By: Walters Law Group & Neil Braslow, Esq.

In late June, the Supreme Court agreed to hear New Jersey’s appeal in the state’s longrunning effort to offer legalized sports gambling. The Supreme Court is expected to hear oral arguments in the case in late 2017 or early in 2018. If New Jersey ends up winning the decision, sports betting could open at state racetracks and casinos by June 2018. With all of the recent developments and momentum related to the legalization of sports betting, when the rare occasion of all four major professional sports league Commissioners being in the same room occurred in mid-July, 2017, gambling was a hot topic of discussion.

Roger Goodell (NFL), Adam Silver (NBA), Rob Manfred (MLB), and Gary Bettman (NHL) gathered for a panel titled “GameChangers: Creating the Future of Sports” at the Paley Center for Media in New York City. While none of them were acting as Commissioner at the time, in 1992 all of the major sports leagues supported the passage by Congress of the Professional and Amateur Sports Protection Act, or PASPA, which generally prohibits states from authorizing sports betting except for Delaware, Montana, Nevada, and Oregon. Despite the fact that it is estimated that nearly $400 billion is illegally wagered on sports activities in the United States each year, the professional sports leagues have failed to move from their position against the legalization of sports gambling, until somewhat recently.

It was not surprising that Adam Silver took a progressive stance relative to sports gambling during the panel, as he has been at the forefront of the legalization of sports gambling for several years. In 2014, he authored an op-ed piece in the New York Times supporting a federal approach to the legalization of sports betting in the United States. When asked about it during the panel, Silver said “My sense is that the law will change in the next few years in the United States. It’s more a function of being realists. It’s a multi-hundred billion-dollar illegal industry in the United States. Ultimately, as the owners of the intellectual property, we’re going to embrace it.”

While Roger Goodell did not offer any comments, Rob Manfred and Gary Bettman voiced their concerns about the impact of the experience for spectators at games. Bettman said “I don’t worry about fixing games. I don’t worry about anything other than what does it do to the way young people consume sports. Secondly, what does it do to the environment in a stadium or an arena if everybody is sitting there just worrying about their bets? Does it turn us into something other than what we’ve been, more like a race track?”

It is somewhat surprising to hear these comments from Bettman, considering that the NHL is the first major sports league to put a professional team in the Las Vegas market. The Vegas Golden Knights will debut during the 2017-2018 NHL season. Additionally, if this was not simply an attempt at a PR move by Bettman and reflected his actual beliefs, it would be shocking that he would be so naive and out of touch with the actual current state of sports gambling. In-game betting, also known as “live” betting, is already taking place on a large scale, despite the fact that it is illegal. As an example, if a spectator was attending or watching a Blackhawks game in which they were trailing the Penguins 3 to 1, but believed that they could come back and win the game, a “live” bet could be placed through an illegal gambling method on the Blackhawks to come back and win the game. In-game bets are simply wagers that can be placed during the course of live game action, with the odds adjusted accordingly in real time based on the action that is taking place. It has become an extremely popular form of betting, as it keeps spectators involved and interested and also allows bettors to take action on games even if they have not placed any wagers prior to the start.

Rob Manfred was less than enthusiastic when it came to in-game betting, as he said “The growth area is on more discreet activities in the game. Is the next pitch going to be a ball or a strike? … It seems to me that there is a difference between somebody betting on whether the next pitch is going to be a ball or a strike — which is hard for anybody to affect or control — as opposed to the outcome of a game.” Adam Silver responded to his comments by stating that “Research generally shows that fans are fairly sophisticated. They can both root for their team and virtually all the action. … They want to bet throughout the game. They’re betting on quarter scores, on particular players, and free throws. It results in enormous additional engagement.”

While Roger Goodell did not comment during the forum, he previously stated the following in April 2017: “I think we still strongly oppose [among ownership] legalized sports gambling. The integrity of our game is No. 1. We will not compromise on that. …. I think we have to make sure that we continue to stay focused on making sure that everyone has full confidence that what you see on the field is not influenced by any outside factors. That’s our No. 1 concern. That goes to what I consider the integrity of the game, and we will not relent on that.”

At this point, it appears that Adam Silver and the NBA are the only league that is not taking a hypocritical stance. The NFL, for example, has dealt with integrity issues due to deflated footballs, poor officiating, and a health crisis related to player safety and concussions over the past few years, to name a few. To say that legalized sports gambling could compromise the integrity of the game seems somewhat foolish. Whether sports gambling is illegal or legal will likely have little impact on any potential integrity issues. Sports gambling is already running rampant throughout the country. Saying that the legalization of sports gambling could impact the integrity of a sport is the equivalent of saying that legalizing marijuana could lead to a drug epidemic. Both things are already happening, so they might as well be legalized and monetized instead of billions of dollars going to illegal markets.

Sophisticated monitoring systems are in place which can analyze the various wagers being placed across several platforms, and any potential impropriety can easily be identified. For example, tennis has had some recent player integrity issues which have been identified through this monitoring technology. Unlike low end tennis players that are scraping by monetarily, even the least valuable player on a professional sports roster is doing well enough these days that game fixing should not be an issue. The days of the Black Sox Scandal where players were barely getting paid are now long gone with the enormous salaries that professional athletes are currently making.

Despite the fact that they have been more open to dialogue concerning the legalization of sports betting in recent years, and particularly the NBA, all four professional sports leagues sued to stop New Jersey from legalizing sports gambling. In addition to the professional sports leagues, the National Collegiate Athletic Association (NCAA) is adamantly opposed to any form of legalized sports gambling. While the professional sports leagues and their respective Commissioners might not be ready, the legalization of sports gambling is inevitable. Arizona, Louisiana, Mississippi, West Virginia, and Wisconsin have all joined New Jersey’s effort in asking for the case to be heard by the Supreme Court. Whether through judicial or legislative action, the mainstream acceptance of sports gambling suggests that a path for legalized sports betting could be coming soon.

Walters Law Group, represents clients involved in all facets of the gaming and sports industries. Nothing in the foregoing article is intended as legal advice. Neil Braslow, Esq. can be reached via email: neil[at]firstamendment.com, or toll free: 800.530.8137.

By: Lawrence G. Walters & Neil Braslow

The Skill Gaming industry is growing, and many entrepreneurs are looking at new ways to tap the market. Fantasy sports, trivia games, video game tournaments, and a wide variety of other skill-based activities have captured the public’s interest.This Legal Guide is intended to provide an overview of the legal issues associated with Skill Gaming. Our firm’s experience in representing various skill gaming business models allows us to share a broad industry perspective on the potential legal concerns.This Guide is therefore intended as a general overview on gaming, gambling, and contests of skill, and is not offered as a legal opinion on a particular business model or specific state laws.

1. Introduction

A game of skill refers to any game, contest, or amusement of any description in which the outcome is determined by the judgement, skill, or physical ability of the participant in the contest, rather than by chance.The crucial distinction between contests of skill and games of chance can have significant legal repercussions for operators.Jurisdictions vary on their interpretations of the distinction, so it is important to learn how these activities are defined in the relevant marketplaces.

2. The Element of Skill

Every state prohibits unlicensed gambling. However, gambling laws only apply to games that involve the elements of prize, chance, and consideration (i.e., payment). In order to avoid being labeled as gambling, the outcome of a game must be governed by skill, not chance. The question is: “How much skill?” Courts across the nation differ in how to weigh the element of skill in comparison to chance. In evaluating whether the degree of skill involved in affecting the outcome of a contest is sufficient to avoid violation of a state’s gambling laws, state courts typically use three approaches: (i) whether skill or chance is the dominant factor in the outcome (“Dominant Factor Test”); (ii) whether chance is a material element in the outcome (“Material Element Test”); or (iii) whether any chance at all is involved (“Any Chance Test”). The test used could determine whether your game is a legal game of skill, or illegal gambling.

3. Dominant Factor Test

The Dominant Factor test generally asks whether the outcome of the game is determined more by the participants’ relative skill rather than by chance (i.e. random events like dice rolls or random number generators should have little impact on determining the outcome of the game. The primary question is whether chance or skill is the dominant orcontrolling factor in determining the winner of the contest or game.

4. Material Element Test

The Material Element test focuses on whether chance plays any significant role in determining the outcome of the game. Under this test, it does not matter whether skill plays a significant, or even dominant, role in determining the outcome. The game will be deemed gambling if chance plays a meaningful role.

5. Any Chance Test

The Any Chance test evaluates whether chance plays any role whatsoever in determining outcome.Under this test, if any element of chance affects the outcome, then the game is considered one of chance. For example, the game of Blackjack involves chance card flips and the skill of the player in deciding whether to “hit” or “stand.” Since this game involves at least some chance (the card flips), it likely would not pass the Any Chance test and would be considered gambling. The Any Chance test is the strictest test for classifying skill games, and can render wagering on most any game illegal gambling.

6. Entry Fees

Things get tricky when entry fees are charged to participate in a contest of skill. Some courts have recognized that paying an entry fee for the opportunity to participate in a game of skill, in the hopes of winning a prize, is a traditional part of American social life. However, other courts have held that if the entry fees are linked to the prize amount, and used to pay the prizes, the game involves a “wager” which can be illegal. Federal law (the “UIGEA”) exempts certain fantasy sports and other contests, but only if the prize is announced in advance, and the amount of entry fees does not impact the prize. Therefore, the handling of entry fees can be a critical element of risk mitigation in skill gaming.

7. Regulation

Skill Gaming is essentially unregulated in most of the United States. Federal law does not prohibit skill gaming, but, as noted above, does provide a safe harbor exemption for certain contests of skill that meet the statutory criteria. Congress has left gambling regulation primarily up to the states, with limited exceptions. Most states do not expressly prohibit skill games by statute, but instead, focus restrictions on traditional gambling.States like Florida represent the exception, where wagering on skill games is prohibited by statute, along with games of chance. Even there, the courts struggle to permit participation in some Skill Gaming activity, such as midway fair games or golf tournaments. Instead of imposing a blanket prohibition on Skill Gaming, the courts often distinguish between illegal wagering on games of skill, and legal participation in contests involving skill.This can lead to inconsistent and unpredictable results. Often the “look and feel” of the game can be an important factor if its legality is tested in court.

8. Certification

The actual functioning of a skill game can be tested and “certified” by various game testing laboratories. The lab will independently evaluate the functionality of the game, and render a report confirming its actual operation. Any operator looking to offer a skill game should consider obtaining a certification from a reputable lab, describing how the game works, and how the element of skill plays out during gameplay. Such certifications can be important evidence in the event of a court challenge.

9. Conclusion

With any potential Skill Gaming business model, the devil is in the details, and those details have a huge impact on the game’s legality. Skill Gaming seeks to remove the element of “chance” by ensuring that the outcome of the subject game is determined by the player’s skill, instead of some random event. The courts in various jurisdictions use different tests to determine how much skill must be involved in the game – relative to chance – to remove the activity from the scope of gambling prohibitions. However, if the outcome of the game is determined primarily by skill, with chance playing little if any role, most courts will deem the activity a skill game, not gambling.
With the popularity of Skill Gaming on the rise, operators are actively looking to offer legal skill games on the Internet, via mobile apps, and in retail locations. Understanding the nuances of applicable law in the Skill Gaming realm will help avoid unintentionally violating gambling laws which can carry serious consequences.