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Why the Law Is Having So Much Trouble with Internet Gambling

1 March 1999

Technological developments wreak havoc with the law.

Law students are taught that the first step in analyzing any problem is to figure out which legal pigeonhole is involved. In fact, students often complain that law school exams are a game of "spot the issue."

Experienced lawyers understand that knowing the legal issue leads to knowing which rule of law to apply. The process is called IRAC, for Issue, Rule, Analysis and Conclusion.

But, with new inventions, like the Internet, the old categories no longer apply. For example, is playing blackjack on the Internet, without cards, chips, a table or even a human dealer, blackjack at all? Is it even casino gaming?

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.

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.

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 and 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.

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 or even months before enough tickets were sold to have a drawing. Bettors had to have paper tickets to know whether their numbers had been drawn. Laws were passed making it illegal for anyone, except the government, to sell lottery tickets.

Casino gaming, pari-mutuel wagering and lotteries thus have different histories and are subject to different laws. But what happens when technology begins to break down those distinctions? What about that Internet blackjack game?

On the surface it appears to be a casino game. But there is no casino.

Machines are clearly involved. Under many anti-gaming laws, the game could be considered a slot machine.

Since a telephone line is used, linking players' personal computers to operators' computers in foreign countries, the wagers may fall under the anti-bookmaking statutes.

Winners are determined by the host computer's random number generator -- just like a lottery. Players do not have to be physically present to play -- just like a lottery. And players are not really playing a card game, but only choosing numbers -- just like a lottery.

So, is an Internet blackjack game a lottery? Does it make any difference that State Lotteries are offering a similar game, only played on paper?

A popular instant lottery sold by many State Lotteries is a scratch-off blackjack game. Little boxes on the ticket represent the cards. Players rub off coverings over the "dealer's" "cards" to find out what number they have to beat. They then rub off the coverings over their own "cards" to see if they get closer to 21, or go bust.

Some State Lotteries can legally operate "Video Lottery Terminals (VLTs)." When a State Lottery offers this same blackjack game on its VLTs, with "cards" being chosen by a central computer, is it still a lottery?

The very few courts that have looked at this question have decided that playing a game on a video monitor is not a lottery. The State Lotteries that run VLTs usually are allowed to do so because specific statutory or constitutional provisions have been adopted permitting these devices.

So Internet gambling may not be a lottery.

Other statutes, enacted before there were even computers, let alone the Internet, may require that a gaming device actually take or deliver cash before it is declared a slot machine. So Internet gambling may not be a slot machine.

Anti-bookmaking laws often include language about contests of speed or skill. So Internet gambling may not be bookmaking.

On the other hand, some gambling laws have declared that games played for money, where players are not physically present, are lotteries.

Devices without slots for money or coin drops have been ruled to be slot machines. And the most important federal anti-bookmaking statute, the Interstate Wire Act, prohibits all wagers, not just those on sporting events and horse races -- or does it?

The Wire Act makes it a crime for anyone "engaged in the business of betting or wagering" to transmit "bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest." Does that mean you cannot transmit any bet, or only a sports bet?

Although some individuals have been arrested for taking non-sports bets over the phone, none of these cases have resulted in a published conviction. So far, the only reported cases of operators paying fines or serving time for using an interstate or international wire to take bets have been for wagers on sports events or races.

Before the Internet, interstate operators were clearly either bookmakers or running lotteries. Now they may be both -- or neither.

Why the Law Is Having So Much Trouble with Internet Gambling is republished from iGamingNews.com.
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:

> More Books By I. Nelson Rose

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:

> More Books By I. Nelson Rose