Thanks To The Wire Act, There Is No “Shared Liquidity” In Sports Betting

• The Wire Act has been ruled to apply strictly to sports betting, pending appeal.
• This ruling allows gamblers and gaming operators the economic benefit of shared liquidity.
• Shared liquidity would help reduce the cost and risks associated with sports betting.

LAS VEGAS – Last week, US District Court Judge Paul Barbadoro reversed the Department of Justice’s 2018 opinion that the Interstate Wire Act applies to all forms of gambling.

From its inception in 1961 through 2018, the Wire Act has been understood to apply exclusively to sports wagering. In November last year, the DOJ’s Office of Legal Counsel (OLC) “reinterpreted” the law to bar all interstate gambling activity.

The opinion was challenged by a number of interested parties, namely the state of New Hampshire. Enforcement of this “updated” Wire Act would have negatively impacted its (and several other states’) online gaming and lottery interests.

Nevada and New Jersey were particular advocates of New Hampshire’s challenge. In the wake of Barbadoro’s decision, it’s easy to see why: the two states’ gaming markets cooperate via something called “shared liquidity.”

What Is Shared Liquidity?

Shared liquidity is a basic economic concept that allows a company to share asset pools between its branches and subsidiaries. In gambling particularly, shared liquidity allows a prize pool to extend beyond a single market.

In the case of New Hampshire’s Wire Act challenge, a big focal point was the Powerball lottery. This lottery’s prize pool is an example of shared liquidity, as it derives from ticket purchases across 21 different states.

By spreading its reach and building a massive pool from transactions across those 21 states, the Powerball is able to regularly offer jackpots of hundreds of millions of dollars. This is something a single state-based lottery simply cannot do.

For another example of shared liquidity in gaming, consider the World Series of Poker (WSOP) promotion.

Thanks to Barbadoro’s ruling limiting the Wire Act strictly to sports betting, the WSOP remains legally able to offer its online gold bracelet events to players in both Nevada and New Jersey.

WSOP executive Seth Palansky recently confirmed that his company’s marquee online events would continue unabated.

“[B]arring something unforeseen, we plan on continuing with shared liquidity between Nevada and New Jersey for the remaining 8 WSOP gold bracelet events between now and June 14.”

Coincidentally, the OLC set a deadline of June 14 for compliance with their new interpretation of the Wire Act. While that deadline has been scuttled by Barbadoro’s decision, the DOJ is likely to appeal.

How Could Shared Liquidity Benefit Sports Betting?

Shared liquidity is a tremendous boon for nearly any multi-state business. However, sports wagering is unambiguously barred from the practice.

Right now, compliance with the Wire Act means that sportsbooks cannot determine their lines on multi-state action. In other words, a book has to offer its odds in line with only what the local action dictates.

Economically, this is less than ideal for both bookies and bettors.

For bookmakers, it means offering less attractive and more volatile odds on local teams (especially if those teams are perennial winners). For bettors, it means paying two or three times the standard vigorish on every home team wager.

For example, say you want to take the Giants to cover against the Cowboys in Week 1 of the upcoming NFL season. That bet is going to cost you -120 or -130 at the FanDuel Meadowlands sportsbook in New Jersey.

If FanDuel could balance its odds using action from all other states where it does business, its Meadowlands bettors might get to place that same wager at -110 or -115 odds, instead.

Simulcast Horse Betting Is Based On Shared Liquidity

Another way to understand the benefits of shared liquidity is to take a look at the horse betting market. Interstate pari-mutuel wagering on horse races is exempt from the Wire Act and is governed by the Interstate Horseracing Act of 1978.

As a result, simulcasting allows one horse track to exponentially increase a given race’s prize pool by expanding the pot to multiple markets in multiple other states (akin to the Powerball example above).

An extension of the concept called net pool pricing (NPP) has become the de facto standard for the industry.

Interstate simulcast wagering and the shift to NPP are largely credited with saving the horse racing industry.

To be sure, sports betting is far more popular than horse racing and doesn’t need saving. Still, it could enjoy the same sorts of benefits if legally allowed to capitalize on the shared liquidity concept.

For the sports wagering market, this approach would mitigate risk for all parties involved.

However, until the Wire Act is scuttled entirely, such is not possible in the sports betting industry. For now, shared liquidity is a benefit that casino players, poker players, horseplayers, and lottery players enjoy, while fans of legal sports betting are left high and dry.

News tags: DOJ | Interstate Horse Racing Act | Judge Paul Barbadoro | New Hampshire | Seth Palansky | Wire Act | WSOP