Gambling and the Law®:
Is This Rule Really Necessary?
When hotel-casinos first opened in Atlantic City, operators found themselves wrapped up in red tape.
Every time they filed a petition with the New Jersey Casino Control Commission, they had to deliver 17 separate copies.
This was before email, so some poor secretaries had to physically photocopy, collate and staple 17 separate packets,
plus a few more for the companies’ executives and lawyers.
And hotel-casinos had to file lots of petitions. Everything was regulated. Restaurants
had to get permission from the NJCCC if they wanted to move kitchen equipment. Casinos all had to use the
same color felt on their gaming tables. Advertisements had to be pre-approved, and could not mention certain
information, like the payout odds on slot machines.
Somebody finally asked
the regulators what they did with those 17 separate copies. The NJCCC looked into it, and admitted that
they did not know where they all went. So the 17 copies rule was dropped.
The problems created by over-regulation can be a lot worse than tons of wasted paper and unnecessary photocopying costs.
The pre-censorship of casino advertising infringed on important first amendment rights for both the operators and patrons.
Players, for example, might have found it useful to know which casinos offered the best odds.
The NJCCC was not anti-gambling, except to the extent they thought they were supposed to be. New
Jersey was only the second state in the U.S. to legalize casinos. Legislators had visited Nevada and made
it clear that they did not like what they saw.
The rule against advertising
game odds was in response to billboards in Las Vegas shouting "Loosest slots!", which the New Jerseyans found distasteful.
Kitchens had to be measured because the casino enabling statute had requirements on the square footage for gaming and
non-gaming areas. Table felts were all the same color, as were gaming chips, so that regulators would have
no trouble reviewing eye-in-the-sky security videotapes.
scientists have discovered what can be considered universal truths about regulatory agencies. Regulators
tend to start out overly-strict, although they eventually become overly-friendly with the industries they control.
Government bureaucracies continue to grow, even when the businesses they are regulating are shrinking.
And a rule, once put down on paper, lasts until ... well, forever.
Probably the most important, and overlooked, characteristic of all regulatory agencies is that they gain lives of their
own, sometimes completely separated from the real world. Rules are applied simply because they have always
been applied. Businesses continued to be restricted not only when those restrictions are no longer needed,
but even when the regulations directly hurt the very people they are supposed to protect.
One of the first things that gets lost is the reason behind the rules.
When casinos were first legalized in New Jersey, for example, there was a great fear that all that new money would
create conflicts of interest for elected and appointed officials. Casinos were brought in to revitalize
Atlantic City. A Casino Reinvestment Development Authority was created in 1984 to make sure the money went
into projects like housing. Strict rules were put in place to ensure casinos would not influence where
the money was spent.
This led in 1986 to the Chairman of the
CRDA having to resign, because his adult daughter, a casino cashier, moved back into his house.
It’s easy, in this case, to see that a government agency was not going to direct hundreds of millions of dollars
into, say, building a parking structure for a casino, simply because the Chairman’s daughter worked in that casino.
But how would you write a rule that allows a young daughter who is a casino cashier to live in his home, but not an
older son who is a casino president? Unless you are willing to spend enormous amounts of time and money
holding hearings on each individual case, the rules have to be written in black and white, with bright red lines telling people
what they can and cannot do.
We could also say, “That’s
so 1980s.” But listen to this complaint from Steve Wynn, while he was being vetted by the Massachusetts
investigator who gets paid by the hour and can decide how many hours he should charge, called up one of my outside directors,
the chairman of Occidental Petroleum, and insisted that he supply him immediately with proof of his ownership of his car.
Please. What was he looking for, the Mafia?
Wynn, is, of course, right. These are billion-dollar companies, and a car is not going to determine
suitability. But refusal to comply with even an unreasonable demand can lead to a casino license being
The problem here seems to be that disconnect between the reason for the rule and the rule itself. Yes,
the best way to regulate any legal gambling operation is to investigate the background of everyone involved in management
or ownership, and to track every dollar in and out of the business. But why are we regulating?
Why aren’t there the same types of government oversight on used car dealers or street vendors?
There really was Mafia infiltration of casinos during the 1940s and ‘50s. The business is
still, primarily, conducted with untraceable cash and gaming chips, with few paper records. There is not
only the potential for skimming, but also for cheating.
is there the same need today to re-investigate publicly-traded corporations that have been licensed in a dozen jurisdictions
as there was when the insiders had names like Bugsy and his girlfriend, the Flamingo?
The industry trade group, the American Gaming Association, has been trying for years to get regulators to curb their
enthusiasm. The first head of the AGA was Frank Fahrenkopf, Jr., former chairman of the Republican National
Committee. So it knew that it could not just come right out and say, “That’s a stupid rule.”
Instead, it commissioned leading gaming attorney, David O. Stewart, to write a number of white papers, with titles
like “Improving Gaming Regulation: 10 Recommendations for Streamlining Processes While Maintaining Integrity.”
The A.G.A. and other professional groups, such as the International Association of Gaming Regulators and the International
Association of Gaming Advisors, have succeeded in streamlining regulation. They have been able to get many
jurisdictions to adopt a “Multi-jurisdictional Personal History Disclosure Form.” If the point
is to ensure that casinos are owned and run by people who are honest and competent, the questions should be the same, regardless
of which state is issuing the license.
The A.G.A.’s recommendations seem
small, but they could have a big impact. Wynn would never have had reason to complain, if outside directors
were only registered, not licensed. Companies would save millions of dollars if they did not have to file
reports, sometimes every three months, containing information that is easily available to regulators from other sources.
And, is there any reason why waiters and waitresses have to undergo background checks?
Perhaps we never will, or even should, reach a point where running a casino is like running any other business.
But every government regulation should start with the question, “Is this rule really necessary?”
Social Casino Games
Should social casino
games be regulated?
is one of the hottest issues in Europe and Australia. Licensed land-based and Internet casino companies
are spending hundred of millions of dollars to get into this business. Which means that lawmakers in the
U.S. are also going to start looking into these games.
I don’t expect the result will be pretty. Legislators have trouble figuring out how to regulate
real gambling – does anybody today think it was a good idea to require Mississippi’s casinos to be floating without
engines or crews in the Gulf of Mexico’s hurricane alley?
And very few people understand the difference between gambling and social games. Or, that different
forms of gaming create different risks.
In the U.S., gambling requires the presence of three elements: consideration, chance and prize. Players
bet on the outcome of an uncertain event to win a larger amount.
Social games are not gambling, if they eliminate one of the three elements.
If anyone can play a game for free, it
does not matter if the outcome is determined more by luck than skill, and valuable prizes may be won. No-purchase-necessary
sweepstakes have been common since at least 1954, when the U.S. Supreme Court ruled that the T.V. gameshow “Name That
Tune” was not a lottery, even though contestants at home could enter by sending in a postcard.
Contests of skill can charge contestants
money – the smarter operators call the payments “entry fees” than “wagers,” to compete for valuable
Atari introduced millions
of people to the idea of electronic video games. Players pay money to play. Even if
the game is predominantly chance, not skill, the game is not gambling, if players cannot win anything of value.
So, how do social games make money, if
they are not gambling?
a game free for anyone to enter does not mean that contestants are prohibited from spending money. Sweepstakes
work because people do buy the product being promoted, perhaps thinking that subscribing to a magazine increases their chances
of winning. Charities run “donation requested” raffles, knowing social pressure and guilt feelings
make most individuals send in money, even though not required.
Subscription games, like “free” poker for money prizes, are profitable because most players prefer their
credit cards being billed about $20 every month, rather than having to fill out and mail postcards for free entries.
Most social games with a free alternative
means of entry (“FAME”) give players opportunities to play (I’ll call these “chips” for convenience)
when they sign up, and more every hour or every day. Operators sell additional chips for real money, but
nobody is required to buy them. Sites make their profits from players who have lost everything and do not
have the patience to wait for additional free chips.
Because there is no consideration, a casino game with a FAME is not gambling. However, some old
cases involving pinball games from the 1930s and ‘40s indicate that these social games actually would be considered
gambling in about a half-dozen states.
Social games where players compete against each other are not gambling, if the outcome is determined primarily by skill.
States sometimes have special rules, for example, that the prize cannot be composed of the entry fees.
There are about ten states that put restrictions
on contests of skill, such as requiring 100% of the players’ money to go to the winner, or limiting the maximum amount
that can be won. Interestingly, if you look at the skill contests for real money sites, you’ll find
that there is no general agreement as to exactly which states should be avoided.
The most common way for social games to get around the prohibitions on gambling is by not offering valuable prizes.
Then why would anyone play? Jurisdictions can differ widely on exactly what constitutes a “prize.”
The easiest case is where the winner can win real cash, or an item that can be quickly sold for cash. The
F.B.I. raided Second Life because there were casinos which used the site’s “linden dollars.”
Because the linden dollars could be transferred to other players, a secondary market developed where this play currency
could be converted into real money.
Social games have discovered that some players will spend a lot of real money to get avatars and virtual gifts that
cannot be sold. Opponents have argued that these games do have all three elements, since the prizes are
of value to the players. But only a few jurisdictions would agree that a non-material item is a “prize
of value” if it cannot be sold.
Social gaming is obviously very big. And very volatile. Zynga, the leading company,
was valued at one point at $9 billion. In June, it announced it was laying off 18% of its workforce and
closing its New York, Dallas and even Los Angeles offices.
Meanwhile, Caesars Entertainment paid about $90 million for an Israeli company that was losing money, but had a top-rated
social game. Playtika’s Slotomania is still one of the most popular social games.
A controversy has exploded mainly because
it is casino and other real-money gambling companies that are getting into the social gaming field.
During the recent 15th International
Conference on Gambling and Risk Taking in Las Vegas, I agreed to act as one of the trial lawyers for a moot court on whether
social gaming should be regulated. The mock trial was extremely lively and entertaining. But
it did have a serious side, and raised these issues:
games are not always social. There is a big difference between contests in which players interact and play
against each other, and games in which the patron is one against the house. Lawmakers have long recognized
that banking games are more dangerous than non-banking games. We regulate blackjack, craps and roulette
more strictly than poker and bingo. A FAME slot game on an iPad is closer to a real slot machine than it
is to Angry Birds®.
Social casino games may be inherently
misleading. Because the games are not regulated, they are free to set the odds at any level they want.
In fact, they are almost never truly random. Game manufacturers don’t want players to get
bored, so they make the game easier if a player is stuck at one level, or harder if the player is winning too handily.
This Dynamic Game Balancing (“DGB”) is done automatically, because game designers want players to be hooked.
Obviously, with real gambling, operators can’t change the odds mid-game. And casinos do not
brag about a game being “addictive.”
are not regulated, social casino games are available to children and potential compulsive gamblers. No
one should care, if the games are harmless. But, are they? Should an online or land-based
real-money casino be allowed to offer games indistinguishable from slot machines, with no restrictions? If
a child is playing a social casino game that is set for 120%, will he realize the difference when he plays a real slot machine
set at 95%? If an adult is playing a social casino game with DGM and spending money on additional chips,
will she realize the reason she is losing is that the game automatically set longer odds when she had a winning streak?
There may already be some regulation
of these games, at least where it appears they are misleading consumers. But the real fights are about
to begin, in Australia, England and even the U.S., over whether licensed gambling companies can operate unregulated social
My bet is that, unless
there is a major change in self-regulation, government is going to step in. Gambling operators should start
with eliminating DGM and setting the odds on games that look like slot machines so that they are the same as real slot machines.
Sense and Nonsense from Congress
“Congress is so strange. A man gets up to speak and says nothing.
Nobody listens—and then everybody disagrees.”
It's generally known
that Congress is about as popular today as cockroaches.
That is actually unfair to cockroaches. In a head to head survey conducted by Public Policy Polling,
cockroaches had a more favorable rating than Congress. And that was in January 2013.
June, a different polling organization, Gallup, found congressional approval had gone down even further, to a historic low
of 10 percent. This is not only the worst rating ever for the legislative branch of the federal government,
it is the lowest approval rating for any institution of any kind since Gallup first started taking surveys of the public approval
of Congress 40 year ago.
And this was before the Republicans in Congress shut down the federal government and brought the U.S. to the brink
of defaulting on its national debt.
It's not just the misuse by the GOP of the filibuster in the Senate or the repeated attempts at economic extortion
by the Tea Party crackpots in the House of Representatives. On the few days that Congress actually meets
to work in D.C., the politicians seem to have no connection with the real world. The Republicans in the
House orchestrate televised “investigations,” on burning non-issues, like Benghazi, or hold hearings on abortion
and women’s health with no women testifying.
The most recent example was a hearing on Internet gambling, with only opponents, and one guy who wants to sell something,
Worse, the few members of Congress who actually showed up for this hearing on online gaming seemed to not know what
they were talking about.
The new Democratic U.S. Senator from Hawaii, Brian Schatz, might be forgiven for his comments. He
was only appointed to Congress at the end of December and is the second youngest member of the Senate. But
somebody, like an aide or a senior Senator, should have told him that, no, the federal government is not going to overrule
Hawaii’s complete prohibition on commercial gambling. It is impossible to imagine Congress imposing
the same policies toward gaming on Nevada and Utah, or Hawaii.
But the Republican U.S. Senator from Nevada, Dean Heller, has no excuse. He is the ranking member
of the committee hearing the testimony. And coming from Nevada, he had to know that the main point he kept
reiterating was simply wrong. Many of the members of Congress, but especially Heller, repeatedly blamed
President Obama’s Department of Justice for “unilaterally” overturning decades of established law.
law in question is the federal Wire Act. And the position that got overturned was that of the Department
of Justice’s Criminal Division, which used to hold that the Wire Act covered all forms of gambling. Heller
is not a lawyer, but had he bothered to ask one, he would have been told that the DOJ’s position had been criticized
for years, and had been rejected by federal courts, including the only U.S. Courts of Appeals to consider the issue.
Even the DOJ does not have the right to reject published opinions from these Courts, second only to the U.S. Supreme
Court in their power to interpret federal law.
Missouri Senator Claire McCaskill (D.-Mo.) started things off by declaring that Congress was concerned that online
gaming was being used by “terrorists looking to launder money to fund their activities.” This
is known as a canard, defined as “a false or unfounded report or story; especially: a fabricated report; a groundless
rumor or belief.” There is no evidence that Islamist fundamentalists are sitting around plotting
how to blow up airplanes, while they play Texas Hold ‘em.
The hearing was by the Senate Subcommittee on Consumer Protection, Product Safety, and Insurance. You
knew how things would turn out when you read the title of the hearing: “The Expansion of Internet Gambling: Assessing
Consumer Protection Concerns.” If that weren’t enough, here’s who they chose as witnesses:
Chuck Canterbury, National President of the Fraternal Order of Police. The highlight of his testimony:
“We know this for certain, organized crime is using offshore online operations to launder their profits.”
Really? Is that offshore online gaming operations? Name
! Matt Smith, President of Catholic
Advocate, who accused “large states” of lobbying to get the DOJ to change its position on the Wire Act.
Assuming a lobbyist for a state could do that and not go to prison, exactly which states are those? California?
Texas? Florida? He wants the federal government to overrule the states and crackdown
on legal gambling. He’s only about 60 years too late, since every state except Hawaii and Utah have
large-scale commercial casinos, tracks or lotteries; or all three.
Jack Blum, a lawyer specializing in money laundering cases, began his testimony with, “Personally, I think gambling
is dumb and I learned early on that the house always wins.” I have always loved that canard.
If the house always wins, why are there repeat customers?
Thomas Grissen, whose company makes bio-identification for online applications. Grissen started
by saying he is neutral on online gaming.
So, what new facts did the Subcommittee discover from these experts? I bet you did not know that
not just terrorists, but drug dealers, pornographers and human traffickers “could be” using Internet gambling
to launder money. Exactly how are all these terrible human beings utilizing online gaming?
Blum, the money-laundering expert, explained how Al Capone and Meyer Lansky bought casinos and race tracks to launder
their money. It’s always good to throw in organized crime, when you want to scare people.
I’ve always wondered why criminals need to use gambling to finance their other crimes. Doesn’t
dealing in illegal drugs and prostitution produce enough money?
Meanwhile, members of Congress from states with legal gambling and those without, conservative Republicans and liberal
Democrats, U.S. Senators and Representatives who know the law and those who don’t – all have plans for Internet
poker. They all want it done their own way.
This would cause a political problem, if there were any chance Congress might actually pass a law dealing with online
gaming. But since our federal lawmakers have literally not passed any new substantive law since the Republicans
took over the House in January 2011, that’s not likely.
Congress has passed some bills: naming post offices, appointing people to commissions, while fighting over money.
Democrats, with the help of a handful of Republicans, have managed to overcome Tea Party resistance and approve extending
the Federal Aviation Administration and renew the Violence Against Women Act. But, except for amending
the patent laws, no new substantive proposal has gotten through both houses to be signed by the president.
there is virtually no chance that the only new substantive law would be a bill legalizing Internet poker, or outlawing it.
states, including governors, state legislators, and state lotteries, have woken up and are actively lobbying Congress to keep
its hands off legal gaming. The argument that the states can’t handle Internet gaming falls in the
face of a century of states-only regulation of alcoholic beverages and gambling. And the idea, advanced
again at this hearing, that a completely new federal gaming commission would do better than state regulatory agencies with
decades of experience, is just plain silly.
The good news is that all this nonsense is only a waste of time. It won’t produce an actual
new federal statute.
This may be the only time that it is actually good for the country that Congress never passes any new laws.
Cuba Needs Casinos
“I crapped out”
Meyer Lansky, quoted in T.J. English’s Havana
Nocturne: How the Mob Owned Cuba...and Then Lost It to the Revolution
Fidel Castro is gone.
He may not be dead.
But on a recent trip to Cuba, I was told by both American and Cuban experts that he is beyond retired.
His image may be everywhere, but he no longer has a living influence. Fidel has become to Cuba what
Mao is to China.
His younger brother, Raul,
is still alive, but is 83 years old. He has called for term limits, including his own. He
will not run for reelection as President in 2018.
taking over from Fidel in 2007, Raul started introducing reforms. He had to.
Cuba is a country where nuclear physicists drive taxis, because they can make more than their $40 per month government
salaries. Under Fidel, Cubans could not buy or sell cars or homes, so they arranged phony marriages.
The property could then be transferred through a divorce.
Still today, everyone owns their own apartments, but literally nobody owns the apartment buildings; so, there is no
one to fix leaking roofs.
Since there are no
opportunities, young adults flee the country. Many are willing to risk their lives on Styrofoam rafts to
try to get to America.
Change is coming to
Cuba. The big questions are whether it will be slow or fast, peaceful or violent.
The old men who have led Cuba for the last 55 years – there have been 11 U.S. Presidents since Fidel took over
– are survivors. They know how to hang on to power. If a charismatic leader arose
who might one day challenge the Castro brothers, he was sent to work in the sugar fields. So, there is
no caudillo (strong man) to lead a second revolution.
But the old men also have to keep the disappointment and anger of the general population under control.
They are understandably scared by what they saw happen to dictators during the “Arab Spring.”
On January 14, 2013, the government began allowing most Cubans to leave the country, without having to get approval,
pay $400 for a visa or forfeiting their right to return. This may turn out to be like the fall of the Berlin
Wall. Average citizens visiting countries with more than four state-controlled television channels, let
alone access to the Internet, will be more frustrated upon their return, with their lack of just about everything.
The U.S. embargo, and the failures of communism, locked Cuba into 1959. Even the cars and buildings
are the same. And this may provide the solution to Cuba’s problems.
Classic 1950's Fords and Chevys are everywhere. Imagine the reaction of a guy making $20 a month,
after trade reopens with the U.S.: “I won’t give you more than $40,000 for your car.”
Cuba’s 1950's hotels are also still standing. More importantly, so are its casinos.
Although now dark and empty, nothing else has changed; even the chandeliers are the same. You swear
you hear the ghost whispering of long-gone slot machines and crap tables, when you walk around the Riviera casino.
Many of the bars and nightclubs are still open. The largest showroom of them all, the Tropicana
with its multi-level, outdoor stage, sells out every night. The extravaganza features statuesque showgirls
with feathered headdresses and sexy dancing, or at least what would have been considered sexy in 1959.
Fidel, through his hand-picked provisional president, Manuel Urrutia, closed the casinos immediately after seizing
power, just as he canceled the national lottery. But the thousands of Cubans thrown out of work took to
the streets in protest. Castro’s own economic advisors told him that the country’s economy
would collapse unless the casinos were reopened.
proved to be right, but too late. Castro relented, for a while. But tourists, especially
Americans, stayed away in droves. The casinos were closed for good; and the economy did collapse.
Communist nations are not averse to legal gambling. Casinos in particular have been seen as a way
of extracting hard currency from tourists and from the underground economy. I played in a casino in Hungary
before the fall of the Eastern Bloc, with all transactions in Deutsche Marks (this was before the euro).
The Socialist Republic of Vietnam still has casinos. Surprisingly, so, too, does North Korea.
And then, of course, there is Macau. The casinos there win more than all of the privately owned
casinos in Nevada, New Jersey, Mississippi and the rest of the United States – combined.
Macau, like Hong Kong, is a Special Administrative Region of the People’s Republic of China. The
PRC is still technically a communist country, although it would be more accurate to describe it as Marxist: widespread free
enterprise capitalism flourishing under a totalitarian, one party dictatorship.
The bureaucrats who run Cuba can find a partial solution to the country’s present economic catastrophe and its
pending political crisis by looking east – far east. Cuba needs to pull a Macau.
Resort casinos create jobs and bring in much needed revenue. They could ease Cuba’s transition
out of the economic stagnation created by pure communism, as they did in China.
Of course, Cuba does not have hundreds of millions of middle-class residents with few other legal outlets for gambling.
In fact, the people are so poor that it is one of the few countries where it actually is to the advantage of casino
operators that locals would not be allowed to enter.
Cuba already attracts large numbers of tourists from Europe, Canada and Latin America; tourism is the nation’s leading
industry. The spectacular success of Havana’s casinos in the 1950's show what legal gaming could
do, especially once Americans can visit without restrictions.
The major problem is political. Havana’s casinos were symbols of the prior dictator, Fulgencio
Batista’s, corrupt regime. When asked about the Americans who ran Cuba’s gambling, Fidel said,
“We are not only disposed to deport the gangsters, but to shoot them.”
In the early 1960s, children could get cartoon trading cards with purchases of Felices [Spanish for happy]
Frutas’s canned fruit. They would glue them into their “Album de la Revolucion
Cubana.” One shows an angry crowd storming the Deauville Casino, with this label: “El
pueblo destroza algunos casinos y casas de juegos,” “The people destroy some casinos and gambling houses.”
Still, this was half a century ago.
Times change. Fifty years before Macau became the top casino market in the world, gambling in China
was punishable by death.
Cuba already has tourist
zones, where locals are not allowed to enter, except for work. Canadian tourists already fly directly to
resorts on the southern coast of Cuba, just to go to the beach. The natural spot for the first Cuban casino-resort
is, ironically, the Bay of Pigs. The scene of the disastrous failed invasion of 1961 is now a thriving
resort, especially for Europeans.
But there is another
spot, where a casino would be even more of a positive political statement by the Cuban government: Guantanamo
Bay. It is isolated from the vast majority of the population; at more than 500 miles from Havana, it is
actually closer to Miami. There are beaches and an airport and one of the largest sea ports in the world
for cruise ships, if the U.S. will allow free passage.
could set up another tourist zone, with legal gambling, on the Cuban side of Guantanamo Bay. Local residents
would be barred. But visitors from every other country, including the United States, would be welcome.
Americans can travel to Macau without even having to get a visa. Wouldn’t it be great if Guantanamo
Bay became better known for its hotel-casino resorts than for its prison?
Internet Gambling? No Problems
The casino industry is one of the most
heavily regulated businesses in the world. But even if they did not have that government oversight, casino
owners would still be among the most careful business operators in the world.
The reason is simple: It’s their money that’s at stake.
In lotteries, parimutuel betting and round (non-banking) games like poker, gamblers wager against each other, with
the operator taking a piece off the top.
Casinos make almost all of their revenue from banking games. Craps in casinos is not street craps:
Players are betting against a fund of money, a bank. Casinos act as the house, fading all of the
bets of their customers.
A cheat at poker steals from other players. A cheat at blackjack steals from the casino.
To see how careful the casino industry is compared with something that we would normally think is more important, look
at the relatively few malfunctions there have been with slot machines as opposed to voting machines. Yes,
there have been some well-publicized problems. But given the hundreds of billions of times buttons have
been pushed and handles pulled on gaming devices, the incidents are extremely rare.
If the states really wanted to make voting fast, accurate and secure, they should turn the running of elections over
This doesn’t mean gaming device
manufacturers and operators couldn’t be even more careful. In England, where the jackpots are smaller,
casinos have to pay off “winners,” when there is a malfunction. Not surprisingly, British casinos
have even fewer slot machine malfunctions. But casinos in the U.S. do seem to care who is the legitimate winner more than
some election officials seem to.
Casinos also face
the theoretical risk of losing not just money but their most valuable asset: their licenses.
In practice, regulators rarely impose
even substantial fines, let alone suspend or revoke licenses. But the threat is always there.
The risk of being closed down is even greater with Internet gaming.
On February 21, 2013, Governor Brian Sandoval signed a bill explicitly allowing Nevada to enter agreements with other
states to allow cross-border betting. This will permit pooling of players in states where Internet poker
is legal. Delaware and Nevada have, in fact, announced that they have come to an agreement to take bets
from each other. It will be interesting to see how they deal with the fact that not all operators will
be licensed in both states. And the tax rates are different.
The Nevada bill also included this language:
“The Legislature hereby finds and declares that . . . A comprehensive regulatory
structure, coupled with strict licensing standards, will ensure the protection of consumers, including minors and vulnerable
persons, prevent fraud, guard against underage and problem gambling, avoid unauthorized use by persons located in jurisdictions
that do not authorize interactive gaming and aid in law enforcement efforts.”
Politically, it was very important that the first state-licensed Internet gaming operators met those standards.
But was it also required by law?
Unlawful Internet Gambling Enforcement Act (“UIGEA”) expressly allows online wagers to be sent intra-state, but
only if the bettor and operator are in the same state, the state has made the bet legal, and verifications are in place:
. . age and location verification requirements reasonably designed to block access to minors and persons located out of such
State; and appropriate data security standards to prevent unauthorized access by any person whose age and current location
has not been verified in accordance with such State's law or regulations . . .”
Similar language applies to bets made between and among tribal Internet gaming operations.
There is no similar language in the UIGEA about other interstate or even international Internet gaming.
But this did not mean that Congress did not care about age and location verification for non-tribal, cross-border bets.
It simply forgot to put it in. Remember, the UIGEA was put together overnight by the Republican
leadership of Congress, without any hearings, or even having been proof-read.
The UIGEA does require that an Internet wager not violate the laws of the jurisdictions where the operator is located,
that is, where the bet is accepted. The Act also requires compliance with the laws where the gambler makes
the wager. Every state has restrictions on commercial gambling, and sets minimum ages for legal games.
There are complex legal questions whether these often archaic state statutes apply to an Internet operator who is outside
the state. And challenges have been filed that laws against gambling do not even apply to poker, which
is arguably a contest of skill. But state-licensed online poker rooms and casinos are going to be very
careful before they accept wagers from someone outside their state’s borders.
Changes in the law trail changes in society. So, not only do we have anti-gambling laws that pre-date
the invention of the Internet, we even have some that predate the telephone. And hidden among these ancient
statutes are legal landmines.
No U.S. operator would
intentionally register someone who is from a state where Internet gaming is illegal. There are no reported
cases involving anti-gambling laws where someone in the state or country bets with a licensed foreign operator after that
operator took steps to avoid taking bets from that state or country. And many anti-gambling laws require
a specific intent, like that the operator “knowingly” accepted the bets.
But the laws meant to protect children from what society regards as morally suspect industries often do not require
a specific intent. In fact, they can be strict liability.
The best known of these involve serving alcoholic beverages to a minor. Even if a bartender does
everything reasonably possible to verify the patron’s age, the bar owner could end up paying a fine.
In Nevada, a licensed casino can raise the defense that it reasonably thought the minor was of legal age.
But, in New Jersey a court upheld a fine imposed on an Atlantic City casino for allowing two minors in the gambling
area, even though the casino was not at fault.
gaming operators have to be extra-careful about protecting minors and compulsive gamblers from themselves, preventing hacking,
and making sure that no one can make a bet from a state or nation where online betting is illegal. There
are states which impose strict liability, meaning an operator is sometimes guilty of violating local anti-gambling laws, even
if they have done everything superhumanly possible to prevent someone from that locale from making a bet.
Are the online operators doing enough? There have been complaints, both from players in Nevada who
could not sign up with Ultimate Poker’s Nevada-licensed Internet poker room, and from critics who say the geo-location
safeguards are inadequate. But there have been even more complaints from players who would like to bet
legally with Nevada’s licensed online operators, but can’t register or get their payments accepted.
The standards will undoubtedly be fixed over time. But, in the real world, as long as an operator
is doing everything possible to keep out minors and bettors from places where online gambling is forbidden, the most they
face is a fairly small fine.
© 2015, I. Nelson Rose. Prof. Rose is recognized as one of the world’s
leading experts on gambling law, and is a consultant and expert witness for governments, industry and players.
His latest books, Internet Gaming Law (1st and 2nd editions), Blackjack and the Law, Gaming Law: Cases and Materials and Gaming
Law in a Nutshell are available through his website www.GamblingAndTheLaw.com.