Calling time on the Wire Act

11 December 2018

Initial revenue figures from online sports betting in New Jersey paint a promising picture of what might be to come from the US market as a whole but for how long will the Wire Act continues to constrain operators’ activities? Christopher Soriano looks into the potential for federal reforms.

One hurdle to growth in the US is the current need to have significant infrastructure in each state in which an operator wishes to offer online sports betting and to confine the acceptance of wagers to persons physically present within the host state.

The primary driver of this need is the Interstate Wire Wager Act of 1961, known commonly as the Wire Act. Basically, the Wire Act creates these additional hurdles and prohibits the transmission of a sports bet or wager across state lines.

Of course, it was the Department of Justice’s (DOJ) 2011 reinterpretation of the Wire Act that opened the door to internet gaming in the US in the first place.

While the DOJ opened that door, it made clear that in its view the Wire Act continued to apply to sports betting. Despite the fall of PASPA, the Wire Act remains, and operators are currently figuring out ways to work within its constraints.

Recently, there has been chatter regarding the federal government’s role in the sports betting industry. Senators Orrin Hatch and Charles Schumer have both advocated for federal legislation governing sports wagering, and have proposed a framework for federal regulation of sports betting.

On the other hand, Wisconsin representative Jim Sensenbrenner, who serves as chairman of the Subcommittee on Crime, Terrorism, Homeland Security and Investigations, recently sent a letter to US Deputy Attorney General Rod Rosenstein in an attempt to restore the Wire Act’s federal ban on igaming.

These two positions are diametrically opposed; under Sensenbrenner’s proposal, internet sports betting would become more difficult, if not impossible; under Hatch and Schumer’s proposal, there would likely be more room for growth.

The third option is the one currently being employed: states are setting their own policy with respect to sports betting, while operators continue to work within the confines of the Wire Act.

Weighing up the options
Sensenbrenner’s letter advocating for reinterpretation of the Wire Act suggests that Congress has three options in the post-PASPA era: to re-enact the federal igaming ban, to adopt uniform standards around the nation, or, the “worst option,” in Sensenbrenner’s words, to do nothing. 

In his letter, Sensenbrenner expresses concern that “it will take Congress months, if not years, to develop and enact comprehensive legislation.”

Due to the likely delay in enacting federal sports wagering legislation, Sensenbrenner seeks guidance regarding the Office of Legal Counsel’s 2011 opinion interpreting the Wire Act to permit online gaming in the US.

Sensenbrenner inquires as to whether Rosenstein supports the 2011 opinion, whether the DOJ is currently providing any guidance to states that are entering the world of legal sports betting, and foreseeable issues related to both legal and illegal sports betting if Congress fails to act in response to Murphy v. NCAA. 

On the other hand, although many states have entered into or announced plans to enter into the realm of sports betting since the Supreme Court decision was released in May, at least some members of Congress have proposed a federal framework for sports betting.

In August, Senate minority leader Chuck Schumer provided a memorandum proposing a framework for the federal regulation of sports betting. Schumer’s proposed framework emphasised protecting young citizens and those suffering from gambling addiction issues, the integrity of professional and collegiate sports, and consumer protection. 

In fact, a discussion draft of a federal sports betting bill is currently circulating in Congress. This is not the first time that such legislation has been discussed. However, it is one of the first times that legislation has been discussed in the post-PASPA world.

The draft incorporates many of the ideas expressed in Schumer’s proposed framework. In response to Sensenbrenner’s inquiries regarding the 2011 Wire Act opinion, the discussion draft proposes to provide clarity via an amendment to the Wire Act stating: “For purposes of this section, the intermediate routing of electronic data shall not determine the location or locations in which a bet or wager, or information assisting in the placing of a bet or wager, is initiated, received, or otherwise made.”

This would essentially bring over the Unlawful Internet Gambling Enforcement Act’s (UIGEA) intermediate routing exception into the Wire Act and put the two statutes in harmony with each other.

As it is now, one source of ambiguity in the law is that while UIGEA provides a safe harbor for intermediate routing of internet gaming transactions when the bet or wager is legal in the state where it is placed and where it is received, the text of the Wire Act provides no such clarity.

UIGEA was enacted following the Wire Act and thus there is an argument that UIGEA was a new statement of policy that should be overlaid onto the Wire Act.

However, the DOJ has long taken the position that a civil statute like UIGEA cannot amend a criminal statute like the Wire Act without an express provision to do so. This tension, which the 2011 DOJ memo did not resolve, is a source of uncertainty.

Other notable sections of the discussion draft include:
(1) the creation of a federal regulatory entity designed to regulate sports betting on a national level, entitled the National Sports Wagering Clearinghouse;
(2) minimum requirements for the administration of a state sports wagering program (including mandated location verification and the requirement to utilise only data provided by the applicable sports organisation to determine outcomes until 31 December 2022);
(3) the establishment of interstate sports wagering compacts that would allow for multi-state wagering;
(4) the creation of a Wagering Trust Fund to tax the revenue from sports wagering and dedicate the funds to the enforcement of federal sports wagering laws and gambling addiction treatment programs;
(5) improvements designed to modernise the Sports Bribery Act; and
(6) the establishment of an advisory committee to address gambling addiction issues.

Potential outcomes
Although Sensenbrenner’s letter to Rosenstein purports to seek clarity regarding the reach of the Wire Act, the questions posed certainly raise the issue of whether Sensenbrenner is seeking to ask the DOJ to reconsider the 2011 Wire Act opinion.

That would effectively ban all forms of internet gaming. In contrast, the discussion draft of the proposed federal sports wagering bill allows for internet gaming and even would go so far as to clarify the Wire Act to permit wagering that is otherwise lawful.

This would remove the statutory tension and would result in a clearer legal environment. In such an environment, states would be able to pass sports wagers across state lines as long as the wagers were legal in both states. This would be a net positive for the growth of the sports betting industry. 

Sensenbrenner is likely correct, however, that any federal legislation is far from enactment. The discussion draft’s inclusion of an official data requirement is likely to be controversial, as well as the creation of a Wagering Trust Fund.

There is also an important practical consideration. As more states develop their own policy, and implement their own statutory and regulatory systems to govern sports wagering, more and more divergence in policy will likely be seen.

At that point, it may become difficult to enact a single set of federal standards in the face of extant multiple state frameworks. It is also likely quite difficult to find a federal framework that can pass Congress, particularly in the current difficult US political environment.

If the US market grows without federal intervention to the point where federal intervention becomes impractical or impossible, the remaining question will be the fate of the Wire Act.

Will Congress or the DOJ clarify that the Wire Act was not intended to apply to internet wagering that is authorised by state law, or will some other interpretation carry the day? Or will the industry continue to grow and operate in the current environment of uncertainty? The answers to these questions, left to the political process, may prove elusive.

Christopher L. Soriano is a gaming law specialist and partner in the Cherry Hill, N.J. office of Duane Morris LLP. He was assisted in preparing this article by associate Samantha L. Haggerty. She practices in the areas of gaming law and litigation and is the secretary of the New Jersey State Bar Association’s Casino Law Section.

Disclaimer: This article is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this article are those of the authors and do not necessarily reflect the views of the authors’ law firm or its individual partners.