Gambling Law Update

January, 2003

By: Lawrence G. Walters, Esq.

www.GameAttorneys.com

Big Names Continue to Gamble on the Internet

Las Vegas casinos are gambling on the Internet. Following the move by giant MGM Mirage, several world-famous casinos plan to extend their empire into the Internet arena. Downtown landmark Binion’s Horseshoe introduced a “play for fun” website recently that is intended to serve as a first step to launching a real-money Internet casino for foreign bettors¹. The play-for-fun games will allow the casino to collect email addresses from players for future marketing purposes. Binion’s Horseshoe has offered an informational website for several years which also offers a live Internet broadcast of its annual World Series of Poker. However, the Internet casino would not accept bets from anywhere in the Unites States, where the legality of Internet gambling is still an open question.

Besides MGM Mirage, other Las Vegas companies have not yet detailed their plans for a web casino. Park Place’s Internet gambling license application is pending in the Isle of Man, and representatives of the Venetian could not be reached by press time to comment on the status of their previously announced application in Alderney, one of the British Channel Islands². The Ritz Club London Online announced a deal with the official website of leading Formula One team Jordan Grand Prix (www.f1jordan.com)³. The site displays race team news as well as headlines from the BBC. It also provides a link to “betting” which transfers the user to the Ritz Club web site. The Ritz Club London Online benefits by having their site promoted on the Formula One team’s website and in a newsletter targeting the team’s fan and site users. Since the launching of their site in September 2002, the Ritz Club London Online has thus far proved to be a huge success. The move from being a land based casino to an Internet Casino by these big names comes as no surprise. The land-casino industry intends to take advantage of a perceived advantage in this marketplace because they merge significant brand recognition with the funds necessary to market their online product with their casino product enabling them to tackle the online casino newcomers that threaten their empire. Most brand names still require the assistance of veteran Internet gaming operations to launch a successful online casino, however.

State’s Outlook on Internet Gambling Brighten

California Gov. Gray Davis recently authorized what may be the second largest expansion of legal gambling in the history of the United States. Within ten years, California will likely surpass all other states, including Nevada, as the nation’s largest casino market. This past month Gov. Davis signed a bill permitting everyone in California to bet on authorized horse races from their homes, offices, schools, etc., by phone and computer. The new California law expressly allows Californians to place bets with an approved Off-Track Betting site outside the state, and it does not restrict those Off-Track Betting sites to the United States. Once the regulations are in place, Californians will be able to make bets by phone to approved Off-Track Betting sites in California and in other states which allow out-of-state telephone wagers, like New York, Connecticut, Oregon and Pennsylvania. The new law also allows California licensed operators to accept bets from anyone in any state. This new form of gambling is called Advance Deposit Wagering. Bettors are required to set up accounts and deposit money in advance, before they can make their long-distance bets⁴. The law will expire on January 1, 2008, unless the State Legislature extends it – a near certainty. The statute requires the California Racing Board to make regulations and to approve all arrangements involving Advance Deposit Wagering. Perhaps the new California law will be the breakthrough to true licensed international Internet gaming.

New Jersey may also be set to give Nevada a run for their money. This past month New Jersey passed a joint resolution (AJR51) to establish an Internet gambling commission within the state. The resolution establishes a 21 member Internet Gambling Study Commission composed of Legislators, Executive Branch officials and members of the public with expertise or interest in gambling in the State. The commission will conduct a thorough and comprehensive study of the current status and growth of Internet gambling, investigate the amount of money wagered through Internet gambling by State residents and by citizens and residents of this nation, review the extent and opportunities for gambling in the mid-Atlantic region, and analyze the impact of Internet gambling on the economic growth and financial stability of the horse racing industry and the casinos and the lottery in this State. The Commission is to make findings of fact, reach conclusions on the future and impact of Internet gambling, and make recommendations concerning the legalization of Internet gambling in New Jersey. Recommendations for legislation, if deemed appropriate, are to be made to address the financial, societal and competitive impact of Internet gambling in the State. The Commission is also required to make an interim report of its findings within six months of organizing and submit a final report within one year⁵.

Internet Gambling Delayed in Nevada

The possibility of the legalization of intrastate gambling in Nevada has been delayed. The state Gaming Control Board has requested input from the Legislature when lawmakers meet next February. Information passed by the board is expected to include courts decisions such as the dismissal of a class-action lawsuit by people who lost money to virtual casinos. The Fifth Circuit Court of Appeal upheld the dismissal⁶. Lawmakers in Nevada got the ball rolling last year, when they authorized the Gaming Board to research the possibility of drafting rules that would pave the way for online casinos in gambling. The Board was to determine whether current laws would be upheld and minors could be kept out⁷. Internet gambling opponents will make banning Internet gambling a top issue next year⁸. The Legislature may decide to pass new guidelines with updated information or may keep the existing law on the books. The original legislation included a definition of Internet gambling that was broad enough to include in-state betting.

Seminole Tribe Case Dismissed

A judge threw out the embezzlement case against three former Seminole tribe employees, acquitting all three after a 10-day trial that had spotlighted the enormous sums of cash generated by the tribal casino empire and the free-spending habits of those who controlled it. The men were accused of funneling $2.7 million of the tribe’s money into an offshore Internet gambling operation in Belize, without telling the governing tribal council. However, in a devastating blow to the government’s case, suspended Seminole Chairman James Billie testified that he had authorized every penny spent by three men accused of swindling the tribe and ordered them to quietly set up an Internet gaming operation in Central America⁹. Billie’s testimony, coming without immunity from future prosecution, contradicted nearly every piece of evidence put forth by federal prosecutors during the two-week trial. The case against former tribe operations director Tim Cox and two other men, was already weakened by testimony that the tribe had no rules for how it spends money.

Revolutionary Mobile Gaming

The portable gaming industry continues to boom. Last month Israeli mobile software company Zone4Play announced a deal with European mobile phone network Orange, and this month they have announced that another big European network is to offer their mobile casino games. Zone4Play is set to develop casino games for mobile network mmO2, using Pinpoint’s Fuel software platform which allows developers to bring fee-based applications to market and bill for them. The partnership was forged through Pinpoint, who is a mobile service provider. Zone4Play will deliver its games on the SMS and WAP platforms and will provide Pinpoint and mmO2 with its innovative Java 2.5G and 3G applications later on¹⁰. The games will be available to 17.25 million subscribers. Slots, video poker, black jack and other casino games will be offered. The subscribers will have the ability to experience the playing of casino games in their mobile devices, wherever and whenever they are.

Anti-Gambling Support

The return to Republican control of the Senate could make it more difficult for the gambling industry to beat back a move to ban betting on college sports. The change in Congress means Sen. John McCain, R-Ariz., the leader of the effort to end legalized betting on NCAA sports at Nevada casinos, will resume chairmanship of the Senate Commerce Committee¹¹. At the same time, Sen. Harry Reid, D-Nev., the most influential defender of sports wagering, will relinquish his role as majority whip for the less powerful position of minority whip. Reid said the only online gambling bill he will support next year is one that includes an outright ban. “I don’t like it,” Reid told the Las Vegas Review-Journal. “It can’t be controlled. It’s ripe for cheating. And it’s open to fraud.” Reid, who will be the Democratic minority whip in the new Congress, said he and other Internet gambling opponents will make banning Internet gambling a top issue next year¹². Aides to McCain indicated he is likely to reintroduce the same bill he pushed last year, but won’t decide until Congress reconvenes in January, 2003.

Another group which has severed its relationship with the Internet Gambling industry is Akamai Technologies. Akamai Technologies has begun phasing out delivery of porn and gambling sites via servers installed at universities and colleges. This past month, Akamai servers in data centers at the University of Massachusetts, Massachusetts Institute of Technology, Boston College, Dartmouth College, and the University of Maine, and apparently at several other schools, were no longer being used to ”cache,” or store, images and text from gambling and porn sites, according to business competitors of Akamai who monitor the publicly accessible devices¹³. Akamai is an Internet ”content delivery networking” company, which means that it hosts copies of Internet sites on its servers to enable smoother delivery to the end user. Akamai says it is no longer seeking business from pornography sites or gambling sites and is not renewing contracts that are about to expire, but has not said when it expects to be out of the business.

Bahamas Eye Internet Gambling

At a major Internet Gaming conference on Paradise Island this past month, at which the author delivered presentations, Chairman of the Gaming Board for The Bahamas called for regulations that would stabilize the fast growing industry of Internet gambling. Gaming Board Chairman Kenyatta Gibson made this appeal as he officially opened The Sixth Annual International Symposium on Internet and Wireless Gambling Law and Management. He said that The Bahamas was excited to learn more about Internet Gambling, which it does not regulate. The Government is proposing new amendments to the Gaming Act, and there is a proposed challenge in the Supreme Court of the Bahamas to lift the prohibition of Bahamians playing in local casinos. “But at the same time,” Mr. Gibson said, “let there be no doubt that The Bahamas is poised and ready to take advantage of every opportunity and trend in the gaming industry.” The Bahamas congratulates its sister CARICOM member-state Antigua and Barbuda on the pace set in establishing its Internet Gaming Services, he said¹⁴. The gold rush is on.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at Larry@LawrenceWalters.com, through his website: www.GameAttorneys.com, or via AOL Screen Name: “Webattorney.”