interstate sports betting. Regardless, the DOJ’s decision would stand until 2011, when the Obama-era DOJ clarified the position of its predecessor, and the prevailing opinion has been that the Wire Act applies only to wagering on sports ever since. However, controversy surrounding the Wire Act continued to arise in the intervening years, especially given the explosion in popularity among players of paid-entry and daily fantasy sports, contests which blur the line between games of skill and sports gambling.

But in order to fully understand the implications that the Wire Act has for the future of sports gambling and fantasy sports, we need to first look at why it was created and what today’s legal experts agree it actually does.

The Origin Of The Wire Act

Robert F. Kennedy, President John F. Kennedy’s younger brother, began his crusade against America’s mafia organizations in 1956 while serving as the U.S. Attorney General. He believed that the illegal gambling racket – not drug trafficking or prostitution or any of the other criminal activities associated with organized crime – was the mob’s most lucrative enterprise. Kennedy believed the success enjoyed by the criminal organizations of the day in this arena was due in large part due to their ability to make use of the nation’s communications systems. Consistent improvements in telecommunications technology in the postwar years allowed racketeers to quickly, easily and, often untraceably, transmit information about sporting events, which in turn enabled betting on the winners before information about the outcome was widely known.

Just two months after being sworn in to office as attorney general, Kennedy accordingly announced a package of antiracketeering bills aimed at banning the use of interstate telephone lines and telegraph wires for betting on sporting events. These proposals would eventually coalesce into what became the Wire Act, which was signed into law by President Kennedy five years later. The Wire Act, for all its efficacy at helping to cut into one of the major income streams used by professional criminals, proved to be too narrow in scope, being solely intended to assist the states in preventing organized from betting illegally on sports.

The Wire Act was superseded in time by more broadly powerful – and more effective – legal tools, including the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO). RICO countered racketeering by closing the loophole that allowed leaders of crime syndicates to go unpunished if they ordered but did not directly participate in a criminal offense, of which fixing sporting events was just one.

What The Wire Act Means To Online Sports Betting

As previously mentioned, the rise of internet-based gambling in the ‘90s brought the Wire Act back into the public consciousness after a period of relative obscurity. However, DOJ officials in during the Clinton and Bush presidencies sought to expand the Act’s prohibitions to include all forms of gambling online. The aforementioned 2001 DOJ declaration to that effect was seen by some members of Congress as an across-the-board reinterpretation of the Wire Act, leading lawmakers to, at various times since, propose legislation that would rewrite its original 1961 language.

Such a move would, technically speaking, be the necessary next step if federal lawmakers desired to ban all online gambling, as gambling in general was not part of the Wire Act’s designated purpose as a targeted tool to use against organized crime. Nevertheless, Congressional efforts were made throughout the first decade of the 21st century to redefine the scope of the Wire Act in an apparent disregard for the historical Congressional understanding of the law and historical court decisions. However, a landmark case spanning from 2009 to 2011 involving the state lotteries of Illinois and New York flipped the script once again, leading to the modern understanding of the Wire Act as a law that very narrowly deals with sports betting and not all forms of gambling.

The office of the governor of Illinois and New York’s lottery division in 2009 sought an opinion from the DOJ regarding the legality of lottery ticket sales on the internet and, specifically, whether such sales would violate the Wire Act. A back-and-forth ensued over the next two years, during which time, the DOJ’s criminal justice division reached the conclusion that the 2001 interpretation of the Wire Act created a conflict with the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). Essentially, the UIGEA excludes intrastate transactions from its list of illegal online gambling related activities, which means no violation has occurred if a purchase is begun and completed in a state where gambling is legal, even if electronic data temporarily crosses state lines.

Even though it related to lottery ticket purchases and not internet sports betting, the apparent conflict between the Wire Act and UIGEA led the DOJ’s Office of Legal Counsel in 2011 to issue its own opinion on the matter. It was possible for DOJ to deliver this groundbreaking decision thanks to the administrative law principle that requires the court system to defer to the government agencies charged with enforcing statutes when it comes to the interpretation of ambiguous laws. At any rate, the 2011 DOJ ruling effectively removed any lingering question as to the scope of the Wire Act: the law applies only to wagering on sports via the internet. It was therefore possible for states like Delaware, New Jersey and Nevada to legalize, regulate and tax other forms of online gambling.

Nevertheless, anti-gambling factions in Congress have since attempted to create a de facto federal prohibition on all forms of internet gambling via the confusingly (or perhaps confusedly) named Restoration of America’s Wire Act (RAWA), which would amend the Wire Act to delete specific references to sports gambling. RAWA supporters contend their proposed revisions to the Wire Act is an attempt to stop DOJ from reinterpreting laws outside Congressional approval. However, it should be noted the 2011 DOJ opinion cleaves much closer to the Wire Act’s original intent and indeed to the historical Congressional understanding of the Act’s scope.

What Does The Wire Act Do?

In light of these fairly recent developments and disagreements between DOJ and some members of Congress, it is important to clearly and succinctly state the purview of the Wire Act.

The Wire Act was specifically created to assist the states in enforcing their respective sports betting laws and bookmaking as an effort to suppress criminal syndicates’ illegally organized sports gambling practices, including fixed bookmaking and matchmaking rackets. The law applies only to gambling establishments, organizations, bookmakers and other operatives engaged in illegal activities. Individual (or casual) bettors – those making small bets – inadvertently involved in a racketeering scheme have nothing to fear from the Wire Act, but criminals can face stiff fines and imprisonment if convicted. American users of internet sports betting services and platforms based outside the United States and/or in other countries where the practice is prohibited are similarly not violating the law as overseas-based websites are outside the Wire Act’s jurisdiction.

Finally, it should be reiterated that the current Congressional understanding, as well as the majority of case law supports the consensus that non-sports betting is not prohibited by the Wire Act. In order to prove its case, the government has to establish several things prima facie:

  • The person or operation was engaged in the business of betting or wagering on sporting events
  • The person or operation knowingly transmitted bets, wagers or information assisting in the placement of bets or wagers
  • The person or operation sent any form of communication that entitles the recipient to get money or credit as a result of bet or wager
  • The person or operation used a “wire communication facility” – defined as any instrument, personnel or services used or useful in the transmission of writings, sings, pictures and sounds of all kinds by aid of wire, cable, etc., and that includes the internet, which obviously didn’t exist in 1961.

What Does The Wire Act Say About Daily Fantasy Sports

Technically, the Wire Act, which deals narrowly with sports gambling, does not address the daily fantasy sports contests, also referred to by the acronym DFS. That’s because, as we’ll discuss below, DFS differs from sports gambling in several key areas of the law.

Given the popularity in daily fantasy sports, also referred to by the acronym DFS, in the age of the internet, many questions as to its legality have arisen in the last decade and a half. Playing daily fantasy sports online, even for money, is legal under federal law in the U.S. and Canada, because, according to the prevailing legal opinion in those two countries at least, fantasy sports is a game of skill rather than one of chance like sports gambling. The rationale for this legal distinction was explained in the 2006 Internet Gambling Prohibition and Enforcement Act, but the gist of the law is that DFS is not considered a form of sports gambling because:

  • A DFS player’s athlete picks do not form the membership of an actual current sports team, whether professional or amateur
  • All prizes and awards offered to winners in DFS contests are made known up front to participants well in advance of a game, and the amount of winnings are not determined based on the number of players or any fees players pay to join
  • Winning outcomes are determined or are at least reflected by the participants’ knowledge and skill at picking athletes with good statistical results after real-world sporting events.

Furthermore, winning money in DFS contests is not based on betting the point-spread, the final score of any single real-world team or a combination of teams in a given sporting event, nor is winning based solely on the performance of an individual athlete in a single real-world sporting event.

Despite the apparently clear distinction between DFS and sports gambling, daily fantasy sports contests are not currently available in every state in the nation. That isn’t to say that DFS participation is illegal in those states, but rather that the major fantasy sports website don’t want to take a chance, given the somewhat unclear standing of the individual states regarding DFS. The states where the major DFS websites do not allow cash players are Alabama, Arizona, Idaho, Iowa, Louisiana, Montana, Nevada and Washington; residents of the territory of Puerto Rico are also not able to win money in DFS contests.

The main takeaway is this: the legal status of DFS, while not federally prohibited under the auspices of the Wire Act like web-based sports gambling, is constantly in flux in individual states across the nation and the policies that govern DFS frequently change. The safe bet is for daily fantasy players to carefully read the terms and conditions of the websites on which they wish to participate well in advance of registering. In the event a prospective player is not allowed to participate due to their local jurisdiction, the best case scenario is that they would not be allowed to register, while in the worst case they may be in violation of state law. Read more about states with daily fantasy sports here to learn more.

Read more about the federal wire act on wikipedia if you are still interested in reading more on this.