Needed: American Gaming Law Reform

Needed: American Gaming Law Reform

This is a guest contribution by Martin Owens is an attorney specializing in gaming law. Owens is the co-writer, along with Prof. I Nelson, of the seminal book Internet Gaming Law. If you would like to submit a contribution please contact Bill Beatty for submission details. Thank you.

“Oh judge! Your damn laws! The good people don’t need them, and the bad people don’t obey them.”

                                                                                                                       ― Ammon Hennacy


It’s finally coming to a head. Even as New York’s Attorney General moves against DFS giants Fan Duel and Draft Kings , calling their operations unlicensed gambling, California, Massachusetts, and sixteen other states are considering legislation to legalize it.  DFS is already legal and licensed in Virginia, Kansas, and Indiana. Meanwhile next door in Illinois, it has been declared illegal gambling (so far without court action). The same goes for  Texas, Georgia, Hawaii, Mississippi, and Michigan. Nevada will allow it, provided operators submit to state licensing requirements. The rest saw licensing legislation stall or fail, or haven’t addressed the problem at all. So if someone asks, “is DFS legal in America?”, what’s the answer? There is no answer, only a choice of which set of problems you want to deal with. The situation is confused and confusing. And it is the result of a failed policy.

Needed: American Gaming Law ReformUS gambling, particularly online and interactive gambling, is regulated mainly at the state level. The practice is no longer equal to the challenges or the opportunities of a gaming industry which has gone global,  digital and online. Why are state laws the primary reference point of gambling law in  the USA?, Because at the time of the nation’s founding, gambling was considered to be a social nuisance and a minor crime. It therefore fit under the general police power, which, according to the Tenth Amendment to the U.S. Constitution, is reserved to the states. So long as gambling and gaming were conducted at a person-to-person, brick-and-mortar level, this was no particular problem. If you were playing poker in Kansas, for instance, it was only reasonable to keep in mind what the local authorities would allow. Remote gambling was not a real possibility.

But advances in technology changed all that, and changed the legal status of gambling, like it or not. As long ago as 1903, the Supreme Court recognized that bets transmitted across state and national borders were in fact items of commerce, even if the bets themselves were illegal (The Louisiana Lottery Case).  And interstate commerce is the province of Federal law- in fact state laws that restrict commerce are subject to being struck down by the Commerce Clause of the Constitution. The Wire Act of 1961 ( 18 USC s. 1084) was passed because bookies had figured out a way to outflank state gambling laws, using the national telephone system.

It was the coming of the Internet, however, that spotlighted the contradictions and shortcomings of a state-based regulatory regime for gambling. Federal laws which prosecute gambling offenses – The Wire Act, The Illegal Gambling Business Act, parts of the Racketeering Act, even the UIGEA, all depend on an underlying violation of state gambling law to trigger them. But today many US state gambling laws are so vague and outdated that it is scarcely possible to tell whether the law is being violated or not. Only eleven states even mention the Internet in connection with gambling, including the three  that have authorized online poker .

To this day, sixteen states and the District of Columbia don’t even have a clear definition of what “gambling” is or is not on their respective statute books. Instead, they outlaw particular games, and particular devices. And updating those laws has not exactly been a priority. California is perhaps the most glaring example. Penal Code section 330a  still lists such games as “ faro, monte, roulette, lansquenet, rouge et noire, rondo, tan, fan-tan,” and something called hokey -pokey. These were all favorites during the Gold Rush of 1849. Perhaps Mark Twain could have told us how to play them. The last game of faro held outside a museum was in 1950 (in Vegas, naturally). Likewise, the description of a “gambling device” ( s.330b) matches a coin-operated slot machine. Most states haven’t even tried.

When definitions are attempted, the results can be just as bad. Tennessee says gambling is” risking anything of value for a profit whose return is to any degree contingent on chance…” (Tenn Code 39-17-501(1)). Since every human undertaking is affected by chance in one degree or another, the definition is so broad as to be meaningless. And a gambling device is “anything designed for use in gambling, intended for use in gambling, or used for gambling…(39-17-501(3)). Like your laptop? Smart phone? TV console? A deck of cards, even if you’re playing “Go Fish”? Sometimes states simply govern gambling by decree. In both Ohio and Oklahoma, poker is gambling, not a game of skill. Why? Because they said so, that’s why. And West Virginia specifically criminalizes gambling in outhouses. Now that’s problem gambling! (W. Va. Code s. 61-10-6; 61-10-8.) .

Legally just as important as What Gambling Is, is the question of Where It Is. Today, the players in an online poker game, for instance, may all be in different states or other countries, and the server hosting the game may not be located near any of them. So which state has jurisdiction? And why? The question has yet to be properly adjudicated. Some states, such as New Jersey, decree that the bet takes place at the server, where everything is resolved, which is at least logical. But as before, most states haven’t even begun to deal with it.  The best most authorities can do is simply assume they have jurisdiction over anything touching residents of that state (because… Well, because we just DO, dammit!).

This state of affairs has been tolerated for generations. Its basis is guilt: the idea that gambling is not merely an offense, but a sin. And in the traditional view, sinners have no rights that anybody is bound to respect. They had it coming, whatever it is. This is what has led to vague and unintelligible laws, flagrant overstepping of legal limits and authority, such as the airport arrests of foreign gaming executives, the shakedowns of PayPal and NeTeller, Kentucky’s attempt to confiscate the URLs of overseas gaming sites, and wearily on.

It has also led to clear violations of basic constitutional rights and due process. The Fifth Amendment to the U.S. Constitution not only guarantees against self-incrimination; if the authorities wish to forbid a certain action, the thou-shalt-not must be stated in such terms that an ordinary reasonable person can understand what must not be done. But in state after state, and even at the federal level, especially with the UIGEA, language of the law does not allow

the reader to tell what is and is not forbidden with any real certainty.

The problem became acute with the New York actions against DraftKings and FanDuel. As gaming and gambling evolve in the digital age, it is easier and easier to mix-and-match elements of various games and formats together. The rise of alternative payment systems such as “freemium” offer a way to monetize games without crossing the threshold of “consideration” a basic requirement of establishing that gambling is in fact taking place. What is in fact occurring is that gaming and gambling are evolving out from under the old regimes and rules. More and more, trying to control online, interactive, and social media based gaming with laws designed for old-time pool halls and gambling tables resembles trying to control a driverless car with a buggy whip. It is clearly time for a major overhaul, perhaps even at the national level.

In the next installment, we will take a look at what gaming laws updated for the 21st century might look like.

Mr. Owens is a California attorney who has specialized in Internet and interactive gaming since 1998. Co-author of INTERNET GAMING LAW With Prof. Nelson Rose, America’s senior authority on the subject; Associate Editor, Gaming Law Review and Economics, and frequent contributor to trade publications for the industry. Questions and inquiries welcome at [email protected]