The Interstate Wire Act
The Interstate Wire Act of 1961 – also commonly called the Federal Wire Act (or simply the Wire Act) – is a federal law prohibiting US-based commercial bookmakers and other betting businesses from using telephone systems or other “wire” communications for the purposes of making, taking, or facilitating sports betting between states. The Wire Act’s text is reasonably comprehensive, and it can be found in 18 USC § 1084 of the US Code. The gist of the law is summarized thus:
“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...on any sporting event or contest...shall be fined under this title or imprisoned not more than two years, or both.”
In 2002, the US Fifth Circuit of Appeals confirmed that the Wire Act applies only to sports betting and not to other types of gambling, including online gambling. The US Department of Justice in 2011 further clarified the scope of the Federal Wire Act, claiming that “interstate transmissions...that do not relate to a ‘sporting event or contest’ fall outside the reach of the Wire Act.”
New York’s fascination with gambling and sports betting was already well established by the turn of the 20th Century. With its many professional and amateur athletic institutions, New Yorkers could bet on virtually any sport they pleased. Additionally, the heavy Cosa Nostra presence in NY organized various gambling and sportsbook services that spread out across not just the state, but the entire country. In fact, it was the mafia’s New York sports betting and bookmaking prowess that led directly the federal government’s long-running war on sports wagering nationwide, resulting in the Interstate Wire Act of 1961, which allegedly sought to curb mafia gambling traffic in America.
At least, that was US Attorney General Robert F. Kennedy’s explanation as he pushed the Wire Act on Congress. A budding NY Democrat, Kennedy needed talking points in his pursuit of a Senate seat, and the mafia’s popular New York sports betting racket was an adequate boogeyman. Congress passed the Interstate Wire Act (originally dubbed the Interstate Anti-Crime Act), and John F. Kennedy, Robert’s brother, quickly signed it into law on September 13, 1961. Both men were later assassinated.
Unsurprisingly, the Wire Act did not actually stop a single mafia crime family from continuing its sports wagering activities. (Super Bowl III, anyone?) Indeed, these Cosa Nostra groups actually increased their efforts to run their successful New York sports betting rackets across state lines. Eventually, several mafia families made their ways out to the western United States, establishing a particularly strong presence in Las Vegas, Nevada (where, not coincidentally, casino and land-based sports betting is actually legal). The Wire Act did not cause any measurable decline in illicit sports betting in America.
The real benefit of the Wire Act, like all anti-gambling laws, is to the US government. It is a control mechanism designed to focus consumer attention away from more desirable gambling activities in order to establish higher revenue streams for state-run lotteries. Lotteries, after all, provide significant state income at much higher rates than standard taxation provides. Anything that might eat into this cash cow – like, say, sports betting – had to be quashed and pushed to the fringes of society. Of course, in a melting pot like New York City, every neighborhood is a “fringe” of one kind or another, so the scheme didn’t really work. New York residents continued to bet on sports, and sports wagering continued to rise in popularity across the country.
The Wire Act is currently still in effect throughout the United States, and it affects the ways in which Americans are allowed to bet on sports. The Interstate Wire Act was prescient for its time, as it acknowledged the role that modern communication methods play in sports wagering. Today, the limits and regulations spelled out in the Wire Act can be easily and logically interpreted in the context of the Internet. In short, the Wire Act comprehensively prevents businesses and other commercial enterprises from offering online sports betting on US soil.
In Nevada, where sports betting is allowed on US soil, online sports wagering is also allowed. The caveat, however, is that bettors must actively be inside Nevada’s borders in order to place their bets online with Nevada sportsbooks that offer such services. Many casinos in and around Las Vegas offer mobile apps to streamline their guests’ sports betting experiences, but these are typically geo-fenced to the actual property of the casinos in question.
Even though Nevada offers Internet-based gaming to its own residents and visitors, folks outside the state cannot join in the fun. For example, there is no NY sports betting presence on Nevada’s Internet-connected sportsbooks, as the Wire Act has proved to be an effective commercial limitation. No Las Vegas sportsbook will risk its license by offering online sports wagering to New York residents (or anyone else not physically inside Nevada).
As far as states actually exempt from the Wire Act, there aren’t any. In an odd move from the federal government, the Interstate Wire Act applies pretty much equally to all states across the board. However, because Nevada can actually serve its local residents with online sports betting, the state still has an economic advantage compared to the rest of the country.
There are a few arguable “sports” that are explicitly exempt from the Wire Act. Horse racing betting, as well as greyhound racing and jai alai betting, are not considered true sports, and they are exempt due to their traditional pari-mutuel status. As there is no “house take,” these events are not considered to be strictly for-profit, which is often an important qualifier for what constitutes actual gambling or sports betting. For example, the Belmont Stakes is held in Elmont, NY, but bettors don’t have to be in New York to bet on the outcome of the year’s third and final Triple Crown race. Anyone in America can log on to the Internet and place a wager on the Belmont Stakes without the race operators in New York violating the Interstate Wire Act.
As far as loopholes go, the two Federal Wire Act loopholes are among the most gaping examples you’re likely to find. In fact, the Wire Act welcomes such obvious legal workarounds that they can hardly be characterized as loopholes at all. A loophole, by its very nature, requires any valid sidestepping to be non-obvious to the crafters of the law in question. With the Interstate Wire Act, that’s certainly not the case.
The first so-called loophole of the Wire Act is the fact that the only parties targeted by the law are those who accept sports bets over interstate communications systems. The law does not, however, target the customers of these sportsbooks. As an example, it is perfectly legal for a New York resident to pick up the phone and bet on a football game with a California bookie. It is a violation of the Wire Act, however, for that bookie to take that sports bet.
The second Wire Act loophole is even less of an actual “loophole.” Instead, it’s simply the reality that US law applies only to the US. Since US sportsbooks cannot facilitate or offer New York sports betting, for example, NY residents will likely look elsewhere. Because the Internet is international, it is trivial to then find a sportsbook somewhere overseas. New York sports betting sites like BetOnline, SportsBetting, and 5Dimes are all operated out of other countries, and US lawmakers have no way to effectively curtail their services. Because it is legal for people in the United States to wager on sports, and because it’s also legal for foreign online sportsbooks to accept US players’ bets, the industry is alive and well. That is how there can be a booming New York sports betting scene without any money actually changing hands inside the state.
Because the legal status of Daily Fantasy Sports (DFS) is currently unaddressed by federal law, the Wire Act does not apply to the pastime. As such, large DFS services like FanDuel and DraftKings are free to operate in most states. So even though gambling on sports is nominally illegal inside New York’s borders, NY sports betting fans can legally enjoy Daily Fantasy Sports by signing up for and playing in the various DFS leagues available to them. While many critics argue that Daily Fantasy Sports constitutes sports wagering, most state legislatures to take on the phenomenon have passed laws to the contrary.
As for New York sports betting specifically, NY Governor Andrew Cuomo (D) undercut any argument that Daily Fantasy Sports violates the Wire Act (or other federal anti-gambling laws) by signing specific state-level DFS regulatory legislation into law back in mid-2016.
The Federal Wire Act, in addition to other anti-gambling laws like the Professional and Amateur Sports Protection Act (PASPA, 1992) and the Unlawful Internet Gambling Enforcement Act (UIGEA, 2006), has had the effect of forcing an enormous financial industry into the hands of foreign companies. Essentially, the federal government has created an untaxable industry worth between an estimated $200 billion and $550 billion per year. Then, the government sent this industry overseas where the US economy could reap the absolute fewest returns on all that spending. Insofar as government exists to collect taxes, the Federal Wire Act is one of the United States’ most baffling, inept failures as an institution.
Unlike PASPA, the Interstate Wire Act does not get much mention in the popular sports media, and there is no outspoken drive to discredit and abolish the law. While many legal scholars and political pundits regard the Wire Act as obviously unconstitutional, US legislators are in no hurry to repeal or amend the law. Currently, there are no notable campaigns underway to eliminate the Wire Act.
The future of the Wire Act and legal New York betting is tenuous but reasonably secure in the short term. In fact, casino mogul Sheldon Adelson is attempting to tighten up the Interstate Wire Act by promoting a new “bipartisan” proposal called the Restoration of America’s Wire Act, or RAWA.
In addition to crippling the regulated online gambling industries in states like Delaware, Nevada, and New Jersey, RAWA is worded in such a way that it would make online lotteries – and the online sale of lottery tickets – illegal. Interstate, online horse racing and dog racing betting, as well as Daily Fantasy Sports, would be exempt from RAWA. However, though top-level tyrants like Dianne Feinstein (D, California) support the Restoration of America’s Wire Act, the bill doesn’t actually “restore” anything. Rather, RAWA merely serves to consolidate and strengthen Sheldon Adelson’s bottom line as it creates a physical and virtual monopoly for the “philanthropist’s” Nevada-based casino offerings.
Fortunately, RAWA is unlikely to get much traction in Congress, and the Interstate Wire Act – in its “unrestored” form – should continue as the domestic sports betting standard. Once PASPA is altered, overturned, or repealed, individual states like New York (which could easily be a commercial hub for interstate sports betting) might be more inclined to seek the Wire Act’s dissolution.