Crony Capitalists, Place Your Bets on the Wire Act

Some people want gambling legal, but only at their own casinos.



Some members of Congress want the Department of Justice to know that they are unhappy. The source of their consternation is the correct DOJ's finding in 2011 that the 1961 federal Wire Act—long believed to prohibit all forms of interstate gambling—is in fact "limited only to sports betting." To show their displeasure, language was recently inserted into a Senate appropriations bill, which made the obvious point that the Wire Act didn't change in 2011, and that it is up to state courts to interpret criminal laws.

The explanation for why this statement was slipped into a bill four years later is yet another cautionary tale of the corrosive effects of government-granted privilege to special interests, also known as cronyism.

Prior to 2011, the Wire Act—passed long before the emergence of the internet—was interpreted to prohibit all manners of internet gambling, from lottery sales to online poker. This never made sense, as the statute expressly addresses "bets or wagers on any sporting event or contest," among which lotteries and card games are not logically included.

This interpretation of the Wire Act was understood at the time it was passed as well. When asked during Senate hearings on the bill whether it would apply to other forms of gambling, Assistant Attorney General Herbert J. Miller replied, "This bill, of course, would not cover that because it is limited to sporting events or contests."

The DOJ's reversal of its earlier expansive interpretation was a move toward more faithful enforcement of the law, which ought to please Congress. Contrary to the language in the Senate's recent admonition, however, simply encouraging prosecutors to enforce law—rather than make it—is not the objective of the powerful interests bankrolling this fight.

The Senate language, which is now being pushed in the House, comes after years of failed attempts to enact the Restoration of America's Wire Act, a bill championed by billionaire casino owner Sheldon Adelson. Adelson has no moral objection to gambling, he just doesn't like it when people gamble somewhere other than one of his casinos.

The legalization of online poker in New Jersey, Delaware and Nevada—and the likelihood that others will soon follow suit—poses a direct threat to Adelson's brick-and-mortar casinos. In response, he has spent a lot of money courting politicians to help protect his interests at the expense of consumers.

The irony of both RAWA and the Senate's recent complaint is that even if the previous interpretation of the Wire Act (as including not just sports betting, but also other forms of gambling), the current efforts by states to legalize online gambling only for citizens within their borders still ought not to be prohibited. This is because the Wire Act is an interstate prohibition, not an intrastate one. That's why RAWA would go one step further and prohibit states from setting their own policies.

A House hearing last year on RAWA did not go well for its backers. Too many legislators saw it for what it is: a government handout and a blatant attack on federalism. But rather than fold, its backers have decided to double down, and are clearly looking for any opportunity to sneak through protections for the businesses of a favored donor. So far, their efforts have failed to gain steam through the open legislative process. For them to fail in the future requires that lawmakers be extremely vigilant in recognizing cronyism, even when camouflaged as concerns for regulatory overreach.