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Linda J. Shorey
 

Can a Wire Act Violation Be Avoided with Enough Skill?

21 April 2009

By Linda J. Shorey
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 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-to-player 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


1Other 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.

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.

Can a Wire Act Violation Be Avoided with Enough Skill? is republished from iGamingNews.com.
Linda J. Shorey
Linda J. Shorey