A news story in The Record reports there is a difference of opinion regarding the legality of exchange wagering in the United States. New Jersey State Senator Ray Lesniak, a supporter of horse racing, points out that the Professional and Amateur Sports Protection Act (PASPA) of 1992 allows for gambling nationwide only for lotteries and for "pari-mutuel animal racing or jai lai". Of course, the racing industry claims for the purposes of PASPA, exchange wagering is considered parimutuel racing; as gamblers are betting against each other versus other forms of gambling where people wager against the house.
So the question needs to be asked what is parimutuel wagering? According to Wikipedia, "Parimutuel betting differs from fixed-odds betting in that the final payout is not determined until the pool is closed – in fixed odds betting, the payout is agreed at the time the bet is sold". Under this definition, it would certainly appear that exchange wagering would be in violation of PASPA under as strict interpretation.
One would like to think it is just another case where the law has not kept up with technology. Certainly the intent of PASPA was to allow for the continuation of horse racing, greyhound racing, and jai lai, but exchange wagering was not on the radar back then. Unfortunately, this deficiency in the law will likely give anti-gambling forces a weapon to delay the implementation of exchange wagering. I say delay and not kill exchange wagering because I believe eventually the courts will interpret the intent of the law was to permit legalized wagering on horse racing and for the purpose of PASPA, exchange wagering is permitted, but it may take a few years to work its way through the courts to be resolved.
While Senator Lesniak has a suit to have PASPA overturned as being unconstitutional with respect to sports wagering, New Jersey and California (scheduled for exchange wagering in May 2012) horse racing interests would be wise to contact their U.S. Senators and Representatives to get an amendment to PASPA passed to avoid the potential of a lengthy roadblock and the slight possibility that courts may declare exchange wagering illegal.
Racing can't afford to be reactive with regards to exchange wagering. It is a question of survival.