History of Sports Betting Prohibition
Sports betting didn’t start in the 1950s, but it was the decade when expanding phone service and legal betting in Nevada were helping it grow.
And since organized crime managed the business – often using contacts on the East Coast and Midwest to transmit bets to Las Vegas – government needed to act to prevent it from getting out of control.
The administration of John F. Kennedy came up with The Wire Act in 1961. And the fact many readers still hear about the Wire Act proves its staying power. It also proves the distance conservatives and anti-gambling advocates will go to continue applying it as a blanket anti-gambling law. Between the Wire Act and PASPA, legal sports betting was effectively blocked for decades.
What did the Wire Act say?
“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…”
That is an important excerpt as it clearly specified the target of the legislation – the mob that was ‘engaged in the business of betting.’ Nowhere does it talk about the people placing the bets, which became an important legal distinction and rallying point in the 1990s when offshore online sportsbooks began popping up.
The fact is also spoke about ‘sporting event or contest’ was also clear evidence the law targeted sports betting. Regardless, future opponents would argue this telephone-specific law also applies to the Internet. And they opined it also applies to non-sport gambling such as poker and casino and lotteries.
What offenses did the Wire Act set out?
The Wire Act outlined four offenses associated with using wire communications to transmit:
(1) bets or wagers
(2) information assisting placement of bets or wagers on any sporting event or for the transmission of a wire communication which enables the recipient to receive money or credit
(3) a result of bets or wagers and
(4) information assisting the placement of bets or wagers.
How did the Wire Act apply to online gambling?
In theory, it shouldn’t have applied. Clearly a 1961 statute did not envision the Internet becoming such a force 40 years later. But judges in 2002 argued that the Wire Act did apply to online sports betting, which scared a few online operators – who believed they could establish a corporation in Costa Rica or Antigua and legally offer services to American citizens through Free Trade provisions – out of business. Others remained and continued to offer services until 2006 when the awkwardly worded and un-debated UIGEA (Unlawful Internet Gambling Enforcement Act) was passed. It made it illegal for banks or payment services to permit American citizens to wager online.
Many publicly traded companies immediately left the market and payment processors were either charged or fined or left the industry or all three.
Why did UIGEA succeed where the Wire Act failed to slow online betting?
The combination of the Wire Act being applied to the web and making it illegal to process payments proved too difficult for many online sportsbook operators. It had always been tricky to deposit funds in offshore accounts and now many of the credit card companies and e-wallets had been expressly warned to stop doing business.
It forced operators to come up with creative ways to fund accounts and issue winnings back to lucky bettors. But the absence of any legal sports betting in the US outside Nevada meant that bettors would jump through payment hoops to be able to wager on the NFL each Sunday.
What was the 2011 Wire Act Clarification?
In 2011, an opinion emerged from New York State that the Wire Act did not apply to other forms of gambling. After years of assuming online poker and online casino games were off-limits, states began scrambling to offer these services within the US.
Some had already created online lotteries that people in different states could play. States began establishing their own poker operations and started creating ‘compacts’ with other states so that residents from various states could play together. This helped ensure there were enough players to fill poker players and to make the business viable for the states.
That kicked off a ton online poker efforts and Daily Fantasy Sports (DFS) spun off as a major online betting interest during this time. New Jersey, Pennsylvania and Delaware all created online gambling markets within their states based on this.
Georgia, Illinois, Kentucky, New Hampshire and Michigan had all begun to offer online ticket sales for Mega Millions. It featured a national player pool and huge jackpots.
However, the government added more confusion in 2019 by reversing course yet again on what the Wire Act really covered.
Why did the Wire Act interpretation change again in 2019?
In January 2019, the Trump administration’s DOJ issued an opinion that the 2011 opinion was wrong and that the Wire Act really did apply to all forms of betting. Chaos erupted, appeals and injunctions were launched and the situation continues to percolate through the courts as of 2020.