Newsletter Signup
Stay informed with the NEW Casino City Times newsletter!
Articles in this Series
|
The Law of Internet Gambling (Page 1)
28 October 1999
By I. Nelson Rose
Gambling and the Law
The Law of Internet Gambling
I. Gambling online.
A. Individuals may make wagers from any computer with a modem.
1. Greatest concern are the use of a personal computer ("PC")
from home or
office.
a. Can the operator be trusted?
(2) Is the financial transaction
secure?
(3) Has the operator connections with organized
crime?
b. Gambling creates dangers for society. Can the law
--
(1) Minimize lost work and school
time?
(2) Protect players from themselves,
especially
(b) Minors? Mark Griffiths, Adolescent Gambling
(1995).
(3) The Internet itself may be addicting, as are
video games. Engaging
gambling games compound the problem. Mark Griffiths, Presentation to
National Research Council (Sept. 1, 1998).
c. Are criminal laws being broken by the bettor?
Operator? Server?
Financier? Site developer?
d. Older, established gambling businesses, especially
the slower forms,
such as pari-mutuel wagering on races, have difficulty competing with
technologically advanced gaming machines.
(1) States have direct financial interests -- legal
gaming paid $16.8
billion in state taxes in 1996.
(2) The livelihood of hundreds of thousands of
workers depends upon
legal gaming.
(3) Does government have a legitimate role in keeping
alive obsolete
businesses? The gaming market is almost never a true free market, due to
artificial government barriers.
2. Most operators have sites on the World Wide Web and are
contacted by
dialing a server, such as America Online, using the PC's modem.
a. The best list is Rolling Good Times Online,
www.rgtonline.com.
b. Restrictions range from mere written warnings to "check
you local
laws" and "you must be over 18" to Finland's requiring players have a
local
bank account (besides being entirely in Finnish).
c. Some computerized wagering systems, such as YouBet!'s
arrangement with
Pennsylvania's tracks, avoid servers and the Web -- bettors' modems call
the
off-track betting operators' computer direct.
d. Other technology is being developed, such as
stand-alone Internet
terminals that accept cash. A Burger King restaurant in New York's
financial district installed 20 computers and a T1 line and is giving 20
minutes of time for a minimum purchase of $4.99 ($3.29 for breakfast).
Philip Greenberg, New "Combo" Meal: Dine and Surf, N.Y. Times (July 30,
1998) (emailed, no page available).
e. Even the PC can be eliminated: MonaCall allows
cybercasino gaming from
a touch-tone phone.
3. Gambling requires consideration, so only sites that accept
money wagers
are included in this discussion.
a. Internet gambling sites require players to deposit
"front money,"
i.e., payment in advance, by credit/debit card, wire transfer,
snail-mailed
check or money order, or Internet funds, like CyberCash.
b. Credit card transactions may take days: Operators
sometimes wait until
payments have cleared to prevent players canceling after
losing.
(1) Gambling debts are usually not legally
collectable; courts leave the
parties as they find them; if the transaction has cleared, players usually
cannot sue to get their money back, even if the gambling was
illegal.
(2) A player who lost $70,000 in 18 months online has
filed a counter-claim against Visa and MasterCard, alleging the bets were
illegal in California, and asking for an injunction. Providian National
Bank v.
Haines, Case No. V980858 (Superior Court, Marin County, California)
(Cross-complaint filed July 23, 1998) Courtney Macavinta, Net Gambler Sues
Credit Firms, CNET NEWS.COM, www.news.com/News/Item/ 0,4,24561,00.html
(July
24, 1998, 4 a.m. PT).
4. Some operators claim they are licensed by foreign
governments.
a. Smaller countries, often island nations in the
Caribbean and South
Pacific, have issued licenses, usually to Americans and other
foreigners.
(1) Government background checks of these gaming
operations are often
spotty or non-existent.
(a) Grenada sold an exclusive license to one
operator, Sports
I nternational, and allowed that operator to sell sub-licenses. It
appears
the government did not check license applicants'
backgrounds.
(b) However, Antigua uses the FBI, Interpol
and Scotland Yard for
background checks on all applicants.
(2) Government oversight of these gaming operations
are also often spotty or non-existent.
(a) Players have little guarantee that the games
are run honestly, they
will be paid if they win, or even that they can get their front money
returned.
(b) Again, there are exceptions. Antigua has set
up an anti-fraud division to investigate players' complaints, funded by
its annual fees of
$75,000 for sports betting and $100,000 for
cybercasinos.
b. Some operators claim that they are licensed by First
World Countries,
including the United Kingdom, Austria and states in Australia, to accept
bets over the Internet.
(1)In most cases the laws of these jurisdictions are
either silent or
would seem to prohibit such bets.
(2) However, some larger jurisdictions, including the
U.K., have allowed
their licensed operators to accept telephone wagers from the U.S. for
about
10 years.
c. Some governments run Internet games themselves: Online
lotteries are
owned by the Principality of Liechtenstein, Finland and the Coeur d'Alene
tribe in Idaho.
d. The operator's computer may be on American soil, even
if it claims to
be operating overseas under a foreign license.
5. Some operators do not even claim to be licensed.
1. Sports betting -- May still have the greatest dollar
volume, though
there are now more casino sites online.
a. Betting on professional and college sports events was
the first form
of Internet wagering; though, operators used their websites primarily to
advertise toll-free or 900 telephone numbers. Even today, more money is
bet
with licensed overseas sports books by phone than by
computer.
b. Players can bet ($11 to win $10) on real games against
the bookie, or
participate in fantasy sports leagues.
c. Sports betting is one of the most attractive forms of
at-home
g ambling.
(1) Bettors trust the results more than playing
against an unseen
computer and the outcome of wagers can be independently
verified.
(2) Most Americans live in a state with a state
lottery and casino
gaming is legal in 29 states and U.S. territories; but, legal sports
betting
is not readily available.
(3) Sports betting is already associated with at-home
gambling: placing
a bet by phone (although with an illegal bookie) and watching the game on
T.V. Sports betting, legal and illegal, began to boom with the
broadcasting
of Monday Night Football.
2. Casinos -- Blackjack, video poker and virtual three-reel
slot machines,
craps, roulette, baccarat, keno, pai gow poker and Caribbean Stud.
a. Software quality, especially speed, graphics and sound
quality, vary
widely.
(1) Many games are painfully slow, because of the
time needed to
d ownload illustrations like playing cards.
(2) Most sites allow front-loading, putting
images on the PC's hard
drive with a CD or by downloading before play begins. These games play as
fast and are nearly as entertaining as their counterparts played in a live
casino.
(3) Some sites allow chats, so players may have
social interactions with
other players.
(4) The best sites turn the PC screen into a virtual
duplicate of a casino video slot machine.
b. Minimum and maximum limits on wagers also vary widely.
Even with low
stakes, the fastest games can run through hundreds of dollars an
hour.
c. Remote live play is now possible -- a patent was issued
in 1998 for a
casino with video cameras connected to the Internet.
3. Casinos with "no purchase necessary" -- Dozens of sites
allow players
to obtain small number of chips for free.
a. Most play is with chips purchased by credit
cards.
b. But the free alternative means of entry may make the
games
n on-gambling "sweepstakes" under some state laws and maybe under federal
law. See, Fed. Communications Com'n. v. American Broadcasting Co., 347
U.S.
284 (1954).
4. Lotteries -- The largest operators are the Principality of
Liechtenstein and the Coeur d'Alene Indian tribe of Idaho.
a. Games vary from passive, once a week drawings to
instant tickets,
indistinguishable from slot machines.
b. Unlike traditional lotteries, many games do not have a
pooling of
players' funds to create the prize.
5. Bingo -- Often connected with an Indian bingo
hall.
a. True bingo -- at-home players play their cards online
with and for
money against other player online, or conceivably against other players
both
online and in real bingo halls.
b. Proxy play -- at-home players are represented by a
player or computer
acting as their agent in a live game played in a bingo
hall.
(1) Future play -- Players buy a card, which is then
played on their
behalf in a live game.
(2) Past play -- Players buy a card and watch a
bingo game on T.V.,
which was actually played hours before. A tribe obtained an injunction
allowing it to offer at-home proxy play of Megabingo, on the theory the
game
is being played on Indian land, as required by federal law, and the
televised game was not relevant, because players did not have to watch or
participate.
c. Free -- Like other games, bingo may be played with no
purchase
necessary, if the prize is put up by a sponsor, similar to a promotional
sweepstakes. In January, 1999 one site reported having 2,849 players
competing for a $700 jackpot. www.gamesville.com, reported at
w ww.rgtonline.com/gamespage/artlisting2.cfm/3069 (Feb. 18,
1999).
6. Off-Track Betting ("OTB") -- Players may bet on horse
races and dog
races.
a. OTB, in its broadest definition, is betting on a race
not taking place
where the bettor is. Simulcasting allows the bettor to see the distant
race
live.
b. OTB was the first legal gambling by wire. It
began with intrastate
intertrack wagers only when both tracks had races, then betting was
allowed
at fairgrounds and other tracks which were not having races, then
intertrack
interstate and finally stand-alone OTB parlors.
c. Live horse racing is slow, with 20 minutes between
races. Allowing
bettors to wager on races taking place at other tracks creates non-stop
betting action.
d. There is no reason for bettors to be physically
present; although,
they like to see the races on a screen.
e. Computers have been connected with handicapping races
for decades.
f. As with sports betting, the outcome of wagers can be
independently
verified.
7. Poker -- Players play against each other online, either for
play money,
AOL has a poker room, or for real money.
8. Day trading - at least one Internet gaming site
( http://www.Bestbetsports.com) is making book on the Dow Jones average.
Daniel Schiffman, New York Roundup in The Gaming Lawyer submitted August
13,
1999 (to be published). the Seventh Circuit ruled on August 10 that
transportation and utility stock average futures are permissible
"investments," as are disguised bets on the Dow. Id. [get cite]
1. 282 sites were listed on Rolling Good Times on February 13,
1999, as
accepting real-money wagers. However, this includes dozens which may
appear
to be independent, but may actually be operated by a single company or its
affiliates. See, Bigham's Viewpoint, "Internet Clogging Up With Casinos,"
at www.wheretobet.com/index.html (April 22, 1998). Many of these are
"no
purchase necessary" casinos.
2. The figure most frequently heard is $10 billion a year in
revenue for
online gaming by shortly after the turn of the century.
a. The number comes from two sources:
(1) Frank Feather, futurist, 1996 World Gaming Congress
& Expo keynote
speech, predicted that alternative delivery methods like the Internet
could
reach 20% of the industry's $50 billion North American revenue within ten
years.
(2) Jason Ader, a senior gaming analyst with Smith
Barney, May 1995,
quoted by the Chicago Tribune as estimating at-home wagering could become
a
$10 billion industry.
b. To generate $10 billion in revenue would require that
$100 billion be
wagered each year.
c. Although the rate is constantly increasing, the current
volume of
gambling on the Internet appears to be in the range of less than $2
billion,
generating revenue of no more than $200 million. I derived this estimate
from the little public information available from Internet
operators.
(1) Although growing exponentially, commerce on the
Internet as a whole
is still not very large, yet, compared to traditional
markets.
(a) Online sales to Americans of all products and
services first topped
$1 billion in 1997. Newsweek (Jan. 12, 1998). The Home Shopping Network,
a
comparable media, passed the $1 billion mark in phone-in orders two years
earlier.
(b)The Los Angeles Times reported Internet sales
rose from $2.4
b illion in 1997 to $8 billion in 1998. L.A. Times at C11 (Feb. 16,
1999).
But, it is unclear whether this represents worldwide sales, or only the
U.S.
(c) Even if the $8 billion is U.S. only, it is "less
than 1% of the
country's total retail sales. Id.
(2) eLottery, Inc., f.k.a. UniStar Entertainment (being
spun off from
Executone Information Systems Inc.), spent millions developing the Coeur
d'Alene's US Lottery. On April 28, 1998, this Internet game had a
registered customer base of about 22,000, with about 4,200 active players.
Actual ticket purchases equaled approximately $600,000 during the third
quarter of 1997. By comparison, the Home Shopping Network had 4.6 million
active customers.
(3) In confidential conversations I had with
international lottery
executives in June 1997, I was told the biggest online lottery,
Liechtenstein's InterLotto, has sales of approximately $50 million per
year.
This is consistent with published statements.
(4) Sports International, now called Interactive Gaming
& Communications
Corp., is publicly traded and thus, one of the few companies that has to
disclose its finances. The handle for 1996, the amount wagered by all
customers, totaled $58,482,731. 10-K, filed Ap. 4, 1997 with the S.E.C.
Revenues from net wins totaled $2,752,252. Because its costs are so
great,
especially its phone bills, the company actually lost money in 1996. By
comparison, $2,428,600,000 was bet with licensed sports books in Nevada in
1 995.
(5) When the federal government filed its first
prosecutions of Internet
sports betting, the U.S. Attorneys estimated that "on-line sports betting
had garnered $600 million in gross revenues last year, up from about $60
million in 1996." "14 Are Charged With Taking Sports Bets Over the
Internet," N.Y. Times at A1 (Mar. 5, 1998). The definition of "gross
revenues" is unclear.
3. Problems -- Internet gaming is relatively small and likely to
stay that
way for at least the next few years.
a. Technology -- The Internet does not meet the Americans'
high
e xpectations of what modern technology is supposed to deliver, based on
their experiences with telephones, televisions, radios, microwave ovens,
etc.: easy to use, reliable, instantaneous, high quality sound and
graphics.
b. Accessing the Internet currently requires a player to
expend large
amounts of money and time on computer hardware and learning how to use the
accompanying software.
c. Playing games, especially downloading images, is a
slow, almost
painful, process, with constant computer crashes.
d. Players do not trust revealing their credit card numbers
on the
Internet, let alone giving the numbers to some unknown gaming operator in
a
foreign country.
e. Bettors do not know if operators, or they themselves are
breaking the
law.
f. Players have no way of knowing if they are being cheated.
Rolling
Good Times Online has a "Dog Doo Awareness" section listing, at the time
of
this writing, four sites it has investigated, and found wanting, as well
as
a dozen more reported in players' uninvestigated complaints. Claimed
cheating includes:
(1) Operators not paying off when players win. Thompson
v. Handa-Lopez,
Inc., 998 F.Supp. 738 (W.D.Tex. 1998) (suit alleges Internet site refused
to
pay $193,728.40).
(2) Operators refusing to return players' front
money.
(3) Games programed with unfair in favor of the
operator, that do not
match regulated live casinos, slots and lotteries. A separate issue is
whether the free games most sites supply have odds that favor players,
raising expectations that are dashed when the same type of games is played
for money.
(4) Operators disappearing with investors' money.
D. What type of gambling is it?
1. History -- Over the centuries, governments came to realize
that
different forms of wagering required different controls. Until recently,
the primitive state of technology made this rather easy.
< P> a. Casino games are the most dangerous. The games are fast
and the
stakes can be high. Even without the extension of easy credit, players
can
destroy their financial lives. So, states and countries almost always
completely banned casino games; although, there were sometimes exceptions
for remote spas, open only to foreigners.
b. Wagering on sports events and horse races was not a
widespread social
problem when bettors had to be physically present at the event. The
invention of the pari-mutuel machine, telephone & telegraph led to the
creation of "pool rooms" in the hearts of cities, and the need for
off-track
and phone betting to be outlawed.
c. Lotteries depend on large numbers of customers and can
raise large
amounts of money, so governments either licensed or ran the games. The
games took weeks before enough tickets were sold to have a drawing.
Bettors
had to have paper tickets to know whether their numbers had been
drawn.
2. Jurisdictions are free to define gambling terms as they
wish. For
example, courts have defined "lottery" as:
a. A "widespread pestilence," meaning available throughout
a society, and
thus much more dangerous than casino games. Stone v. Mississippi, 101
U.S.
814 (1880) (roulette is not a lottery).
b. A gambling game of pure chance. Harris v. Missouri
Gaming Com'n., 869
S.W.2d 58 (Mo. 1994) (roulette, among other casino games lacking skill, is
a
lottery); Boasberg v. U.S., 60 F.2d 185 (5th Cir. 1932) (bookmaking not
within federal anti-lottery statutes).
c. A gambling game where players need not be present to win;
player
participation does not affect the results. Ex parte Pierotti, 42 Nev.
243,
184 P.209 (1909) (slot machines are lotteries).
d. A game where the prize is formed by pooling players' bets
and not
banking games. Western Telcon, Inc. v. California State Lottery, 13
Cal.4th
375, 53 Cal.Rptr.2d 812, 917 P.2d. 651 (June 24, 1996) (keno is not a
lottery).
e. Schemes, which people of today would recognize as being
lotteries, and
not gambling games. Knight v. State ex rel. Moore, 574 So.2d 662 (Miss.
1990) (bingo is not a lottery).
f. "Any game, scheme or plan compromising prize, chance and
c onsideration," meaning "lottery" is synonymous with "gambling." Kayden
Industries, Inc. v. Murphy, 34 Wis.2d 718, 150 N.W.2d 447 (1967). A
federal
court ruled that Indian tribes in Wisconsin could operate casinos, because
the state was operating a state lottery. Lac du Flambeau Band of Lake
Superior Chippewa Indians v. State, 770 F.Supp. 480, appeal dismissed for
lack of jurisdiction, 975 F.2d 515 (7th 1992).
3. Courts are having to decide, for purposes either of
legalizing or
prohibiting, whether statutes dealing with one form of gambling, say
"lotteries," apply to more recently invented forms, say blackjack played
on
a video screen. E.g., West Virginia v. Mountaineer Park, Inc., 190 W.Va.
276, 438 S.E.2d 308 (1993).
Continue to Page 2

Professor I. Nelson Rose is an internationally known scholar, public speaker and writer and is recognized as one of the world's leading authorities on gambling law. A 1979 graduate of Harvard Law School, he is a tenured full Professor at Whittier Law School in Costa Mesa, California, where he teaches one of the first law school classes on gaming law. Professor Rose is the author of more than 300 books, articles, book chapters columns. He is best known for his internationally syndicated column, "Gambling and the Law ®," and his landmark 1986 book by the same name. His most recent book is a collection of columns and analysis, co-authored with Bob Loeb, on Blackjack and the Law. A consultant to governments and industry, Professor Rose has testified as an expert witness in administrative, civil and criminal cases in the U.S., Australia and New Zealand, and has acted as a consultant to major law firms, international corporations, licensed casinos, players, Indian tribes, and local, state and national governments, including Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas and the federal governments of Canada and the United States. With the rising interest in gambling throughout the world, Professor Rose has spoken before such diverse groups as the F.B.I., National Conference of State Legislatures, Congress of State Lotteries of Europe, United States Conference of Mayors, and the National Academy of Sciences. He has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic. He is the author of Internet Gaming Law (1st & 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials.
I. Nelson Rose Websites:
www.gamblingandthelaw.com
Books by I. Nelson Rose:
Gambling and the Law
> More Books By I. Nelson Rose
|
Professor I. Nelson Rose is an internationally known scholar, public speaker and writer and is recognized as one of the world's leading authorities on gambling law. A 1979 graduate of Harvard Law School, he is a tenured full Professor at Whittier Law School in Costa Mesa, California, where he teaches one of the first law school classes on gaming law. Professor Rose is the author of more than 300 books, articles, book chapters columns. He is best known for his internationally syndicated column, "Gambling and the Law ®," and his landmark 1986 book by the same name. His most recent book is a collection of columns and analysis, co-authored with Bob Loeb, on Blackjack and the Law. A consultant to governments and industry, Professor Rose has testified as an expert witness in administrative, civil and criminal cases in the U.S., Australia and New Zealand, and has acted as a consultant to major law firms, international corporations, licensed casinos, players, Indian tribes, and local, state and national governments, including Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas and the federal governments of Canada and the United States. With the rising interest in gambling throughout the world, Professor Rose has spoken before such diverse groups as the F.B.I., National Conference of State Legislatures, Congress of State Lotteries of Europe, United States Conference of Mayors, and the National Academy of Sciences. He has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic. He is the author of Internet Gaming Law (1st & 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials.
I. Nelson Rose Websites:
www.gamblingandthelaw.com
Books by I. Nelson Rose:
Gambling and the Law
> More Books By I. Nelson Rose
|