By Daniel Wallach
July 8, 2018
The Supreme Court’s landmark decision in Murphy v. NCAA dramatically altered the landscape for sports betting in the United States by declaring that the Professional and Amateur Sports Protection Act (PASPA) is unconstitutional. As a result of this decision, States are now free to legalize sports betting without any federal interference. Previously, PASPA had prohibited most states from authorizing or licensing sports betting within their borders. But some legal commentators now believe that the Court’s decision may have gone even further by allowing states to authorize sports betting across state lines, which could dramatically expand legalized sports betting through the use of the Internet.
At issue is the Court’s brief discussion of the federal Wire Act at page 28 of the Murphy opinion. With the demise of PASPA, the Wire Act looms as the most important federal law affecting the future of sports betting. In short, the Wire Act prohibits any person or entity engaged in the business of sports betting from using “wire communication facilities” (such as the telephone or the Internet) to “transmit” bets or wagers on sporting events -- or even “information” relating to bets or wagers -- through “interstate commerce,” which generally (but not always) means across state lines.
Even with the Supreme Court’s invalidation of PASPA, the Wire Act would still stand as a formidable legal obstacle for the transmission of sports wagers across state lines, even in those situations where both of the States at issue (i.e., the state where the wager was initially placed, and the state where the wager is ultimately received) had legalized sports betting. This is because the Wire Act criminalizes the interstate transmission of all bets and wagers on sporting events, regardless of whether such betting is legal in a particular state. Unlike several other federal anti-gambling laws (such as the Travel Act), the Wire Act does not require a predicate violation of state law to support a criminal conviction. Stated another way, the legality of sports betting in a particular state would not provide any defense to a Wire Act prosecution where the charged offense is based upon the interstate transmission of a “bet” or “wager.”
The Disputed Paragraph of the Murphy Opinion
The Supreme Court’s brief discussion of the Wire Act may have turned that thinking on its head. At page 28 of the Murphy opinion, the Supreme Court compared PASPA to several other federal anti-gambling laws (including the Wire Act and the Travel Act), and observed that such federal laws “respect the policy choices of the people of each State on the controversial issue of gambling.” As described by the Court:
Under § 3702(2) [of PASPA], private conduct violates federal law only if it is permitted by state law. That strange rule exactly the opposite of the general federal approach to gambling, Under 18 U.S.C. § 1955 [the Illegal Gambling Business Act], operating a gambling business violates state law only if that conduct is illegal under state or local law. Similarly, 18 U.S.C. § 1953 [the Interstate Transportation of Gambling Paraphernalia Act], which criminalizes the interstate transmission of wagering paraphernalia, and 18 U.S.C. § 1084 [the Wire Act], which outlaws the interstate transmission of information that assists in the placing of a bet on a sporting event, apply only if the underlying gambling is illegal under state law. See also 18 U.S.C. § 1952 [the Travel Act] (making it illegal to travel in interstate commerce to further a gambling business that is illegal under applicable state law.
These provisions implement a coherent federal policy. They respect the policy choices of the people of each State on the controversial issue of gambling.
Through this passage, the Supreme Court appears to be suggesting that each of these federal gambling laws (including the Wire Act) – in order to give rise to a federal criminal offense – requires an underlying violation of state law. This dicta (meaning not essential to the Court’s main holding) could dramatically change the longstanding interpretation of the Wire Act by imposing a new requirement that the betting or wagering at issue would have to violate state law in order to be prosecutable. This could be a groundbreaking development because if the Wire Act is interpreted in this fashion, it would allow states to legalize Internet-based sports betting and permit such wagers to be placed by customers physically located outside the state.
Indeed, several legal commentators took the Court’s discussion above to mean just that. One prominent national law firm even authored a “Supreme Court and Appellate Alert” on the day of the Murphy decision making that very point, stating that “the gaming industry is likely to find comfort in the Court’s express recognition that several federal laws criminalizing gambling-related activity, including the Federal Wire Act (which prohibits processing of illegal wagers over interstate networks) outlaw the gambling-related activity to only the extent that the specified conduct is illegal under state or local law.” The author of the alert then suggests that this judicial re-interpretation of the Wire Act could be a boon to state efforts to legalize Internet sports betting – even across state lines, observing that “as an increasing number of states authorize a wider scope of betting in the wake of Murphy, forms of gambling that, until now, have been generally considered prohibited, such as mobile and online sports betting, may be permitted.”
Another prominent lawyer offered a similar view, declaring that “dicta in the Murphy decision indicates that the Supreme Court believes that the Wire Act allows the transmission of wagers between states if the bet is legal in both states.”
The Wire Act Does Not Require a Predicate State Law Offense
These views, however, do not comport with the plain language of the Wire Act, which makes no reference to state law in the main section of that statute. Indeed, the relevant portion of the Wire Act, subsection 1084(a), provides as follows:
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.
This provision contains two broad clauses. The first bars anyone engaged in the “business of betting or wagering” from knowingly using 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.” The second bars any such person from knowingly using a wire communication facility to transmit communications that entitle the recipient to “receive money or credit” either “as a result of bets or wagers” or “for information assisting in the placing of bets or wagers.”
Again, there is no mention of “state law” anywhere in subparagraph (a) of the Wire Act. Now, compare that with the other federal gambling laws cited by the Supreme Court in the Murphy opinion. In contrast to the Wire Act, the Illegal Gambling Business Act, the Interstate Transportation of Gambling Paraphernalia Act, and the Travel Act each expressly require that there be an underlying violation of state or local law in order to give rise to a federal criminal prosecution. See 18 U.S.C. § 1955(b)(1) (An “illegal gambling business” means, in relevant part, a gambling business which “is a violation of the law of the State or political subdivision in which it is conducted. . . .”); 18 U.S.C. § 1953(b) (“This Section shall not apply to . . . the transportation of betting materials to be used in the placing of bets or wagers on a sporting event into a State in which such betting is legal under the statutes of that State.”); 18 U.S.C. § 1952(a)(3) & (b)(1) (makes it a federal offense to travel in interstate commerce with the intent to promote or facilitate the promotion of any unlawful activity, including “any business enterprise involving gambling . . . in violation of the laws of the State in which they are committed . . .”)
The absence of any reference to “state law” in Section 1084(a) logically precludes any assertion that a violation of state law is required to support a Wire Act conviction. Courts interpret statutes in accordance with their plain and ordinary meaning, using the words actually employed in the statute as the interpretive guidepost, and will not rewrite a statute to insert additional words, as would be the case in engrafting a “state law violation” requirement in Section 1084(a) where no such requirement existed previously.
Indeed, every federal court that has analyzed the issue in-depth has concluded that the Wire Act does not require an underlying violation of state law. See United States v. McDonough, 835 F.2d 1103, 1104 (5th Cir. 1988) (“A federal statute makes criminal the transmission of wagers in interstate commerce. 18 U.S.C. § 1084(b) . . . This court held in Martin v. United States that such transmission is proscribed whether or not wagering is forbidden by the law of the state where the bet is received.”); United States v. Corrar, 512 F. Supp. 2d 1280, 1289 (N.D. Ga. 2007) (“[T]he Wire Act, unlike the Travel Act and 18 U.S.C. § 1955, does not require an underlying violation of state law.”); United States v. Kaczowski, 114 F. Supp. 2d 143, 155 (W.D.N.Y. 2000) (“Conviction for violating 18 U.S.C. § 1084 does not depend on commission of a predicate state offense.”)
The Corrar opinion even addresses the scenario envisioned by the two lawyers who posited – post-Murphy – that states were now free to legalize Internet sports betting across state lines so long as the wagering was legal in both the sending and receiving jurisdictions. Corrar expressly rejects such a scenario, observing that even if a state were to legalize Internet sports betting, the Wire Act would still prohibit the use of “interstate wire communication facilities” to promote such wagering. As the Court observed:
Moreover, even if internet gambling were permissible under state law, using interstate wire communication facilities to promote it would not be. This is why the Wire Act, unlike the Travel Act and 18 U.S.C. § 1955, does not require an underlying violation of state law.
Selective Use of Legislative History
If the cases are that clear cut – and I believe that they are – then why do some legal analysts assert that the Supreme Court reinterpreted the Wire Act through its apparent suggestion that an underlying state law violation is required? The reason for this wishful thinking may stem from the statute’s legislative history, which recognizes that one of the intended purposes of the Wire Act was to “assist the various states. . . in the enforcement of their laws pertaining to gambling, bookmaking, and like offenses.” (H.R. Rep. No. 87-967, 1961 U.S.C.C.A.N. 2631; see also United States v. McDonough, 835 F.2d 1103, 1104 (5th Cir. 1988). Since one of the purposes of the Wire Act is to “assist the states” in the enforcement of gambling laws, there is this misconception that a violation of the Wire Act must necessarily be tethered to a violation of state law.
The linkage of the Wire Act to an underlying state law offense ignores the Act’s other principal purpose, which is to “suppress organized criminal gambling activities” as a matter of national policy. See United States v. Ross, 1999 WL 782749, at *3 (S.D.N.Y. Sept. 16, 1999) (quoting H.R. Rep. No. 87-967, 1961 U.S.C.C.A.N. 2631). As numerous court decisions have explained, “assistance to the states” was only “part of the reason” for the enactment of the Wire Act in 1961. (Corrar, 512 F. Supp. 2d at 1289; Ross, 1999 WL 782749, at *3). Indeed, as the statute’s legislative history makes clear, the Wire Act “was part of an omnibus crime bill that recognized the need for independent federal actionto combat interstate gambling operations.” (Corrar, 512 F. Supp. 2d at 1289). The cases plainly recognize that the Wire Act is “part of an independent federal policyaimed at those who would, in furtherance of anygaming activity, employ any means within direct federal control.” (Martin v. United States, 389 F.2d 895, 898 (5th Cir. 1988))
The Supreme Court Was Referring to the “Safe Harbor” Provision
This begs the question: did the Supreme Court simply make a mistake when it included the Wire Act within the group of federal gambling laws that “apply only if the underlying gambling is illegal under state law.” I don’t believe that the highest court in the land would make such a fundamental mistake – or attempt to dramatically alter the meaning of a federal law (the Wire Act) that was not even at issue in the Murphy case.
A closer reading of the Court’s opinion suggests that a different meaning was intended. In its brief discussion of the Wire Act on page 28, the Court characterized that statute as “outlaw[ing] the interstate transmission of information that assists in the placing of a bet on a sporting event.” The key word here is “information,” which, in this context, refers to the “safe harbor” provision in Section 1084(b) of the Wire Act.
The Wire Act’s safe harbor provision, set forth in subsection (b) of Section 1084, provides, in relevant part, that there shall be no criminal liability “for the transmission in interstate commerce . . . of information. . . assisting in the placing of bets or wagers on a sporting event or contest from a State or foreign country where betting on that sporting event or contest is legalinto a State or foreign country in which such betting is legal.”
Through this safe-harbor provision, Congress sought to immunize the interstate transmission of “information” – such as the odds placed on a particular contest by oddsmakers – that assist in the placing of a bet or wager on a sporting event, but only if the underlying gambling is legal in both the “sending” jurisdiction (i.e., the state from which the information was sent) and the “receiving” jurisdiction (i.e., the state from which it was received).
A good illustration of what this safe-harbor means in practice can be found in United States v. Lyons, a First Circuit decision from 2014. In that case, the First Circuit provided an example of the safe-harbor provision in the context of horse race wagering, observing that “if New York allows betting on horses at race tracks in New York, and if Nevada allows betting in Nevada on the results of New York horse races, then information may be wired from New York to Nevada without violating the statute.”
Extending that hypothetical to the sports betting context, the import of the safe-harbor provision is clear: a business that provides odds or even risk management services to a sports betting operator located in a jurisdiction where sports betting is legal (such as New Jersey, Mississippi, Delaware and West Virginia) must send or “transmit” that information from a state where sports betting is also legal. Thus, for example, a company like William Hill US, which provides risk management services to the Delaware Lottery (the operator of sports betting in Delaware) can do so without triggering a potential Wire Act violation because it is transmitting that “information” (e.g., risk management services) from the State of Nevada, where sports betting has long been legal. (Query though whether risk management is even in the nature of “information” for purposes of the Wire Act since such services do not assist in the “placing” of a wager by the bettor).
Viewed through this lens, the Court’s statement on page 28 is actually correct, albeit, not for the reasons that some commentators believe. To be sure, the Supreme Court could have been much clearer in its discussion of the Wire Act. Technically speaking, the Wire Act does not – as the Supreme Court put it – “outlaw” the interstate transmission of “information” assisting in the placing of a bet or wager on sporting events when the underlying gambling is illegal under state law. More precisely, the Section 1084(b) “safe-harbor” exemption is merely rendered unavailable to a defendant when the “information” at issue is transmitted toor froma state or foreign jurisdiction where sports gambling is illegal. While that’s not exactly the same thing as saying that the transmission of “information” is outlawed, as a practical matter, it has the same effect.
Gaming lawyer Mark Hichar, a fellow member of the International Masters of Gaming Law and a partner of the Hinckley Allen law firm– agrees that the Supreme Court was addressing § 1084(b)’s safe harbor provision when it referred to “information that assists in the placing of a bet on a sporting event” on page 28 of the Murphy opinion. While Hichar characterizes the Supreme Court’s Wire Act reference as “obiter dictum” meaning “unnecessary” to the Court’s holding – he asserts (like I do) that the Court was nonetheless “correct that the Wire Act’s outlawing of such information – i.e., information assisting in the placing of sports bets – is prohibited only if the placing of such sports bets is illegal in the States where it is placed or the State where it is received, or both.”
Internet Sports Betting Across State Lines Remains Illegal
As to the “bets” or “wagers” themselves, they remain illegal under Section 1084(a) of the Wire Act, even when transmitted between states where sports betting is legal, notwithstanding the disputed language in the Murphy opinion. In other words, the Wire Act’s safe-harbor provision (Section 1084(b)) only applies to the transmission of “information” assisting in the placing of bets or wagers, but not to the transmission of the actual bets or wagers themselves. Hichar likewise agrees that “the exception in 1084(b) does not apply to the actual sports bets.” Like me, he reads the Supreme Court’s language on page 28 as applicable “only to information assisting in the placing of a bet on a sporting event, not to actual sports bets.” Thus, at least for now, the ability of states to allow for the transmission of wagers across state lines remains curtailed by the Wire Act.
If you don’t want to take our word for it, consider the viewpoint of Theodore B. Olson, the esteemed lawyer who successfully argued the Murphy case on behalf of the State of New Jersey. In a CLE presentation given three days after the Murphy opinion was issued, Olson and fellow Gibson Dunn colleagues Matthew McGill and Debra Wong Yang (a former United States Attorney for the Central District of California) opined that while the Wire Act “does not make unlawful the transmission of ‘information assisting in the placing of bets or wagers on a sporting event or contest’ if made from and into States ‘in which such betting is legal” – essentially tracking the Section 1084(b) safe harbor language – they nonetheless maintained (just as both Hichar and I assert) that the Section 1084(b) safe-harbor exception “does not apply to the actual bets or wagers.” So, there you have it: the “law firm” of Olson, McGill, Yang, Hichar and Wallach agrees that the Supreme Court did not reinterpret the Wire Act, as several commentators have suggested.
Amending the Wire Act to Allow Interstate Sports Betting
The Supreme Court's ambiguous and imprecise reference to the Wire Act raises a more fundamental question: Is it time to finally amend the Wire Act to allow interstate sports betting where it is legal in the affected jurisdictions? From a drafting standpoint, it would require only a simple tweak of the Wire Act’s safe-harbor provision – Section 1084(b) – to add the words “bets or wagers” to the already-existing “information” so that all bets, wagers and information transmitted by businesses to and from legal jurisdictions would be covered by the safe-harbor provision so long as that activity was legal in both states (the sending and receiving states) and was done in compliance with the law of each state.
There are many good policy reasons to amend the Wire Act in this fashion. Chief among them is that it would foster the growth of online sports betting across state lines, the effect of which would to capture a greater percentage of offshore betting markets, which are readily accessible to customers in the U.S. through unblocked Internet sites. Eighty percent of the current illegal betting is conducted online, so if we hope to create an alternative to black market betting, states must be free to authorize mobile betting, including the ability to pool wagers across multiple states. The illegal markets are so popular in part because consumers have gotten a quality, efficient product online. To capture customers from the illegal market, U.S. operators must be able to provide a level of service and access that bettors have grown accustomed to over the years, which means it has to be online, accessible via mobile devices and extremely convenient to use.
Additionally, the Wire Act – in its current iteration – poses an unnecessary (and unintended) level of risk to companies operating legally even in those states that have authorized mobile sports betting. For example, those states that have legalized mobile sports wagering are doing so based on the logical premise that wholly intrastate betting would not violate the Wire Act. But there is a body of jurisprudence which recognizes that even where a wire communication originates and terminates in the same state, it could still be deemed a transmission in “interstate commerce” when it is “routed” through another state, as often occurs. The U.S. Department of Justice’s 2011 opinion on the Wire Act – which opened the door to state-authorized online poker – referred to this quandary when it noted that the DOJ “has consistently argued under the Wire Act that, even if the wire communication originates and terminates in the same state, the law's interstate commerce requirement is nevertheless satisfied if the wire crossed state lines at any point in the process.” Such “intermediate routing,” the 2011 DOJ opinion noted, could “lead to the conclusion that the [Wire Act] prohibits” states from “utiliz[ing] the Internet to transact bets or wagers,” even if those bets or wagers originate and terminate within the state.”
Finally, even the meaning of the term “information” is unclear under the Wire Act, since it is not defined by the statute. Further, the case law provides very little guidance. According to one federal district court opinion, “information” would include “knowledge that may influence whether, with whom, and on what terms to make a bet.” But that statement analyzes the issue solely from the vantage of the bettor, and does not address the vast array of other services that are provided to betting operators which are not visible to the customer. With sports betting about to become more broadly legal nationally – perhaps in as many as 20 to 30 states by the year 2020 – those companies that wish to provide risk management services to casinos and other sports betting operators are in a state of uncertainty as to whether those services rise to the level of “information” under the Wire Act since it would not assist in the “placing” of a sports bet by a customer, but, rather, would only assist the sports betting operator in managing its risk. An amendment of the Wire Act to clarify this issue would provide a level of comfort to those suppliers who are not located in jurisdictions where sports betting is legal and would prefer to avoid having to invest significant resources in servers and other technology infrastructure in those states just to comply with a Wire Act provision that may not even be applicable based upon the language of the statute.
This article was originally published in Forbes.com on July 8, 2018.