Betting on the US Market A Discussion of the Legality of Sports Gaming Businesses

17 Pages·2015·0.26 MB·English

©2011 Center for Gaming Research • University Libraries • University of Nevada, Las Vegas
Number 12 November 2011
Center for Gaming Research
Occasional Paper Series
University Libraries University of Nevada, Las Vegas

Betting on the U.S. Market
A Discussion of the Legality of Sports Gaming Businesses1
Glenn Light, Karl Rutledge, and Quinton Singleton

ABSTRACT: Over time, the US sports gaming industry has progressed dramatically
beyond what the US anti-gaming law drafters envisioned. The result is a system of
mostly antiquated laws controlling modern industry causing confusion across the
board. This discussion, therefore, intends to shed light on the US sports gaming legal
framework, including analysis of the preeminent US laws that regulate the sports
gaming industry and a brief review of various sports gaming businesses that fall
within the US legal rubric.

Keywords: sports betting, gaming, Internet gaming

Originally published in the Thunderbird International Business Review, © 2011 Wiley Periodicals,
Inc.

Preferred Citation: Glenn Light, Karl Rutledge, and Quinton Singleton. “Betting on the U.S.
Market: A Discussion of the Legality of Sports Gaming Businesses,” Occasional Paper Series
12. Las Vegas: Center for Gaming Research, University Libraries, University of Nevada Las
Vegas, 2011.

of Nevada, 2009, 2010). Yet, as large as these
Introduction industry numbers are, they do not include the
The US market for sports gaming activities overwhelming amount of illegal betting
is established and growing. In 2009 alone, the conducted in the United States each year.
legal horserace parimutuel pools took in While it is difficult to accurately quantify the
gross US bets2 of US $12.3 billion (Angst, size of the illegal betting market since, at the
2010).3 The state of Nevada has race betting very least, its illegality tends toward
as well, but also is the only state with nondisclosure, a recent investigative news
virtually unrestricted legalized sports betting report estimated the three sports that garner
similar to that commonly found outside the the majority of illegal US bets are football (US
United States. In 2009 and 2010, Nevada version), basketball, and baseball, with
gross legal sports bets amounted to $2.6 approximately $255–$300 billion bet
billion and $2.8 billion, respectively, and annually (“Top Sports for Illegal Wagers,”
gross legal race bets amounted to $400 2009). Although the accuracy of this estimate
million and $381 million, respectively (State is indeterminable, it is fair to say that the
[2] Occasional Papers | Center for Gaming Research | University of Nevada Las Vegas
illegal gambling market is indeed quite challenging the US position on horserace
significant. These figures also do not include betting, but as we illustrate later, each side of
gaming revenues from sports-related games this dispute was, in fact or in effect, arguing in
not traditionally considered gambling, such error. Consequently, the ultimate rulings in
as fantasy sports, which alone in 2009 the WTO dispute arose from an incorrect
accounted for additional annual revenues of understanding of the US anti-gaming laws.
$1.5 billion in the United States (Ankeny, The purpose of this review, therefore, is to
2009; Dahle, 2008; Spaeder, 2009). explain the framework of US sports gaming
It is understandable that given the laws and set forth forms of sports gaming
enormity of these figures and the success of activities that are permitted in the United
interactive gaming companies with their States.
recent billion-dollar valuations, companies
want to participate in the US sports gaming US Legal System
market (Levy & Satariano, 2009). However, it Before embarking on an analysis of US
may not be readily apparent which activities sports gaming laws, a brief review of the US
are permissible under US law or how those legal system is beneficial. The United States
activities must be structured to comply with has a two-tier structured government divided
US law. between the federal and state governments
At times, the legality of sports gaming in (Chemerinsky, 2002). Federal law is enacted
the United States can appear to be in a by the US Congress—the legislative arm of
constant state of flux. Courts and companies the federal government—and is supreme to
continually grapple with interpreting law enacted by each state. The federal
antiquated anti-gaming laws for a modern government, however, can only pass laws if it
gaming industry. Special interests, such as has clear authority to do so. Otherwise,
political conservatives, regularly seek to governance is left to the states (Chemerinsky,
enact additional anti-gaming laws and 2002).
diminish gaming opportunities while others, Correspondingly, there are two court
such as gaming operators, simultaneously systems split between the federal and state
seek to test the limits of, modify, and expand jurisdictions. The federal and state court
the same. Moreover, the myriad of US laws, systems are divided regionally and operate
court decisions, US Department of Justice on a vertical hierarchy within each region. At
(DOJ) legal stances (and eventual the federal level, the highest court is the US
prosecutions), and sports gaming operations Supreme Court, followed by the 13 regional
create divergent views and arguments as to US Circuit Courts of Appeal, and then the
which forms of sports gaming are legal in the regional US District Courts that fall within one
United States. of the 13 federal appellate circuits. A similar
This state of confusion and concern system exists at the state level, wherein most
regarding the legality of sports gaming commonly each state has a supreme court,
activities has led some US- and EU-based followed by a court of appeals, and then
businesses to operate in the United States district courts (Burnham, 2002).
only later to find they are defending Not all court decisions are binding on all
prosecution or negotiating settlements with courts. The US Supreme Court decisions are
the Department of Justice (“BetOnSports binding on all federal and state courts.
Fined $28 Million,” 2009; Richtel, 2004; Ryan, However, within each regional federal and
2007; United States v. $6,976,934.56, 2006; state court system, the decisions of higher
United States v. Betonsports PLC, 2006; United courts are binding on the lower courts, but
States v. John David Lefebvre, 2007; United the decisions of courts outside each
States v. Stephen Eric Lawrence, 2007). Such respective region are only persuasive, not
confusion has been amplified by the recent binding (Chemerinsky, 2002). The federal
World Trade Organization (WTO) dispute courts only hear certain cases, most
Light, Rutledge, and Singleton | Betting on the U.S. Market [3]

commonly involving questions of federal law to combat organized crime associated with
but also may include state law. In interpreting the proliferation of gambling in the United
federal law, the federal courts follow States. Specifically, the Gambling Devices Act
precedent within their respective region up of 1951 was the result of a report published
to the US Supreme Court and may look to by the US Senate Special Committee on
other federal regions for interpretations of Investigative Organized Crime in Interstate
the law that are persuasive but do not require Commerce that concluded “organized
mandatory compliance (Chemerinsky, 2002). criminal gangs operating in interstate
The state courts hear almost any type of case commerce are firmly entrenched in our large
other than cases that are heard exclusively by cities in the operation of many different
the federal courts. Similarly, in interpreting gambling enterprises . . . as well as other
state law, the state courts follow precedent rackets. . . .” (Kefauver, 1951, p. 1). Moreover,
within their respective region up to the US beginning in the 1960s, the federal
Supreme Court and may look to other state government determined the states needed
regions for persuasive interpretations assistance in enforcing their laws against
(Burnham, 2002). Additionally, the state unlawful gaming activities, particularly
courts may interpret federal law if applicable organized crime, and proceeded to pass a
to the case before the state court, which is series of federal anti-gaming laws.
subject to review by the federal courts. Most of these more recent federal laws
merely prohibit the offering of gaming
Federal Gaming Regulation activities in states where such activities are
With some exceptions, the federal already illegal under state law (Gottfried,
government has not traditionally played a 2004). Consequently, federal gaming laws, in
major role in regulating the gaming industry general, do not replace state laws; rather,
(Gottfried, 2004). Instead, gaming regulation they protect them from circumvention in
5
and enforcement has been viewed as most interstate and foreign commerce (Shaker,
appropriate for states—that is, to allow each 2007). The DOJ is the chief law enforcement
state to decide which gaming activities are agency of the United States and plays a
4
legal. One of the first instances of federal prominent role in preventing circumvention
regulation can be traced back to 1890, when in interstate and foreign commerce by
Congress passed a law prohibiting the sale of enforcing US federal gaming laws and
lottery tickets through the mail. Congress prosecuting persons violating those laws.
passed the law in response to the Louisiana
lottery, a notorious lottery that was run by a The Wagering Paraphernalia Act
New York syndicate to promote bribery. The Federal Wire Wager Act of 1961 (Wire
Following the introduction of the federal law, Act) is the preeminent federal law controlling
the state legislature shut down the lottery the sports betting industry; however, several
two years later (Thompson, 1994). Then, in other acts are worth noting. For instance,
1951 Congress passed the Gambling Devices while certainly less prominent than the Wire
Act of 1951. This Act, as amended by the Act, the Interstate Transportation of
Gambling Devices Act of 1962, supplements Wagering Paraphernalia Act of 1961 (WPA;
state law by prohibiting the interstate 2009) was enacted as part of the same federal
transportation of gambling devices into legislation as the Wire Act and on the very
jurisdictions where their manufacture or same day. The WPA criminalizes the
possession is not specifically legal, and interstate and foreign transportation “of any
imposing registration and recordkeeping record, paraphernalia, ticket, certificate, bills,
requirements on those who manufacture and slip, token, paper, writing, or other device
distribute the devices for public use (Cabot, used, or to be used, adapted, devised or
1998). Similar to the 1890 legislation, the designed for use in” bookmaking, wagering
Gambling Devices Act of 1951 was introduced pools with respect to a sporting event, or a
[4] Occasional Papers | Center for Gaming Research | University of Nevada Las Vegas
numbers policy, bolita, or similar game (US paraphernalia in either the state that is
Code & Cong. News, 1961). sending paraphernalia to or receiving
The WPA is intended to accomplish a very paraphernalia from another state or foreign
specific function: “It erects a substantial jurisdiction. Some of the WPA exceptions
barrier to the distribution of certain materials include (1) wagering materials carried by a
used in the conduct of various forms of illegal common carrier (e.g., the US Postal Service)
gambling” by cutting off supplies used in in the usual course of business; (2) pari-
illegal gaming (Erlenbaugh v. United States, mutuel betting equipment or tickets where
1972, p. 246). When drafting the WPA, legally acquired; (3) pari-mutuel materials
Congress employed broad language to used at racetracks or other sporting events
“permit law enforcement to keep pace with where state law allows such betting; (4)
the latest developments” (United States v. betting materials to be used to place bets or
Mendelsohn, 1990, p. 1187). As a wagers on a sporting event into a state whose
consequence, many of the WPA’s terms are laws allow such betting; (5) any newspaper
general, undefined, and unspecific, such as or similar publication; (6) equipment, tickets,
“paraphernalia,” “paper,” “writing,” and or materials to be used in a state-run lottery;
“device.” This enables the DOJ and US courts and (7) equipment, tickets, or materials
to interpret and apply the WPA’s prohibitions designed to be used and transported to a
as needed for the circumstances at hand. foreign country for a legal lottery (Cabot,
For example, in United States v. 1998).
Mendelsohn, the court held that a computer
disk containing a software program for The Federal Wire Wager Act
recording and analyzing bets on sporting Whereas the WPA focuses upon tangible
events is wagering paraphernalia (United items, the Wire Act, in contrast, applies to
States v. Mendelsohn, 1990). Similarly, in intangible items. Specifically, the Wire Act
People v. World Gaming, a New York State prohibits using almost any known interstate
court declared that an Internet gaming or foreign communications medium for
website located in Antigua violated the WPA transmitting bets, transmitting information
by sending records of illegal gaming activity assisting in placing bets, or transmitting
into the state of New York (People v. World information entitling a person to credit or
Gaming, 1999, p. 852). Moreover, the court money as a result of a bet on any sporting
further held that the Internet gaming event or contest (Federal Wire Wager Act of
operator violated the WPA by sending 1961, 2009). Subsection 1084(a) sets forth
computers from the United States to Antigua the Wire Act’s prohibitions.
that would ultimately be used for conducting Whoever being engaged in the
illegal gaming operations between the United business of betting or wagering
States and Antigua (People v. World Gaming, knowingly uses a wire communication
6
1999, p. 853). Thus, practically any tangible facility for the transmission in
devices, including software and electronics, interstate or foreign commerce of bets
intended to be used in illegal gaming or wagers or information assisting in the
activities, regardless of whether they have placing of bets or wagers on any
uses outside those activities, are sporting event or contest, or for the
encompassed in the WPA’s prohibitions. transmission of a wire communication
Due to the breadth of the WPA’s which entitles the recipient to receive
prohibitions, exceptions are included in the money or credit as a result of bets or
WPA to clarify which activities are legal. wagers, or for information assisting in
Without the inclusion of these exceptions, the the placing of bets or wagers, shall be
transportation of any wagering paraphernalia fined under this title or imprisoned not
across state lines would be illegal regardless more than two years, or both.
of the legality of gaming or possession of such
Light, Rutledge, and Singleton | Betting on the U.S. Market [5]

Subsection 1084(b) of the Wire Act also leaving them open to liability under the
contains a much-cited exception known as statute (Federal Wire Wager Act of 1961,
the “safe harbor” provision. 2009; United States v. Scavo, 1979, pp. 841–
Nothing in this section shall be 843). The Wire Act does not, however, go
7
construed to prevent the transmission in after the casual gambler.
interstate or foreign commerce of The United States v. Cohen case found an
information . . . assisting in the placing of Internet sports betting operation was in the
bets or wagers on a sporting event or business of betting or wagering and
contest from a State or foreign country established the applicability of the Wire Act
where wagering on that sporting event to Internet sports betting in foreign
or contest is legal into a State or foreign commerce (United States v. Cohen, 2001).
country in which such wagering is legal. Cohen operated an offshore sports betting
The safe harbor only applies to the company—the World Sports Exchange
transmission of “information assisting in the (WSE)—based in Antigua that accepted bets
placing of bets,” not to the transmission of (1) on a wide range of sports (“Man Jailed in 1st
bets or (2) wire communications entitling the Online Gambling Conviction,” 2000). Patrons
recipient to money or credit as a result of would establish and fund accounts with the
bets. The exception is further narrowed by its company in Antigua typically through wire
requirement that the betting at issue be legal transfers, and the company would only place
in both jurisdictions in which the bets from those Antiguan accounts. However,
transmission occurs (Federal Wire Wager Act the company would take telephone calls and
of 1961, 2009). Internet communications from US patrons
At first blush, this seems to be clear where the patrons would relay information
enough. However, the Wire Act is extremely on which bets the company should place
poorly written, to the point of being using funds from their Antigua accounts.
incomprehensible in parts. For example, Cohen maintained that the Wire Act should
Subsection 1084(a) is a single sentence not apply because his business was licensed
containing 94 words (Cabot, 2010). In in Antigua and all bets were taken, recorded,
practice, this has led to considerable debate and processed in Antigua. The court, on
and confusion regarding the breadth of the appeal from his conviction, held that the bets
Wire Act. take place both in the state where the bettor
Even the first ten words of the Wire Act, resides and where the servers or service
which appear to be the clearest, require provider resides; therefore, the bets took
interpretation by the courts since Congress place at least in part in the state of New York.
failed to define what exactly qualifies as being Since the bets took place in the United States,
“in the business of betting or wagering” the court held the Wire Act applied, and
(Federal Wire Wager Act of 1961, 2009). Cohen’s conviction for violating the Wire Act
Essentially, the courts have found this was upheld.
requires that a person not only be engaged in Of greater debate is whether the Wire Act
the “sale of a product or service for fee” applies to betting on nonsports gaming. The
(United States v. Barborian, 1981, p. 329), but debate centers on whether the Wire Act is
that the person also be engaged in a read to apply to any “sporting event” and
“continuing course of conduct” (United States “sporting contest,” or “sporting event” and
v. Scavo, 1979, p. 843). Accordingly, where a “contest,” which in the later case is seen as a
gaming operator charges customers for its prohibition of not only sports betting but also
service, such as charging fees for accepting or all other types of betting contests (Rodefer,
brokering bets, this would be the continuing 2004). The DOJ’s official position is that
activities that equate to a business operation “contest” is distinct from “sporting event” and
and will likely constitute being “engaged in that Internet casino games, among others, are
the business of betting or wagering,” thus “contests”; thus, the DOJ concludes that using
[6] Occasional Papers | Center for Gaming Research | University of Nevada Las Vegas
interstate and/or foreign communications a state court decision indirectly supporting its
media for betting on Internet casino games is conclusion that the Wire Act applies to
prohibited under the Wire Act (Hearing on gaming other than sports betting. Based on
Establishing Consistent Enforcement Policies the manner in which the US legal system
in the Context of Online Wagers, 2007). functions, as described earlier, this is
Contrary to the DOJ’s position, the Wire problematic for several reasons. First, a
Act’s legislative history and wording permits federal court is relying on a state court’s
a strong argument that it pertains only to interpretation of a federal law when the
sports betting, as the Wire Act explicitly federal court should interpret the federal
enumerates “sporting event or contest,” with law—not look to a state court’s interpretation
the word “sporting” predicating both the of federal law for the basis of its
word “event” and “contest” (Federal Wire interpretation. Second, if a federal court is
Wager Act of 1961, 2009). This is supported going to look to another court, then it should
by the US Court of Appeals for the Fifth have looked to prior federal court decisions
Circuit (a federal court) ruling that the Wire on the same subject matter, like the ruling of
Act applies only to sports betting, not other the Fifth Circuit court just mentioned. Third,
types of gaming (In re MasterCard Int’l Inc., even if a basis existed to rely on the state
2002). This court’s opinion upheld the ruling court, the federal court’s reliance was in error
of a lower federal court in Louisiana, which since the state court did not even actually
found “sporting” modifies both “event” and address the issues underlying the federal
“contest,” and, therefore, the federal Court of court’s conclusion.
Appeals concluded the Wire Act alone does Recently, another court used comparable
not prohibit betting on Internet casino games. logic, finding the Wire Act applicable to
Nevertheless, courts in other federal nonsports betting and thus denied a motion
8
circuits have drawn different conclusions, filed by Gary Kaplan to dismiss the Wire Act
finding the second and third prohibited uses counts charged against him (United States v.
of a wire communication facility under Kaplan, 2008). Although the Lombardo court
Subsection 1084(a) (i.e., transmitting and the Kaplan court each find the Wire Act
information assisting in placing bets and applicable to all types of gaming, even they
transmitting entitlement to receive money or did not uniformly comprehend the Wire Act’s
credit resulting from a bet) do not require language since they reached their conclusions
that the bets to which those prohibited uses by interpreting Subsection 1084(a)
relate be limited to bets placed on sports differently (Hichar, 2009).
alone. An analysis of the Wire Act’s legislative
In United States v. Lombardo, the federal history and the exceptions in Subsection
court concluded the phrase “sporting event or 1084(b) along with the prohibitions in
contest” modifies only the first of the three Subsection 1084(a) substantiate that the
prohibited uses of a wire communication positions of the Lombardo and Kaplan courts
facility (i.e., transmitting bets) (United States are nonsensical. To contend Congress was
v. Lombardo, Memorandum Decision and more concerned with nonsports betting, such
Order Denying Defendants’ Motions to as betting on lotteries and casino games, than
Dismiss, 2007). The court continued, finding with betting on sports events is not justifiable
that Congress must have intentionally (Hichar, 2009). For instance, even the title of
excluded “sporting event or contest” as a the House Judiciary Report on the legislative
qualifier from the second and third bill that became the Wire Act was entitled
prohibited uses and thus indicates that at “Sporting Events—Transmissions of Bets,
least part of Subsection 1084(a) applies to Wagers, and Related Information” (H.R. Rep.
forms of gaming that are unrelated to 87-967, 1961). Additionally in 1961 when the
sporting events. In reaching this decision, Wire Act was enacted, the notion that a
however, this federal court inexplicably cited person would use the telephone or telegraph
Light, Rutledge, and Singleton | Betting on the U.S. Market [7]

to bet on anything but race and sporting harbor only excepts the interstate or foreign
events was unrealistic (In re MasterCard Int’l transmission of information assisting in the
Inc., 2002). Consequently, the prohibitions in placing of bets.
Subsection 1084(a), like the safe harbor in This seemingly small difference opened the
Subsection 1084(b), were likely intended to door for the horseracing industry to allow
apply only when the underlying betting innovative betting methods on an interstate
related to sporting events or (sporting) and foreign platform, particularly off-track
contests. betting. Besides accepting bets directly at the
racetrack, US racetracks also accept off-track
The Interstate Horseracing Act betting on horseraces, which, in general, is
Even if courts, unlike the Lombardo and any system enabling patrons to place bets on
Kaplan courts, strictly follow the legislative races while not being physically present at
history and wording of the Wire Act and do the racetrack and usually is done through an
not make efforts to expand the applicability of intermediary. The two most prevalent forms
the Wire Act’s language, questions still arise of off-track betting are account wagering
as to the ambit of the Wire Act. Most notably, (also known as advance deposit wagering)
does the Wire Act’s general prohibition apply and off-track betting facilities (also known as
to interstate or foreign betting on the sport of OTB facilities). Account wagering allows a
horseracing? While one may question the patron to make advanced deposits with an
veracity of such a concern given the relative intermediary or the racetrack and then place
straightforwardness of sports betting as the a bet via the telephone, computer, or other
basis for the Wire Act, ambiguity has arisen method of communication. An OTB facility, on
from the differing viewpoints between the the other hand, is a physical location where
horseracing industry and the DOJ. patrons assemble to place bets on the races
As discussed, the Wire Act prohibits “the being conducted at another location.
transmission in interstate or foreign The Interstate Horseracing Act (IHA) was
commerce of bets or wagers or information enacted in 1978 and provides rules to govern
assisting in the placing of bets or wagers on the horseracing industry and off-track betting
any sporting event or contest, or for the conducted on an interstate basis. Specifically,
transmission of a wire communication which the IHA was enacted “to regulate interstate
entitles the recipient to receive money or commerce with respect to wagering on
credit as a result of bets or wagers, or for horseracing in order to further the
information assisting in the placing of bets or horseracing and legal off-track betting
wagers. . . .” (Federal Wire Wager Act of 1961, industries in the United States” (15 USC §
2009), whereas the safe harbor provision 3001(b)). The states and the horseracing
excepts from the general prohibition “the industry viewed this enactment as
transmission in interstate or foreign buttressing the legality of their off-track
commerce . . . of information assisting in the betting, which existed prior to the IHA’s
placing of bets or wagers on a sporting event enactment (Cabot, 2010; Penchina, 2006).
or contest from a State or foreign country This was until 1999, when a DOJ
where betting on that sporting event or representative announced that the IHA “does
contest is legal into a State or foreign country not allow [interstate bets on horseracing],
in which betting is legal” (Federal Wire and if a parimutuel wagering business
Wager Act of 1961, 2009). The substantial currently transmits or receives interstate bets
difference between the body of the Wire Act or wagers (as opposed to intrastate bets or
and the safe harbor is that the Wire Act wagers on the outcome of a race occurring in
makes it unlawful to transmit bets, another state), it is violating federal gambling
information assisting in the placing of bets, laws” (Hearings on House Bill 3125, 2000;
and information entitling persons to money Jennings, 1999). As a consequence, the
or credit resulting from bets, while the safe horseracing interests sought clarification of
[8] Occasional Papers | Center for Gaming Research | University of Nevada Las Vegas
the law through an amendment to the IHA light of the fact that sports betting (not
(Cabot & Christiansen, 2005). including horse betting) is illegal in New York
The IHA was amended in 2000 to (New York State, 1984; New York State Law,
specifically clarify that pari-mutuel horserace 2010a). In contrast, horserace betting is legal
betting may be conducted on an interstate in New York and many other states (New
basis, which includes placing bets that are York State Law, 2010b, 2010c;
lawful in each state involved and accepted by OfficialUSA.com, n.d.).
an off-track betting system in such states by Nevertheless, the DOJ remains resolute in
telephone or other electronic media (i.e., the its belief that all interstate and foreign
9
Internet). (The IHA as amended only gaming is unlawful under the federal law and
addressed interstate pari-mutuel horserace therefore maintains its blanket opposition to
betting; foreign and other bets will be the gaming industry. In 2006, the DOJ
discussed later.) (Interstate Horse Racing Act, expressed at another congressional hearing
§ 3002(3), 1978). that interstate horserace betting is prohibited
However, in the 2001 Cohen case discussed by federal anti-gaming laws—regardless of
earlier, the argument that sports betting fell the IHA (District of Columbia Appropriations
within the Wire Act’s safe harbor was Act of 2001; Hearings on House Bill 4777,
rejected (United States v. Cohen, 2001). 2006).
Specifically, Cohen appealed the district This position is unsustainable. One of the
court’s instructions to the jury regarding greatest arguments against the DOJ’s position
what constitutes a bet per se. Cohen is the recognized rules of statutory
unsuccessfully argued that the WSE construction in the United States—those
operations fell within the safe harbor because rules used to interpret laws, which alone
under WSE’s betting system, which Cohen should be a sufficient basis to defeat the DOJ’s
likened to horserace account wagering, the position (Kim, 2008). They state that a
transmissions between WSE and its patrons presumption exists that Congress is aware of
contained only information that enabled WSE existing law when it passes legislation and
itself to place bets from patron accounts amends existing statutes (In re Dobbins, 1968;
located in Antigua (United States v. Cohen, South Dakota v. Yankton, 1998; Singer &
Appellant’s Brief, 2000, pp. 2, 8, 16–20). Singer, 2001, § 51.02, p. 194). Thus, to the
Although Cohen lost his argument, extent statutes on a subject conflict, the more
horseracing interests have a major point of recent enactment will usually prevail, which
distinction between their position and the is the IHA (Marschall v. City of Carson, 1970).
Cohen facts—namely, the IHA. The fact that Although it’s clear Congress’s enactment of
the IHA was enacted 16 years after the Wire the IHA and its amendment was intended to
Act and then later amended for clarification legalize (and clarify the legality of) off-track
goes toward finding congressional betting on horses, certain inconsistencies
recognition of the legality of interstate off- remain that cause confusion. One, the IHA’s
track betting on horses and specific language, as amended, is narrower than
congressional intent to except horseracing intended and only covers interstate
and its associated interstate betting from the parimutuel betting on horses, whereas the
Wire Act’s prohibitions. Wire Act does not discriminate between the
Another distinction between the IHA and types of bets that fall within the safe harbor.
Cohen is the safe harbor provision, which Two, the IHA as amended only addresses
requires the transfer of information assisting interstate pari-mutuel betting, those bets
in placing bets must be to and from a “transmitted by an individual in one State via
jurisdiction in which the betting is legal telephone or other electronic media and
(Federal Wire Wager Act of 1961, 2009). accepted by an off-track betting system in the
Simply, it was irrelevant how Cohen and WSE same or another State,” whereas the Wire Act
structured the sports betting transactions in safe harbor excepts interstate and foreign
Light, Rutledge, and Singleton | Betting on the U.S. Market [9]

betting, those bets “from a State or foreign actions and statements as proof of the
country where betting on that sporting event inconsistency, the Appellate Body ultimately
or contest is legal into a State or foreign rested its decision on the IHA, finding the US
country in which betting is legal.” enforcement of the IHA was inconsistent with
Even though the IHA’s amended language its GATS commitments (World Trade
is narrower than the Wire Act’s language, the Organization, 2005, n.d., paragraphs 373–
amended IHA should not be interpreted as 374). In particular, the Appellate Body issued
legislative intent that foreign and non-pari- a final report on April 7, 2005, finding the
mutuel bets were not intended to be covered United States failed to disprove Antigua’s
by the safe harbor (Cabot & Christiansen, claim that the IHA discriminated between
2005). As Cabot and Christiansen (2005, p. foreign and domestic suppliers of “remote”
205) note, “The better and more likely horserace betting services (e.g., pari-mutuel
interpretation is that Congress was pooling and account wagering) because the
concerned that the [US legal stance] was IHA’s language only excepted interstate
infringing upon a longtime accepted and betting from the Wire Act’s prohibitions. As a
economically important activity [(i.e., result, the WTO required the United States to
interstate off-track betting on horses)] and bring its laws into compliance with the final
Congress wanted to stress that the [safe report (World Trade Organization, 2005, n.d.,
10
harbor] applied to this specific set of paragraphs 373–374). However, in fact, as
circumstances” (Cabot & Christiansen, 2005). discussed earlier, the Appellate Body should
Therefore, it is not that Congress intended to have found that no inconsistency or
allow interstate horserace betting while discrimination against foreign suppliers
prohibiting foreign betting but rather exists for remote horserace betting.
Congress was addressing a specific legal issue The WTO did not reach this conclusion.
within the United States brought by a specific This is, in part, a result of both the United
lobbying group representing US horseracing States and Antigua arguing inaccurate
interests. In doing so, Congress had not interpretations of US law. The United States,
drafted the IHA and the amended IHA despite not being defensible, maintained the
language to ensure it matches the Wire Act’s consistent position that the Wire Act
safe harbor language for foreign betting. prohibited all types of interstate or foreign
Unfortunately, these inconsistencies and gaming, including betting on horseracing
the confusion surrounding US anti-gaming regardless of the IHA. In contrast, Antigua
laws carried over to the recent dispute at the argued that the IHA, “on its face, authorizes
WTO. The WTO Dispute Panel, as illustrated domestic . . . suppliers, but not foreign . . .
in the section that follows, found the suppliers, to offer remote betting services in
amended IHA language narrower than the relation to certain horse races” (i.e., because
Wire Act’s language and based on that found the IHA only refers to interstate and does not
discrimination between domestic and foreign refer to foreign, whereas the Wire Act’s
suppliers of remote betting services. prohibitions and safe harbor cover both)
(World Trade Organization, 2005, n.d.,
World Trade Organization, US—Gambling paragraphs 361–364, 371–372). Per
Antigua and Barbuda (“Antigua”) argued Antigua’s view, “the IHA ‘exempts’ [US]
before the WTO Dispute Settlement Body and suppliers from the prohibitions of the Wire
Appellate Body that the US position on Act” and other federal anti-gaming laws (see
Internet gaming was inconsistent with its note 13) while prohibiting foreign suppliers
WTO commitments under the General (World Trade Organization, 2005, n.d.,
Agreement on Trade in Services (GATS; paragraphs 361–364, 371–372).
World Trade Organization, 2005). Although Consequently, the interests of both parties
Antigua’s argument cited numerous US prevented them from arguing the correct
federal and state laws and government interpretation of the legal landscape, which is
[10] Occasional Papers | Center for Gaming Research | University of Nevada Las Vegas
that both domestic and foreign suppliers of 2005). Rather, all remote horserace betting
remote betting services for horseracing fall activity, whether it is interstate or foreign, fits
within the Wire Act’s safe harbor. To argue under the safe harbor because the Wire Act
that position would have meant the United safe harbor equally protects domestic and
States acknowledged the Wire Act did not foreign suppliers of remote horserace betting
prohibit all forms of interstate or foreign services. Thus, if the laws of both jurisdictions
gaming. This is an acknowledgment the permit such activity, no basis should exist for
United States will not make because doing so prosecuting a person who transmits
would be contrary to the DOJ’s previously horserace betting information through
described continued stance of blanket interstate or foreign commerce.
opposition to interstate and foreign gaming. If While the IHA focuses squarely on the
Antigua argued the correct interpretation, sport of horseracing, the Professional and
Antigua would be acknowledging that it Amateur Sports Protection Act of 1992, in
suffered no discrimination, because Antigua’s contrast, was intended to encompass and
remote suppliers would have come under the regulate betting on almost every other
purview of the safe harbor. In essence, the amateur, collegiate, and professional sport.
correct analysis of the law was lost because
such argument and interpretation would have Professional and Amateur Sports Protect ion
failed to benefit either party’s case before the Act
WTO. For some time, the professional sports
In actuality, “all [remote] horserace leagues have distanced themselves from
wagering activity, whether parimutuel or not, sports wagering by adopting stringent rules
or whether it is interstate or foreign, must fit regarding gambling and gamblers (Cabot,
within the safe harbor provision of the Wire 1998, p. 164). These policies stemmed from
Act. The Wire Act makes no distinction several high-profile scandals in Major League
between parimutuel and non-parimutuel Baseball. The first and most extensive scandal
wagers and specifically covers both interstate broke out in 1920, when eight members of
and foreign wagering activities. Therefore, the Chicago White Sox, including its greatest
the legal analysis of foreign wagers and star, Shoeless Joe Jackson, were accused of
nonparimutuel wagers should be no different intentionally losing the World Series. In what
than interstate parimutuel off-track wagers” would become known as the “Black Sox
(Cabot & Christiansen, 2005). This is readily Scandal,” all eight players were acquitted of
apparent when analyzing the Wire Act’s safe criminal charges. Nevertheless, Kenesaw
harbor, which is the umbrella under which Mountain Landis, baseball commissioner and
legal off-track horserace betting exists. Since former judge, banned all eight players from
the safe harbor does not qualify the types of professional baseball for life (Cabot, 1998, pp.
horserace betting that may occur legally, any 163–164). Consequently, the league adopted
type of off-track horserace betting is legal, policies that “included bans on wagering by
regardless of whether the horserace bet is players, other personnel and owners,
pari-mutuel or not and regardless of whether prohibitions on dual ownership of baseball
the horserace bet is made on an interstate or clubs and legal gambling operations, and
foreign basis. restricting professional teams from
In summation, the IHA and its amendment advertising or associating with legal gambling
were intended to provide further support of enterprises” (Cabot, 1998, pp. 163–164).
the legality of horserace betting. The fact that Yet even with these safeguards in place and
the IHA as amended discusses interstate pari- the Wire Act’s ban on interstate and foreign
mutuel betting should not serve as a basis for sports betting, the sports leagues faced a new
finding Congress did not intend foreign and challenge in the 1970s from an unlikely
non-pari-mutuel bets to be covered by the source—state governments. While only
Wire Act safe harbor (Cabot & Christiansen, Nevada had an open sports betting industry