Federal Wire Act Explained
The odds are good that anyone who has considered placing a bet on a sporting event will have come across some mention of the Wire Act over the course of their research. This law, one of the most significant pieces of federal anti-gambling legislation on the books in US history, was passed more than 50 years ago buts its effects are still felt to this day. The Wire Act explained in simple terms offers a good view of the intention of the law. At the time of its passage by the 87th Congress and signing into law by President John F. Kennedy, the Wire Act was expressly meant to be a law enforcement tool aimed at helping states and the federal government to prosecute the ringleaders of criminal organizations. However, the Wire Act’s scope has been called into question by the rise of the internet as the preeminent means of wagering on sports.
By the mid-20th century, the mafia had created vastly profitable nationwide sports gambling racketeering enterprises, and the Wire Act was meant to disrupt these valuable revenue streams. In this regard, the Wire Act was largely successful. However, Wire Act’s prohibitions on the interstate transmission of information relating to gambling have been the subject of intermittent debate in the decades since the law first took effect.
Congressional committees and independent legal scholars alike have spilt much ink on the applicability of the law vis-a-vis individuals placing bets on sports online and the potential illegality of any internet-based gambling. Understanding of the Wire Act’s specific purpose morphed over the years, to the point that the law was radically reinterpreted by the Department of Justice during the Clinton and Bush administrations, which sought to use the law as a buffer against the expansion of legalized gambling more generally. The effects of this reinterpretation have been deleterious on the gaming industry, and in particular on the internet gambling sector, which has given rise in recent years to the prominence of legal offshore sports betting websites that offer American sports bettors their only means of safely enjoying their pastime.
We will, in subsequent sections, take a closer look at the nature of the Wire Act, its powers and provisions and provide a historical perspective – along with an assessment of modern views on the subject of its purview – with the aim of elucidating the implications of this controversial law.
Why Was The Wire Act Created?
The Federal Interstate Wire Act of 1961, heretofore and subsequently to be referred to as simply the Wire Act for the sake of brevity, was originally passed into law as a means of going after the mob’s ability to profit from illegal gambling rackets. This was achieved by denying criminals the ability to legally use communications networks (the “wire” part of the Wire Act) to speedily relay information about the outcome of legitimate sporting events from one gambling market to another before knowledge of the winner and loser was widely known. Because this method of racketeering cannot, strictly speaking, be considered “match-fixing” – that is, a conspiracy on the part of gamblers and athletes themselves complicit in the scam – it was virtually untraceable by authorities and therefore constituted a highly valuable source of illicit revenue for criminal organizations.
The Wire Act was intended since its inception to apply strictly the sports gambling, and then only to the use of a wire communication facility to transmit bets or information assisting in the placing of bets across state lines. It was understood by Congress, and in turn by law enforcement authorities, that the Wire Act was also to be focused solely on the ringleaders of the gambling rackets, not the individual bettors who may have inadvertently been caught up in the criminal enterprise. Despite the bad press given to the Wire Act in recent years, one original intent of the law was actually to protect gamblers from crooked bookmakers who, knowing the outcome of a sporting event in advance of bettors due to their criminal connections, could “cook the books” and draw up odds designed to steal from their customers.
What Does The Wire Act Actually Do?
The Wire Act, as we have already discussed, was designed to disrupt sports racketeering, a major source of the mafia’s operational funding. In order to achieve this goal, the Wire Act assists individual states by giving them additional tools toward the enforcement of their respective laws against sports gambling, which many states already prohibited since the turn of the century. As such, the law applied to gambling establishments and bookmakers involved in illegal activities such as fixed odds and matchmaking rackets, not casual bettors, even those using internet sports betting services and platforms based in foreign countries.
Non-sports betting is similarly not affected by the Wire Act’s proscriptions on the interstate transmission of betting information, ‘90s efforts to redefine the law notwithstanding. This was borne out by a 2011 Department of Justice ruling that removed questions regarding the applicability of the Wire Act to all forms of gambling over the internet. Having specifically targeted organizations and operators (and excluded casual bettors from prosecutorial reach) and limited the Wire Act’s scope to sports betting, the federal government can only find an individual or operation to be in violation of the Wire Act if:
- The person or operation was engaged in the business of betting or wagering on sporting events,
- The person or operation knowingly transmitted bets or wagers, information assisting in the placement of bets or wagers, or a communication entitling the recipient to receive money or credit as result of a bet or wager,
- The person or operation sent any form of communication that entitles the recipient to get money or credit as a result of a successful bet or wager,
- The person or operation used a “wire communication facility” – or “any instrument, personnel or services used or useful in the transmission of writings, signs, pictures and sounds of all kinds by aide of wire, cable, etc.,” and
- The person or operation knowingly used a wire communication facility as defined above to engage in one the three prohibited forms of transmissions.
The Wire Act also provides a “safe harbor” clause. It has no jurisdiction over “bona fide news reporting of sporting events or contests.” The law also exempts from its prohibitions the transmission of sports betting-related information from a state or country to another state or country, provided that both the sending party and receiving party were legally able to bet on sports according to their own local jurisdictions.
The Historical Background Of The Wire Act
The process leading up to the introduction of the Wire Act (which was just part of a package of laws collectively referred to as the Interstate Anti-Crime Acts) began as far back as 1956 by US Attorney General Robert F. Kennedy, the younger brother of President John F. Kennedy. AG Kennedy rightly understood that the nation’s rapidly improving telecommunications network was enabling criminal organizations to elude law enforcement crackdowns on their illegal gambling operations and simultaneously gain access to an even more valuable source of illicit revenues than prostitution or the narcotics trade.
Just two months after assuming his office, Kennedy and his staff presented eight prospective antiracketeering bills to the 87th Congress, of which one – Senate Bill 1656 – went on to become what we know today as the Wire Act. Congress finally approved the bill after five years’ worth of legislative debate and a series of revisions designed to close up any foreseeable legal loopholes, and President Kennedy accordingly signed it into law on September 13, 1961.
In his proposal for the Wire Act’s ban on the use of communications systems to transmit sports betting information across state lines, Kennedy contended that “the denial of [the use of the nation’s communications systems] to the gambling fraternity would be a mortal blow to their operations.” That proved to be mostly true, as the states, given their newfound federal authority, saw to it that criminal gambling rackets were greatly reduced in scope as well as national prominence in the years immediately following the Wire Act’s passage. The criminal element, not eager to give up its most profitable source of illicit funding, proved to be a resourceful opponent for the Department of Justice, which failed to secure the desired result of the total eradication of national gambling rackets.
The cause of this failure was blamed on a perceived loophole in the Wire Act that allowed the ringleaders of criminal organizations to escape prosecution for crimes they ordered others to do but did not directly participate in, of which racketeering was just one. This led to the passage of the Racketeer Influenced and Corrupt Organizations Act, commonly known as the RICO Act or RICO, which was drafted and sponsored chiefly by attorney and law professor George Robert Blakely, assistant to the chairman of the United States Senate Government Operations Committee, Senator John Little McClellan. RICO was codified into law as Title IX of the Organized Crime Control Act of 1970 and signed by President Richard M. Nixon, giving federal law enforcement broader powers to target mafia bosses and corrupt government officials complicit or otherwise indirectly involved in all manner of organized criminal activities.
The Wire Act In The Age Of Online Gambling
Despite the efficacy of the Wire Act and other related legislation aimed at disrupting criminal operations in the last four decades, the laws themselves may have faded into obscurity had it not been for the arrival of the internet – and internet gambling – in the mid-to-late 1990s. Though the original intention of the Wire Act was narrowly focused on combating organized crime, the Department of Justice during the presidencies of Bill Clinton and George W. Bush overstepped those boundaries by directly targeting legal and legitimate (and largely innocuous) online gambling operations. Simply put, the internet – which few in Congress could have imagined in the 60s – had given room for doubt as to what the realm of applicability for the now seemingly outdated Wire Act should be in modern times.
Department of Justice Officials sought to correct the perceived archaisms of the Wire Act, and in 2001 issued a declaration that all internet gambling, sports betting included, was covered by the old antiracketeering law. This revisionist approach to the Wire Act stood for a decade, but the matter was far from settled, as during that entire time some members of Congress saw the situation for what it rightly was: a reinterpretation of the original law. In apparently flagrant disregard for the Wire Act’s originally stated – and historically understood – intent, anti-gambling lawmakers (and perhaps those fearing loss of market share for the traditional land-based casinos and sports betting markets in their home districts) attempted to rewrite the 1961 language to include internet gaming among its prohibitions.
Strictly speaking, an amendment to the Wire Act would be required to achieve the aims of the Congressional members that wanted to prevent the spread of online gambling, which prior to the Department of Justice’s 2001 declaration was not considered illegal. However, these efforts were stifled as the result of a 2009 case brought by the state lottery authorities of New York and Illinois, which sought an opinion from the Obama administration’s Department of Justice on the legal standing of their lottery ticket sales over the internet according to the Wire Act. That looked-for decision took two years, but the Department of Justice ruled that its own 2001 Wire Act reinterpretation created a conflict with the more recently passed Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA).
The UIGEA prohibits financial institutions from processing transactions for online gambling purposes, but it does make an exemption for intrastate gambling-related transactions – like lottery ticket purchases – if a transaction is begun and completed in a state where that form of gambling is otherwise legal. This is the case even in instances where electronic “betting information” may temporarily cross state lines. The Department of Justice’s 2011 decision, though it answered a question relating to internet lottery sales and not internet sports betting, the conflict that precipitated the course correction created the need for a new opinion clarifying the scope and powers of the Wire Act.
The issue of the Wire Act’s relationship with online gambling came later in 2011, when the Department of Justice’s Office of Legal Counsel issued the opinion that the law did indeed apply solely to illegal sports betting rackets and related interstate gambling-related transmissions using wired communications systems. This decision effectively enabled New York and Illinois’ lottery administrators to rest easy while simultaneously freeing up historically pro-gambling states like Delaware, New Jersey, and Nevada to regulate – and, more importantly, tax – other forms of online gambling, often with the effect that land-based casinos launched their own internet gaming platforms.
However, efforts to initiate the so-called “Restoration of America’s Wire Act” or RAWA (effectively meaning to include all forms of online gambling to the Wire Act’s ban on in-state sports gambling by criminals) have been attempted since at least 2014. Nominally spearheaded by former Republican Utah Representative and current Fox News contributor Jason Chaffetz, who has long opposed all forms of gambling expansion, RAWA is widely believed to be a product of lobbyists in the employ of Las Vegas Sands Corporation CEO and Republican donor Sheldon Adelson. As we have shown elsewhere in this article, RAWA is a “restoration” in name only. The 2011 Department of Justice opinion on the purview of the Wire Act is simply a reiteration of what was for the better part of 40 years understood by Congress members and congressional scholars alike to be the purpose of the law.
If RAWA or a spiritual successor bill is passed, it could result in major upheavals for gambling across the spectrum of the industry. Online lottery sales sponsored by state governments would perforce be rendered immediately illegal, though online horse racing and daily fantasy sports (DFS) would be exempted from the proscription, just as it in the language of the UIGEA. One the one hand, this is not a likely occurrence, as Chaffetz announced in early 2017 that he would not seek reelection, plus the one-two punch of Sheldon Adelson’s unpopularity with a major subset of GOP lawmakers that also doesn’t like the proposed bill on the grounds that it represents a possible states’ rights violation. Nevertheless, President Donald Trump’s attorney general, former Alabama congressman Jeff Sessions, has openly said that he isn’t a fan of the Department of Justice’s 2011 opinion on the Wire Act. Thus, the hope is still alive for some that, even if RAWA never sees the light of day, the spirit of the bill could be carried out through other means.
What Does The Wire Act Say About Daily Fantasy Sports?
Being that RAWA expressly exempts DFS transactions from its list of prohibitions, the original Wire Act’s position should be of particular interest to enthusiasts of online sports betting due to the close parallels between the former, a game of skill, and the latter, a game of chance. It’s fair to say that the fantasy sports industry has seen an incredible boom in the past several years, with leaders DraftKings and FanDuel each making major strides in terms of league partnerships and an increased marketing presence. Though 2016’s big news – a proposed merger between DraftKings and FanDuel – fell through, the DFS industry nevertheless generated estimated revenues in excess of $3 billion in ’16, though an even bigger uptick is expected for 2018 if favorable growth-oriented state regulations are passed.
State laws regarding DFS are the key, as the Wire Act gives the federal government (nor the states) any power to prosecute fantasy sports as illegal gambling under the law’s auspices. DFS is exempted from the Wire Act for the same reason it isn’t considered sports gambling according to the UIGEA. For instance:
- When a DFS player picks his or her roster, the resulting “team” does not represent the exact membership of a real-life present-day sports team, whether professional or amateur (that’s the “fantasy” part of DFS),
- Any and all prizes and awards winners in DFS contests can expect to collect are known up-front to participants before a game begins, and the monetary value of the winnings is in no way determined based on the number of players or any fees players pay to join the contest, and
- A winning outcome is determined in large part or are at least a reflection of the participants’ knowledge and skill at a roster comprised of athletes with good stats after a number of real-world games,
- Winning a DFS contest is not based on point-spread betting, the final score of a single current real-world team or a combination of teams.
- Winning is similarly not based solely on the performance of an individual athlete in a single real-world sporting event.
In spite of those clear distinctions between DFS and sports betting, several states have made it uncomfortable for some fantasy operators to offer services to local players. While the opinions of a few state attorneys general doesn’t mean that DFS is technically illegal there, the major DFS companies often don’t want to even take a chance of being in violation of state law given the murky legal outlook. That’s why residents Alabama, Arizona, Idaho, Iowa, Louisiana, Montana, Nevada and Washington and Puerto Rico are not allowed to win cash prizes in DFS contests.
DFS players are advised to read up on the terms and conditions of the web services they wish to use for fantasy contests well in advance of trying to register. Though the most likely outcome is that the DFS site would simply not allow a player from one of the above states or territories to sign up, the possibility exists that – the legality of DFS being in a near constant state of flux in the states that don’t expressly exclude it or regulate it already – a player could be in violation of state law. Still, it’s important to acknowledge that nobody has ever been arrested for playing daily fantasy, though the same could not be said for operators of illegal DFS companies.
The Wire Act And The Future of Sports Betting
It is indisputable that the Wire Act will continue to play a role in the development of the online sports betting industry. The combination of the decades-old Wire Act’s prohibitions on interstate betting on sports and the UIGEA’s prohibitions on financial institutions for accepting online gambling-related transactions all but did in the domestic online gambling marketplace, but it did open up the possibility for offshore legal sports betting sites and casinos to flourish.
These companies, being fully regulated and licensed in their home nations, operate outside US legal jurisdiction and, thanks to international commerce laws and, in some instances, foreign trade deals, can and do still accept American users. Most offshore sports betting websites are prevented by the UIGEA from accepting many US credit cards, but deposits and payouts are available through other means, primarily the cryptocurrency Bitcoin, but also slower though still reliable methods like money transfers or even pre-paid international debit cards.
The future of sports betting at certainly looks to be online, and it is only a matter of time before US states, most of which have not taken serious steps to revisit their anti-illegal gambling criminal codes in many decades, are forced to take a hard look at broader gambling legalization. When the Supreme Court ruled to overturn the Professional and Amateur Sports Protection Act of 1992 (PASPA) due to its unconstitutionality, many states began to do just that. There are several states that have already legalized land-based sports wagering, and the next wave of online gambling legislation is expected in the near future. Together, PASPA and the Wire Act have contributed to an unregulated “black market” of sorts at worst, or at best derive no benefit from taxing and regulating sports betting. It is important to point out that the Wire Act does not apply to licensed sports betting operators, which means that states can easily move to regulate online sports betting. If global gambling trends continue as they have since the arrival of online betting, the smart money is on a concerted effort to expand the legalization of all forms of gambling, USA online sportsbooks included.