A 1957 raid finally convinced FBI Director J. Edgar Hoover that there was such a thing as organized crime, but not until President John F. Kennedy appointed his younger brother, Robert (or Bobby), as attorney general did the federal government get serious about taking it on.
Back then, gambling wasn’t the corporate enterprise that gaming (today’s preferred industry term) is now. Unless it was between friends, bets had to be placed with a bookie. The bookie would collect bets, track the outcomes, and pay the winners.
The problem with such a system is that sports betting can be one-sided and leave a bookie exposed. Suppose, for instance, that the Chicago Bears are playing the New Orleans Saints. A Chicago bookie would likely have a lot more money come in on the Bears. If he took that action and the Bears won, he would lose money when he paid the winners.
Whether it’s a bookie or a casino, “the house” always prefers to have action equal on each side. That way, the house takes a cut of the money without any risk. In fact, many criminal laws (including the one we are about to discuss) distinguish between a “mere bettor” and a “gambling operator,” by looking at whether the person or entity was at risk (betting) or simply taking a cut of the action (running a gambling operation).
The Wire Act
Gambling was usually a local matter, not under federal jurisdiction. Bobby Kennedy realized, however, that this interstate aspect of sports betting was a hook for federal jurisdiction. So he proposed a law that prohibited transferring betting information over telephone lines (or “wires”), the Interstate Wire Act of 1961, commonly called the Wire Act.“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 not more than $10,000 or imprisoned not more than two years, or both.”News reporting of sporting events was permitted, but sports betting operations were prohibited from using the phone system to lay off bets or otherwise facilitate sports betting operations across state lines.
When the Wire Act was drafted, sport was the only type of betting likely to involve the crossing of state lines. Cards, dice, even “the numbers” (essentially a daily lottery) were local. You could bet on a remote race or sporting event. No one in New York, however, was betting on a roll of the dice or the turn of a card in Pennsylvania. It simply wasn’t a concern.
The internet changed that. Now, anyone could play cards, dice, numbers, slots—what have you—across state lines. Plus, many states began conducting lotteries. These lotteries were interconnected, especially with mega-games such as Powerball. The Wire Act had to be reconsidered. Did it apply to non-sports betting? There were even questions as to whether the Wire Act applied at all to internet-based gambling.
Online Lotteries
In 2011, at the request of the Illinois and New York state lotteries, the DOJ issued an opinion on coverage of the Wire Act. It concluded that “interstate transmissions of wire communications that do not relate to a ’sporting event or contest' fall outside the reach of the Wire Act.” In other words, the Wire Act only applied to sports betting, so lotteries and other forms of gambling were free to use the internet and even cross state lines, as long as they were in compliance with state law. At least two federal courts of appeal reached the same conclusion. Several lotteries soon made their tickets available online.How will this end? I’m not a big fan of lotteries, but I expect the DOJ eventually to succumb to pressure from the states. The lotteries are too well established for an RFK-era, anti-mob law to shut them down now. Until this matter is resolved, however, operators of what once were considered completely legitimate businesses are potentially subject to severe criminal penalties. Regardless of what you think about legalized gambling, that’s simply not fair.