Gaming, Gambling & Fantasy Sports

Federal Court in Rhode Island Weighs in on the “Ping-Ponging” Question of the Wire Act’s Scope

Published: Sep. 28, 2022

Last week, the US District Court for the District of Rhode Island reaffirmed the First Circuit’s view that the Wire Act “definitively” applies only to sports betting. In other words, non-sports betting gambling, such as poker and online lotteries, is not covered by the Wire Act’s prohibitions.

The district court’s decision came after International Game Technology PLC (“IGT”) – the United States’ largest provider of gaming and lottery services – sought a declaratory judgment that the Department of Justice (“DOJ”) may not prosecute IGT for non-sports betting under the Wire Act.

Although the district court stopped short of giving a green light to the entire non-sports betting gambling and lottery industries, it allowed IGT to continue its business without fear of running afoul of the Wire Act.

Legal Background

The Wire Act, 18 U.S.C. § 1084, generally prohibits making bets and wagers using wire communications that cross state lines. The relevant portion of the Wire Act states:

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. (emphasis added)

Ambiguity in the statute’s language has generated debate and litigation over whether the whole statute is limited to sports betting, or whether the limiting language applies broadly to criminalize non-sports betting.

As ZwillGen previously covered, the DOJ has changed its position on the Wire Act’s applicability to non-sports betting several times – reversing course in 2011, and then again in 2018. In the most recent 2018 memorandum, the DOJ concluded that the Wire Act reached non-sports betting activities, like lotteries and internet-connected slot machines.

Standing to Challenge Possible Wire Act Prosecution  

The court’s decision raises an obvious question: why did IGT have standing to challenge possible prosecution by the DOJ if the First Circuit “definitively answered” the question about the Wire Act’s scope in 2021?

The answer is that plaintiffs in both cases were situated differently. A key difference was that IGT could be prosecuted at any moment, but NHLC could not due to a DOJ forbearance period. In addition, while the First Circuit reviewed a pre-enforcement challenge from the state-run New Hampshire Lottery Commission (“NHLC”), the district court decision last week reviewed a challenge from a private company with significant operations in the United States.

In its standing analysis, the court found that threat of imminent prosecution is a sufficient injury for standing, and easily concluded that IGT faced such a threat. The court looked at IGT’s costs, the government’s previous threats of prosecution, and history of like prosecution, and assumed that the government would want to enforce criminal laws.

Under this framework, the court easily found standing. It was apparent that IGT relied on the DOJ’s 2011 guidance in developing its business and that IGT incurred substantial costs in dismantling and reconfiguring its business operations in the face of the DOJ’s changing position. The DOJ also previously made New York and Illinois aware that, under the DOJ’s view of the Wire Act, their plans to use IGT’s internet-based lottery systems were illegal. And lastly, the last time the DOJ held the position it announced in its 2018 memorandum, it prosecuted at least 17 cases of non-sports betting under the Wire Act (between 2005 and 2011).

After finding standing the court further used its discretion under the Declaratory Judgment Act by ruling that IGT’s business did not violate the Wire Act. It did this to “serve a useful purpose in clarifying and settling” the legal issues raised.

Industry Implications

This latest development is significant because it shows that non-sports betting gambling and lottery companies may have the standing to seek declaratory judgments that their business operations are legal under the Wire Act.

If a company obtains such relief in the First Circuit, a declaratory judgment would bind the United States everywhere that company operates or would otherwise be subject to prosecution – as the district court initially found and the First Circuit upheld on review.

As of now, only the First Circuit and Fifth Circuit have said that the Wire Act’s prohibitions are limited to sports betting. If you have questions about how the Wire Act may impact your business, please contact us.