Can a Wire Act Violation Be Avoided with Enough Skill?
By LINDA J. SHOREY
Published: Tuesday, April 21, 2009
INTRODUCTION
Skill games run the gamut from player-to-player video games (such as first
person shooter games), to chess, word games, and, arguably, certain card games.
Recently, Web sites that facilitate wagers between and among the players of skill
games have proliferated, in part, in response to actions taken by U.S. federal and
state law enforcement officials against Internet gaming operators (and those
assisting them) that offered online gambling on sports and other activities to
U.S.-based persons.
Just a brief review of legal publications reveals that many commentators
opine that the federal Wire Act, 18 U.S.C. §1084(a), does not cover wagers placed
online by the players of "skill" games and that the legality of such wagering is
governed by state law. Online opportunities to play skill games and wager on
them with one's opponent or opponents are numerous and available to U.S.based players, although a number of the Web sites offering these opportunities in
the U.S. indicate that players from certain states (not always an identical list)
may not participate. A more intensive review reveals that some legal
commentators and Internet gaming operators disagree and believe the Wire Act
may cover skill gaming.
The Wire Act is of significance to those in the Internet gaming industry
because it is the primary U.S. federal criminal statute that is directly implicated
by an Internet gaming operator's knowing acceptance of online wagers from U.S.based persons.1 Additionally, anyone who assists the operator (e.g., by providing
it with services) could be charged with aiding and abetting or conspiring with the
operator to violate the Wire Act.
This Article sets forth the language of the Wire Act and then explores,
through point and counterpoint, three of the arguments often made for why an
entity that facilitates online player-to-player wagering by U.S.-based persons on
skill games does not violate the Wire Act and the countervailing arguments. The
1
Other federal criminal statutes may be implicated and come into play if an operator is alleged to
have violated the Wire Act or a state criminal law concerning wagering.
three arguments are: (1) the Wire Act applies only if chance is involved; (2) the
Wire Act is limited to sporting events; (3) the Wire Act does not apply to wagers
between or among players.
THE WIRE ACT
The Wire Act provides, in pertinent part: "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 . . . shall be fined under this title or imprisoned not more than two years,
or both." 18 U.S.C. §1084(a). The language of the Wire Act is ambiguous in a
number of respects, including as to when an entity is engaged "in the business of
betting or wagering," what constitutes a "bet or wager," and whether "bets or
wagers" includes bets or wagers placed on something other than sporting events
and contests.
POINT AND COUNTERPOINT
The Wire Act Applies Only If Chance Is Involved
Point
Proponents of this position argue that the Wire Act concerns gambling and
a game is a gambling game only if it involves chance, which skill games do not.
Federal cases, such as F.C.C. v. American Broadcasting Company, are cited for
the proposition that the Wire Act prohibits gambling and that gambling involves
"(1) the distribution of prizes; (2) according to chance; (3) for a consideration."
347 U.S. 284, 290 (1954). A similar point is that criminal statutes in many states
define "gambling" as an activity involving chance. See, e.g., N.Y. Penal Law
§225.00(2).
Proponents also point to the definition of "bet or wager" in the Unlawful
Internet Gambling Enforcement Act of 2006 ("UIGEA"), which provides, in
relevant part, that "bet or wager" means "the staking or risking by any person of
something of value upon the outcome of a contest of others, a sporting event, or a
game subject to chance" and includes as an example, "the purchase of a chance or
opportunity to win a lottery or other prize (which opportunity to win is
predominantly subject to chance)." 31 U.S.C. §§5362(1)(A) & (B).
Counterpoint
The opponents of this position counter that the Wire Act does not contain
the terms "gambling," "chance," or any other term associated with chance. They
acknowledge that the Wire Act does not define the term "bets or wagers" but note
that the ordinary meaning of the term controls. The ordinary meaning of "bets or
wagers" is not limited by the concept of chance. The definition of "bet" is "[to]
risk something, usually a sum of money, against someone else's on the basis of
the outcome of a future event, such as the result of a race or game," and the
definition of "wager" is "[a] more formal term for bet." See THE NEW OXFORD
AMERICAN DICTIONARY (2001) at 158, 1896. Likewise, a federal tax scheme in
place when the Wire Act was enacted defines "wager" to include wagers placed on
"a sports event or a contest" and "placed with a person engaged in the business of
accepting such wagers" and defines "contest" as "any type of contest involving
speed, skill, endurance, popularity, politics, strength, appearances, etc. . . . ." 26
U.S.C. §4421 and IRS Form 730 (emphasis added) (defining "contest" for
purposes of taxes due on wagers accepted and laid-off).
This position finds some support in United States v. Bergland, 318 F.2d
159 (7th Cir. 1963), which involved Wire Act charges based on past-post wagering
on horseraces. The district court dismissed the charges, reasoning that past-post
wagering is characterized by the placement of wagers on activities that do not
involve chance and, therefore, does not implicate the Wire Act. The U.S. Court of
Appeals for the Seventh Circuit reversed, explaining that, for purposes of the
Wire Act, the meaning of "bets or wagers" is not tied to the element of chance.
The Wire Act Is Limited To Sporting Events
Point
As those who argue that the Wire Act does not cover skill games point out,
the only federal appellate court to directly address the issue of which betting and
wagering activities are covered -- the U.S. Court of Appeals for the Fifth Circuit -concluded that, the chance issue aside, the "bets or wagers" addressed by the Act
are limited to those associated with sporting events or sporting contests, as
opposed to other types of events and games (such as skill games). See In re
Mastercard Int’l, Inc., 313 F.3d 257, 262 (5th Cir. 2002) ("The district court
concluded that the Wire Act concerns gambling on sporting events or contests
and that the Plaintiffs had failed to allege that they had engaged in internet sports
gambling. We agree with the district court's statutory interpretation, its reading
of the relevant case law, its summary of the relevant legislative history, and its
conclusion.").
Counterpoint
The U.S. Department of Justice disagrees with the Fifth Circuit, publicly
taking the position that the Wire Act is not limited to bets or wagers associated
with sporting events or sporting contests. The magistrate judge handling the
proceedings in United States v. BetonSports agreed with DOJ in a recommended
report issued on May 7, 2007, which addressed one of the defendant's motions to
dismiss. See Recommended Report in Case No. 4:06CR337CEJ(MLM) at 7 (E.D.
Mo. May 7, 2007) ("Based on the language of the [Wire Act], the legislative
history and logical interpretation of the statute and other related legislation, the
court finds that [the Wire Act] is not limited to sports betting but includes other
kinds of gambling as well.").
The Wire Act Does Not Apply To Wagers Between Or Among Players
Point
The Wire Act does not cover skill games because those who wager on a
skill game are players of the game who place their wagers directly against others
playing the same game (as opposed to the house) and, typically, the only
involvement of a betting or wagering business is to facilitate the transaction and
collect a fee from the players for doing so. As with the argument above that the
Wire Act concerns gambling, proponents point to UIGEA's definition of "bet or
wager" as "the staking or risking by any person of something of value upon the
outcome of a contest of others, a sporting event, or a game subject to chance" in
support of their argument. See 31 U.S.C. §5362(1)(A) (emphasis added).
Counterpoint
There is no language in the Wire Act to suggest that, for purposes of the
Act, "bets or wagers" excludes those placed in a player-to-player setting. The
language does not limit "bets or wagers" to those placed by a wagerer on
something other than his own performance in an event. The Wire Act simply
proscribes anyone in the business of betting or wagering from knowingly using a
wire communication facility "for the transmission" of "bets or wagers" or related
information in interstate or foreign commerce. An Internet gaming operator that
facilitates the placement of online wagers by U.S.-based persons in a player-toplayer setting "transmits" those wagers by receiving them (after which it matches
them against countervailing wagers that it receives). See, e.g., United States v.
Reeder, 614 F.2d 1179, 1184 (8th Cir. 1980) ("the [Wire Act] forbids the use of
interstate facilities for sending or receiving wagering information") (emphasis
added) (internal quotation omitted). The UIGEA definition is just one definition
of "bet or wager" that might be considered when a court construes that term as
used in the Wire Act.
CONCLUSION
While many seem to believe that, in the U.S., player-to-player online
wagering on skill games falls outside the Wire Act and is governed by state
gambling laws, there is another side to the story. Internet gaming operators that
offer or are contemplating offering opportunities to U.S.-based players of skill
games to place online wagers against one another should consider obtaining legal
counsel with respect to their specific offering, as should those who provide
services to those operators.
Linda J. Shorey | linda.shorey@klgates.com
Ms. Shorey is an attorney with K&L Gates in Harrisburg, Pa., where she
specializes in United States betting and gaming law.
Dennis M.P. Ehling | dennis.ehling@klgates.com
Anthony R. Holtzman | anthony.holtzman@klgates.com
Ashley J. Camron | ashely.camron@klgates.com
K&L Gates LLP | www.klgates.com
This article is for informational purposes only and does not contain or convey
legal advice. The information herein should not be used or relied upon in regard
to any particular facts or circumstances without first consulting with a lawyer.
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