What is the Federal Wire Act?
A lot of people just getting started with sports betting often come across the first big anti-gambling law, and naturally, they all want to know: exactly what is the Federal Wire Act? And that’s a good question to have. The Federal Wire Act actually has quite a lot 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 US 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 president John F. Kennedy and did not change for years.
Over the course of 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 US 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 reversed the position of its predecessor, and the prevailing opinion was then that the Wire Act applied only to wagering on sports. 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 (DFS), contests which blur the line between games of skill and sports gambling. In late 2018, the Trump DOJ has reversed its opinion again, once more claiming that the Wire Act applies to all forms of casino-style gambling and sports betting.
But in order to fully understand the implications that the Wire Act has for the future of sports gambling and DFS, we need to first look at why it was created and what today’s legal experts agree that 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 US 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 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 into office as Attorney General, Kennedy accordingly announced a package of anti-racketeering 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, as it was 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 criminal offenses, of which fixing sporting events was just one. So now that RICO exists, what is the Federal Wire Act’s purpose here and now? The skeptics may have an answer.
Skeptics Have A Different Interpretation Of The Wire Act
Notwithstanding the above, which is definitely how the US government sold the Wire Act to the public, many industry insiders, pundits, and skeptics have a very different interpretation of the Wire Act. To them, what the Wire Act is – or rather, why it was crafted in the first place – is to protect individual states’ lottery programs from competition. Much of this competition indeed derived from organized crime’s numbers games, but lotteries are about the only type of gambling (along with slot machines) that generate as much handle as sports wagering nationwide. The mob’s sports betting schemes were small potatoes compared to their interstate lottery schemes, but the federal government was reticent to admit the real impetus, because it would then be viewed as actively protecting monopolies – which, of course, are illegal themselves.
Essentially, to many folks, the Wire Act is a case of legislated deflection designed to shed unwanted attention on the government’s own racket (which was, and still is, bankrupting the very people who can least afford to waste their money). The Wire Act is, in these terms, a tax grab. Fortunately, it’s a dying tax grab that’s been obviated by the advent of a global, ubiquitous Internet.
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 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 more recent (but again overruled) 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 the 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 would apply 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 are an attempt to stop the DOJ from reinterpreting laws outside congressional approval. However, it should be noted the 2011 DOJ opinion is much closer to the Wire Act’s original intent and indeed to the historical Congressional understanding of the Act’s scope.
All that said, 2018 saw the DOJ – now under president Donald Trump – once again abandon its original premise, and it is currently the opinion of the federal government that the Wire Act applies to both sports betting and all other kinds of common gaming.
What Does The Wire Act Do?
In light of these fairly recent developments and disagreements between the DOJ and some members of congress, it is important to clearly and succinctly state the purview of the Wire Act, at least as officially presented. So then what is the Federal Wire Act, in brief layman’s terms?
The Wire Act was specifically created to assist the states in enforcing their respective sports betting laws and bookmaking laws 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 – i.e. those placing bets – inadvertently involved in a racketeering scheme have nothing to fear from the Wire Act, but operators can face stiff fines and imprisonment if convicted. American users of Internet sports betting services and platforms based outside the United States – like offshore sportsbooks and legal overseas betting sites – are similarly not violating the law, as these 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 concerning sports betting and gambling, supports the consensus that non-sports betting is not prohibited by the Wire Act. In order to prove its case that the Wire Act is being violated by any operator, the government has to establish several things prima facie:
- The operator was engaged in the business of accepting bets or wagers on sporting events from those located in other states.
- The operator knowingly transmitted bets, wagers, or information assisting in the placement of bets or wagers (i.e. made the wagers available in some form) to those located in other states.
- The operator sent some form of communication that entitles the out-of-state recipient to get money or credit as a result of winning a bet or wager.
- The operator used a “wire communication facility” – defined as any instrument, personnel, or services used or useful in the transmission of writings, songs, pictures, and sounds of all kinds by aid of wire, cable, etc., which includes the Internet (though it 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 (or, is supposed to, at least), does not address daily fantasy sports, or DFS, contests. That’s because, as we’ll discuss below, DFS differs from sports gambling in several key areas of the law. As such, many prospective players ask: What is the Federal Wire Act doing for or against this new, popular pastime?
Given the popularity in DFS in this age of the Internet, many questions as to its legality have arisen in the last generation or so. Playing DFS online, even for money, is legal under federal law in the US and Canada because, according to the prevailing legal opinion in those two countries, fantasy sports is a game of skill rather than one of chance like sports gambling. The rationale for this legal distinction was explained in 2006’s UIGEA, 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 upfront 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.
- Winning money in DFS contests is not based on betting the point-spread, the final score of any single real-world team or 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 of top fantasy sports websites – like DraftKings and FanDuel – don’t want to take any chances, given the somewhat unclear standing of individual states regarding DFS. The states where the major DFS websites do not allow cash players are Alabama, Arizona, Hawaii, Idaho, Iowa, Montana, Nevada, and Washington; residents of the territory of Puerto Rico are also not able to play for real 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 at which they wish to participate well in advance of registering. In the event that a prospective player is not allowed to participate due to their local jurisdiction, the best case scenario is that they would not be able to register, while the worst case scenario – which is historically unprecedented but still technically possible – is that they may be in violation of state law. In this way, at least DFS gaming comes with a little bit of a gamble: After all, what is the Federal Wire Act good for if it doesn’t keep you on your toes when picking and playing your lineups?
Read more about the Federal Wire Act on Wikipedia if you are still interested in reading more on this.