The Federal Wire Act And How It Affects Legal Sports Betting In The United States
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.
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
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.