Will The Wire Act Impact The Spread of Sports Betting Across The US?

Updated on December 2, 2018

Florida lawyer, US gambling law and regulations expert, and Forbes contributor Daniel Wallach believes the Wire Act may now be the most important federal law affecting the future of sports betting.

The Wire Act, officially The Interstate Wire Act of 1961, is a federal law prohibiting certain betting related operations in the US.

It reads:

“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, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.”

Basically, this makes it’s illegal to transmit betting information, or money for the purpose of wagering, across state lines.

Betting on an NFL game might be legal in the new NJ sports betting market. However, it remains illegal for anyone to make such a bet in NJ from anywhere outside the state. It doesn’t matter if the bet is made on the phone, the internet, or by any other means.

In 2011, the US Department of Justice issued a formal legal opinion on the Wire Act. It concluded that any wagers outside of sporting events or contests fall outside the act’s reach. This opened up the door for things like NJ online gambling and online lottery sales in several states.

The US Fifth Circuit Court of Appeals made a ruling affirming the opinion in 2012.

PASPA and the Wire Act

However, the Professional and Amateur Sports Protection Act (PASPA) still stood in the way of state’s legalizing sports betting. That is until the US Supreme Court declared it unconstitutional in May 2018.

Seven states (including New Jersey) have since launched legal and regulated in-state sports betting. Pennsylvania launched just before Thanksgiving, and Rhode Island followed in quick succession.

All states are now free to legalize sports betting. However, questions remain regarding a state’s ability to authorize sports betting across state lines on the internet.

Wallach wrote an op-ed on Forbes on the issue. In it, he recognizes the Supreme Court did make mention of the Wire Act in its decision on PASPA. In fact, he says the Wire Act remains the foremost legal obstacle for interstate sports betting. Plus, he says the legality of sports betting in any particular state doesn’t change that.

However, Wallach says the Supreme Court’s discussion of the Wire Act may have an impact on the issue.

The Supreme Court decision compared PASPA to other federal anti-gambling laws. This includes the Wire Act. The decision claims such laws should “respect the policy choices of the people of each State on the controversial issue of gambling.”

The decision reads:

“[Under PASPA], private conduct violates federal law only if it is permitted by state law. That strange rule is exactly the opposite of the general federal approach to gambling…[The Wire Act], which outlaws the interstate transmission of information that assists in the placing of a bet on a sporting event, apply only if the underlying gambling is illegal under state law.”

The Wire Act, state law, and sports betting

Some see this as a suggestion federal gambling laws like the Wire Act only make sports betting illegal when it violates state law.

In other words, the PASPA decision may have changed the interpretation of the Wire Act altogether. In fact, it may make it a requirement that a bet violates state law in order to be prosecutable.

Wallach writes:

“This could be a groundbreaking development because if the Wire Act is interpreted in this fashion, it would allow states to legalize Internet-based sports betting and permit such wagers to be placed by customers physically located outside the state.”

Wallach also mentions several legal commentators and at least one prominent national law firm that share this view. In their minds, the Wire Act only applies to gambling-related activity that is illegal under state or local law.

So far, the states that have launched legal sports betting in the wake of the Supreme Court decision have not challenged this. New Jersey has seen the launch of mobile and online sports betting. However, it’s only happening inside state lines.

Regardless, the legal opinion that the Wire Act allows the transmission of wagers between states is spreading. That is… as long as the bet is legal in both states.

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No state law language in the Wire Act

Of course, as Wallach points out, there is no language in the Wire Act making any reference to state law.

According to Wallach, the absence of such language logically precludes the assertion only bets violating state law are prosecutable under the act.

Ultimately, it would be up to a court’s interpretation of the act. Although, Wallach says courts generally follow the “plain and ordinary meaning” of laws. In other words, the courts won’t rewrite the law. Therefore, without any reference to state law in the act, they’re not likely to consider it a part of it.

Wallach suggests every previous federal court decision on the issue has come to the same conclusion. The courts have upheld the idea violations of the Wire Act do not require an underlying violation of state law.

That means, even if it happens between two states with legal sports betting, the Wire Act still prohibits interstate sports betting.

A reinterpretation of the Wire Act

Yet still, there are legal analysts who suggest the Supreme Court decision is a reinterpretation of the Wire Act.

Wallach calls this wishful thinking and suggests it may stem from one of the purposes of the Wire Act to begin with. Wallach says the Wire Act was meant to, in part, assist the various states in the enforcement of their own laws pertaining to gambling and bookmaking. This creates the misconception it is somehow tied to state law.

However, Wallach says the true purpose of the Wire Act has always been to suppress organized criminal gambling activities. The mention of assistance to the states was never meant to defer to state law.

Yet, in its decision, the Supreme Court grouped the Wire Act with a number of federal gambling laws that apply only if the underlying gambling is illegal under state law.

The safe harbor provision

Wallach says he doesn’t believe the Supreme Curt made a mistake, nor was it attempting to change the meaning of the Wire Act. Instead, he suggests it meant to refer to the Wire Act’s safe harbor provision.

This provision allows for the transmission of wagering information, including odds, only if the underlying gambling is legal in both jurisdictions.

In other words, the Wire Act already allowed for the transmission of information between states with legal gambling, and that’s what the Supreme Court is referring to.

This would allow a business that provides odds or risk management services to a sports betting operator in a state where sports betting is legal to send that information from a state where sports betting is also legal.

As Wallach puts it, a company like William Hill US, which provides risk management services to the Delaware Lottery and its sports betting operation, can do so without triggering a potential Wire Act violation. That’s because it is transmitting the information from Nevada, where sports betting is also legal.

That would mean it remains illegal under the Wire Act to place interstate sports bets. However, the passage of information is allowed. This is probably the most likely reason why no state has attempted to test the federal law and launch interstate sports betting.

So is it time to amend the Wire Act?

Of course, as Wallach suggests, it may be time to amend the Wire Act, particularly to allow interstate sports betting where it is legal in both states.

He says that would foster the growth of online sports betting across state lines. Plus, it will make it easier for legal operations to compete with offshore sportsbooks.

It might also protect those in the sports betting business from those who believe the act applies to in-state transmissions routed through other states, as often occurs online.

Bottom line, legal sports betting is on the move. And it’s moving fast. Therefore, an amendment of the Wire Act is needed to clarify these issues. Plus, it will provide a level of comfort to those in the emerging sports betting business in NJ and beyond.

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