Sports Contracts effectively enable citizens in every state to gamble on sports online, including in states that have enacted laws prohibiting sports betting and on tribal lands. Therefore, they are in direct conflict with state laws that prohibit retail or online sports betting and allowing them to be traded on a federal exchange would usurp a core police power of states to regulate gaming within their borders. Section 40.11(a)(1) of the CEA’s implementing regulations thus prohibits Sports Contracts because Sports Contracts involve an activity—sports betting—that is unlawful under many states’ laws. 11 Furthermore, Sports Contracts also violate federal law. First, they are unlawful under the federal Wire Act. 18 U.S.C. § 1084. Under the Wire Act, no one may “knowingly use a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers . . . on any sporting event or contest . . . .” Id. § 1084(a). U.S. Courts of Appeals and the U.S. Department of Justice (“DOJ”) have interpreted the Wire Act to prohibit interstate online sports betting. For example, the Fifth Circuit held that the Wire Act prohibits only interstate transmissions of wire communications related to online sports betting. In re MasterCard Int’l Inc. , 313 F.3d 257, 262–64 (5th Cir. 2002). The DOJ Office of Legal Counsel issued an opinion in 2011 supporting the Fifth Circuit’s interpretation that the Wire Act applies only to interstate sports betting. However, in 2018, after the Supreme Court overturned the PASPA in Murphy v. NCAA , the DOJ issued another opinion concluding that the Wire Act prohibits a broader scope of interstate gambling communications. 12 In response to the DOJ’s 2018 opinion, the First Circuit reaffirmed what the Fifth Circuit previously decided, and held that “[l]ike the Fifth Circuit, and the district court in this case, we therefore hold that the prohibitions of section 1084(a) apply only to the interstate transmission of wire communications related to ‘any sporting event or contest.’” N.H. Lottery Comm’n v. Rosen , 986 F.3d 38, 61–62 (1st Cir. 2021). Since the First Circuit’s determination in 2021, no other Court of Appeals has considered the question of whether the Wire Act prohibits more than just interstate gambling communications related to sporting events. But according to caselaw and DOJ opinions interpreting the Wire Act, interstate online sports betting is uniformly considered an unlawful activity under federal law. Therefore, listing or trading Sports Contracts, which requires the interstate transmission of sports wagers, is prohibited under 17 C.F.R. § 40.11(a)(1). Moreover, Sports Contracts also violate IGRA and its implementing regulations. First, as discussed above, Sports Contracts constitute Class III gaming. And under IGRA, Class III gaming activity conducted on Indian lands is lawful only when such activity is: (1) authorized by a tribal ordinance or resolution; (2) located in a state where such gaming is permitted; and (3) conducted pursuant to an IGRA to States Where Sports Betting is Legal in the US , Responsible Gaming (last visited Feb. 11, 2025) (accessible here). 11 A distinction could be made between contracts involving illegal activity and illegal contracts involving legal activity, the latter of which would encompass Sports Contracts (sports events are, by and large, not illegal activities) and could theoretically be exempt from the “Special Rule” and CFTC’s implementing regulation. However, the prohibition merely requires the contract to “involve” illegal activity; a contract necessarily involves the act of entering into it. See Involve , Merriam-Webster Dictionary (defining the term “involve” to mean “to engage as a participant” and “to oblige to take part”) (accessible here). 12 See Reconsidering Whether the Wire Act Applies to Non-Sports Gambling , 42 Op. O.L.C. 158 (Nov. 2, 2018) (accessible here); Whether the Wire Act Applies to Non-Sports Gambling , 35 Op. O.L.C. 134 (Sept. 20, 2011) (accessible here).
Made with FlippingBook - Online catalogs