For roughly 60 years, the Wire Act has served as one of America’s biggest threats to unregulated sports betting businesses.
Crafted during the 1950s and then pushed over the finish line by Robert F. Kennedy’s Department of Justice, the law was an effort to go after nationwide bookmaking syndicates by targeting their means of communication. It did not really work.
Organized crime is still here, still making money, still taking bets. We have also seen the rise of offshore betting in addition to unregulated bookmaking unconnected to organized crime.
Prohibitions on vice products have tended not to work and the Wire Act is no exception. Nonetheless, like the federal marijuana laws that remain in spite of widespread legal and medical marijuana, federal laws like the Wire Act continue to hang over the sports gambling market, both regulated and unregulated.
A pretty big threat
The Wire Act is an often misunderstood statute. In fact, the Trump Administration’s Justice Department found the statute so confusing, they wrongly believed it applied to all online gaming activity. This was contradicted by both the legislative history of the statute and by a plain reading of the statute’s text.
Ultimately, the First Circuit Court of Appeals would correct the Justice Department’s incorrect view. However, the decision meant little for the world of sports betting.
The operational text of the Wire Act contained in 18 U.S.C. 1084(a) states:
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.
In plain English please
While this is hardly an English teacher’s dream sentence, over the years the federal courts have helped break this down.
Principally, the Wire Act applies to those in the business of betting and prohibits the interstate transmission of information assisting in the placing of bets or wagers. Historically, this has meant the supplying of betting line information if done on a substantially ongoing basis.
The Wire Act does contain a safe harbor provision in section (b) whereby if the information is transmitted between two states where the activity is legal in both jurisdictions, it does not offend the Wire Act.
How safe is safe harbor in Wire Act?
Of course there are open questions about intermediate routing, where information passes through a third state on its path between two states, but that is a whole other article.
But the safe harbor only applies to the information part of the Wire Act, and not the transmission of the bets themselves. Federal courts have held that the first prong of the Wire Act prohibits the interstate transmission of bets or wagers and the safe harbor provision does not save that activity.
Cases in the case
In United States v. Lyons, the First Circuit Court of Appeals said:
the safe harbor provision only applies to the transmission of “information assisting in the placing of bets.” The safe harbor provision does not exempt from liability the interstate transmission of bets themselves.
The Fifth Circuit in United States v. McDonough even cited the House of Representatives report regarding the safe harbor provisions, stating:
Nothing in the exemption, however, will permit the transmission of bets and wagers … from or to any State whether betting is legal in that State or not. (The Fifth Circuit added emphasis that has been removed).
The question is, does this prohibition still serve its purpose?
Calls for feds to use power to stop unregulated competition
The American Gaming Association has made several public calls for the federal government to use its powers under the Wire Act (and other statutes) to clamp down on unregulated operators who are competing with the regulated market.
In theory, this sounds like a great idea for the regulated market, but the reality is that the federal government is not especially adept at playing offshore whack-a-mole to knock down every site that serves Americans, same with targeting onshore operations.
The Department of Justice could exercise a show of force, and perhaps seize the domains of several high-profile operators, but even that would be unlikely to have much of a deterrent effect. This leaves open, what is the Wire Act doing?
Wire Act threat to innovation?
As much as the investment bankers might not like to hear it, the US gambling market is concentrated amongst about a half-dozen operators and there seems to be little that would indicate others are about to make a breakthrough.
We are already seeing operators like theScore and Unibet give up in some jurisdictions because the economics do not make sense anymore. A part of what is contributing to costs hindering smaller operators (not that Unibet or the Score were small) is the costs of needing to build redundant processes in every state that they operate as a result of the Wire Act.
What to do about Wire Act
The Wire Act was built before a time when legal sports gambling across the United States was fathomable. Now, the statute serves primarily as an obstacle to legal businesses that are obligated to follow the law.
Like the prohibitions on alcohol, marijuana, and drugs, the Wire Act has been a failure at stopping unregulated sports betting. It is time for Congress to get together and reconstitute the Wire Act such that it is not primarily hurting small regulated businesses.