Wire Act
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Matt Belenky, a tax attorney and JURIST alumni, discusses how the Wire Act could be impacted by the Biden administration...
The year 2021 could mark significant changes, among other things, to an oft argued about and imminently perplexing, sixty-year-old law–The Federal Wire Act (“Wire Act”). The change will likely be driven from the hands of President-elect Joe Biden, and more specifically, with who he selects as Attorney General of the United States. Though Biden largely avoided discussing legal gambling during his campaign trail, the lack of any indication to eliminate online gambling may be evidence in support of it, or at the very least, a desire to revisit the various decisions that were handed down and the stances that were taken in recent years regarding the Act’s legitimacy.
Biden did say that he’s not on-board with the Trump Administration’s decision to take a more rigid view on the Federal Wire Act of 1961. With the Democratic party taking control of the Senate, however, this could expedite the legislative process to push forward the bipartisan sports betting regulation bill now sitting in Congress. As recently as today, Gov. Cuomo (D-NY) announced that the state of New York will fully embrace online sports betting. Following in the tracks of neighboring states, New Jersey and Pennsylvania, where online betting is legal. In fact, Cuomo’s decision to support online betting was largely impacted by the number of New York residents traveling to New Jersey. Twenty percent of all of New Jersey’s, a state that generated roughly $5 billion in revenue in 2020, sports wagering comes from New York City.
For the better part of the past half-century, the US Department of Justice’ (“DOJ”) held the position that the Wire Act’s prohibition of the transmission of wagers applied to all forms of wagering. The DOJ argued that the phrase “sporting event or contest” applied to “sporting events” as separate entities from “contests.” “Contests”, included all other forms of wagering that were not athletic or racing events (i.e. “sporting events”). In response to Illinois and New York state’s inquiries as to the law’s impact on intrastate lottery ticket sales through the internet, in 2011, the DOJ released an opinion stating that the Wire Act only applies to sports wagering, gambling, or betting and that “interstate transmissions of wire communications that do not relate to a ‘sporting event of contest’ fall outside the reach of the Wire Act.”
In many ways, the 2011 opinion opened the floodgates for US states to begin offering intrastate gambling services and many did just that. Delaware, New Jersey, and Nevada began offering online poker and other states legalized intrastate online sports betting capabilities through either casinos or separate sports betting entities. This movement ran in opposition to the Restoration of America’s Wire Act (“RAWA”) bill which was introduced to Congress in 2014 with the hopes of rewriting the Wire Act to ban most forms of online gambling while granting a broad class of activities (i.e. daily fantasy sports) an exemption from the Wire Act. Part of what made the RAWA bill’s success impossible was the restrictions and requests it proffered. For example, RAWA excluded any carve out for existing state-regulated online gambling in Delaware, New Jersey, and Nevada. RAWA’s passing would have made the legal, regulated online gambling entities illegal which would be a huge hit to the local economies of those respective states. Further, the bill’s efforts to broaden the Wire Act’s prohibitions to apply to intrastate transactions that use internet connections were also met with ridicule and questioning.
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In 2018, thrown in as if to further complicate the sports gambling issue was Murphy v. National Collegiate Athletic Association, a United States Supreme Court decision that struck down the federal ban on sports gambling in 2018. Murphy importantly held that the Professional and Amateur Sports Protection Act (“PASPA”) violated the 10th Amendment, which reserves powers to the states not delegated by the Constitution to the federal government. As a result of this decision, sports betting is now legal in 18 states and the District of Columbia following the Murphy ruling. Four other states – Virginia, North Carolina, Tennessee, and Washington — passed bills in 2020 legalizing sports betting that will go into effect later this year.
In 2019, on the dawn of a new year and the back half of the Trump administration’s tenure, the DOJ’s Office of Legal Counsel (“OLC”) essentially reversed the 2011 opinion in saying that the statutory prohibitions of the Wire Act are not uniformly limited to gambling on sporting events or contests and they are instead applicable to any form of gambling that uses a wire communication and crosses state lines. This includes online gambling and online lotteries. In essence, the prohibition on the transmission of bets or wagers is unimpeded by the phrase “on any sporting event or contest.” Any part that doesn’t mention “sporting event or contest” then applies to all forms of betting or wagering.
After the 2019 DOJ decision was handed down, officials in New Hampshire, home to the first modern U.S. state lottery, immediately challenged the ruling and won. The U.S. District Court Judge in New Hampshire rejected the Wire Act’s attempt to broadly cover intrastate online gambling and stated that the “Wire Act applies only to transmissions related to bets or wagers on a sporting event or contest” and he set aside the 2019 OLC opinion. The decision was also a victory for the states that joined the lawsuit (and have online sports betting operations) such as Michigan, New Jersey, and Pennsylvania. After this decision, the DOJ appealed the case in the First Circuit Court of Appeals, and both sides presented arguments in mid-2020. The Appeals Court could render a decision at any time but the removal of William Barr as Attorney General and the influx of a new legal team under the Biden administration could mean a big shift for the better for the gambling industry.
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The gaming, sports betting, and lottery industries represent tens of billions of dollars in revenue across the United States. The stakes, literally, couldn’t be any higher. Yet, that doesn’t mean determining the plausibility of the Wire Act will be first priority for President-elect Biden once he takes office. In observing the few words Biden has said with regards to the Wire Act and his stance on online betting in general, there’s reason to be optimistic that the Wire Act will likely be overturned and that the New Hampshire decision from 2019 will be upheld by the Appeals Court. In following long-time blue state decisions in recent years to legalize online betting in New Jersey, Pennsylvania, and now in New York, the momentum could only serve as a positive in getting fellow Democrat Biden to also buy-in and “get with the times”, so to speak. Wednesday’s Georgia Senate runoff victory also serves as a plus in terms of making online gambling legislation that much easier to pass. Biden campaign officials have stated that Biden “believes states and federal authorities should cooperate to ensure that gambling is safe, fair, and corruption-free.” This statement may sound opaque or it might mean that Biden backs federal government support in creating federal guidelines for sports betting. An idea that soon-to-be Senate Majority leader Chuck Schumer and Utah Sen. Mitt Romney have been advocating for several years. It may be in President-elect Biden’s best interest, however, to let Congress stay out of state-level sports betting decisions and let local governments draft bills and regulate sports betting policies on their own. Given the revenue generation and tax revenue that online gaming has brought in for New Jersey and Pennsylvania, to name a few, there’s no reason other states couldn’t institute similar legislation just as effectively.
The Wire Act was created at a time when the internet didn’t exist and the thought of having such tech savvy capabilities of the present wasn’t even considered. In realizing this fact, and coming to terms with the positives that online gambling may bring by creating billions of dollars in tax revenue for local economies, the decision looks rather clear. After all, the times, well, they are a changin’.
Matt Belenky is a lawyer who has experience working in tax, compliance, executive compensation, and employee benefits. He received his JD from the University of Pittsburgh School of Law and his Tax LLM from the Georgetown University Law Center. He would like to eventually use his passion and interest towards online gambling for a legal or compliance role in the industry.
Suggested citation: Matt Belenky, The Future of The Wire Act and Online Gambling under the Biden Administration, JURIST – Professional Commentary, January 15, 2021, https://www.jurist.org/commentary/2021/01/matt-belenky-wire-act/.