Gambling Law Update
By: Lawrence G. Walters, Esq.
www.GameAttorneys.com
June, 2003
On Again Off Again
The prospects of passing a bill aimed at prohibiting online gambling merchants from accepting payments in the form of credit card transactions or other bank instruments from Americans for any online gambling transactions were seriously hampered this past month as U.S. Lawmakers wrestle with this ever changing piece of legislation. Originally introduced by Rep. Jim Leach (R-Iowa) as a way to curtail online gambling, the Unlawful Internet Gambling Funding Prohibition Act (H.R. 21), also created notable exemptions for dog racing, horse racing, lotteries and casino games. But bickering between the House Judiciary and Financial Services committees resulted in the generation of competing versions of the bill. On May 15, 2003, the bill was amended, by a vote of 16 to 15, by the House Judiciary Committee to remove the exemptions for state lotteries and racing venues. Rep. Chris Cannon (R-Utah) said he offered the amendment because he was worried the bill might allow some types of gambling in Utah, where all forms of gambling are illegal. He also said the bill would create burdens on financial businesses and ISP’s, which could, under the bill, be served with injunctions to halt or prevent Internet gambling activity. After the Judiciary Committee took out language that would have exempted lawful casinos and state lotteries, the Financial Services Committee, and Rep. Spencer Bachus (R-Ala.), introduced the Unlawful Internet Gambling Funding Prohibition Act (H.R. 2143), which restored Leach’s exemptions for state lotteries and racing venues. The new piece of legislation removes any criminal or civil penalties for violators of the Act, which put the legislation outside the jurisdiction of the House Judiciary Committee. On May 21, the Financial Services Committee approved the bill in less than three minutes with no debate and no amendments. House leaders then chose to put the Bachus bill before the House instead of the amended Leach legislation. They then fast tracked the Bachus bill by scheduling it for a vote on June 3, under a suspension of the rules, which is normally reserved for non-controversial legislation. When a bill is considered under the suspended rules, it can not be amended but requires a two-thirds majority to pass. When word began to spread of the upcoming vote, opposition quickly built within both the Republican and Democratic ranks and the Bill appeared unlikely to pass without the support of Judiciary Committee Chairman James Sensenbrenner, who wanted tougher criminal penalties, and House Democrats who oppose an outright ban of online gambling. The result was the cancellation of the vote — for now that is. House staffers, however, said they would try to work out their differences and bring the bill back for a vote, possibly as soon as later this month.
Show Me the Money
As the growth of gambling continues to rapidly spread around the world into different sectors, so does the dilemma of the problem gambler. David Williams’ problem gambling cost him his life savings, dumping almost all of it into the slot machines at Casino Aztar in Indiana. Williams, a former state accountant, decided to take action in 2001 and sued Aztar. He claimed the casino knew he was a problem gambler and should have prevented him from wagering. He returned to the casino, the lawsuit argued, due to the fact that Aztar began enticing him with mailings and advertisements on gambling. The first judge to hear the case sided with the casino, but Williams is currently appealing this decision in the 7th U.S. Circuit Court of Appeals. Not unlike Williams, Richard Miller, a California resident, traveled to Las Vegas, Nevada, and obtained $40,000 in credit while gambling at Mandalay Bay Casino. After he incurred the debt, Miller petitioned for Chapter 7 bankruptcy protection. Mandalay sought a money judgment against Miller and a determination that his debt was non-dischargeable in bankruptcy. The Bankruptcy Court initially dismissed Mandalay’s Complaint after holding that gambling debts are not enforceable under California law. However, upon Mandalay’s Appeal, the 9th Circuit U.S. Bankruptcy Appellate Panel held that the Bankruptcy Court erred in dismissing the Complaint due to the fact that although a gambling debt is unenforceable in California, it is enforceable in Nevada. The issue the court then had to look at was whether California or Nevada law applies to the contract between Miller and Mandalay. To determine this, the Court looked to apply the laws of the state with the most significant relationship to the transaction and the contracting parties. If the place of negotiation and the place of performance are in the same state, the laws of that state will usually be applied. The Court concluded that due to the fact that Miller traveled to Nevada and sought out a loan there, and the contract between Miller and the casino were negotiated and preformed in a Nevada casino, Nevada law applies, and gambling debts like the one owed to Mandalay in this case, are enforceable under Nevada law. These claims are among a growing number of lawsuits that aim to hold the gaming industry responsible for exploiting compulsive gamblers.
Show Me the Money
As the growth of gambling continues to rapidly spread around the world into different sectors, so does the dilemma of the problem gambler. David Williams’ problem gambling cost him his life savings, dumping almost all of it into the slot machines at Casino Aztar in Indiana. Williams, a former state accountant, decided to take action in 2001 and sued Aztar. He claimed the casino knew he was a problem gambler and should have prevented him from wagering. He returned to the casino, the lawsuit argued, due to the fact that Aztar began enticing him with mailings and advertisements on gambling. The first judge to hear the case sided with the casino, but Williams is currently appealing this decision in the 7th U.S. Circuit Court of Appeals. Not unlike Williams, Richard Miller, a California resident, traveled to Las Vegas, Nevada, and obtained $40,000 in credit while gambling at Mandalay Casino. After he incurred the debt, Miller petitioned for Chapter 7 bankruptcy. Mandalay sought a money judgment against Miller and a determination that his debt was non-dischargeable in bankruptcy. The Bankruptcy Court initially dismissed Mandalay’s Complaint after holding that gambling debts are not enforceable under California law. However, upon Mandalay’s Appeal, the 9th Circuit U.S. Bankruptcy Appellate Panel held that the Bankruptcy Court erred in dismissing the Complaint due to the fact that although a gambling debt is unenforceable in California, it is enforceable in Nevada. The issue the court then had to look at was whether California or Nevada law applies to the contract between Miller and Mandalay. To determine this, the Court looked to apply the laws of the state with the most significant relationship to the transaction and the contracting parties. If the place of negotiation and the place of performance are in the same state, the laws of that state will usually be applied. The Court concluded that due to the fact that Miller traveled to Nevada and sought out a loan there, and the contract between Miller and the casino were negotiated and preformed in a Nevada casino, Nevada law applies, and gambling debts like the one owed to Mandalay in this case, are enforceable under Nevada law. These claims are among a growing number of lawsuits that aim to hold the gaming industry responsible for exploiting compulsive gamblers.
The Fun Stops Here
Employees who are supposed to be working too often are using company computers to surf for porn, waste time at online shopping sites or seek jackpots with online gambling sites. Corporations are deciding to crack down. More than three-fourths of the nation’s major companies are monitoring employee e-mails, Internet connections and computer files, a figure that has doubled since 1997, according to the American Management Association. In Pennsylvania, a principal has resigned over accusations she used her school computer to gamble on the Internet. Rosa Calvert, the principal at Lechman Intermediate School in Bushkill, Pennsylvania, gave up her position after district officials confronted her with details of an investigation into her computer records. District Superintendent Kenneth Koberlein says the investigation showed that Calvet spent time on several online gambling sites while she was at work, but no criminal charges will be filed. Just how far should companies go to counter slackers? While they agree the risks are real, worker advocates worry that the available technology is so powerful and privacy laws so lenient that some companies will go too far. “Counting every keystroke and watching every Web page that pops up on an employee’s computer screen could create an oppressive office atmosphere,” said George Walls, president of Milwaukee’s Local 4603 of the Communications Workers of America.
Another possible method for handling cyber slackers may lie with an Internet filtering system. Secure Computing Corporation has produced a piece of software called SmartFilter. SmartFilter, and similar software, enables organizations to build and enforce sophisticated Web-usage policies. Users can be denied access to specific Web sites, or instructed within their browser session about acceptable user standards. SmartFilter’s International Control List continuously categorizes millions of Web sites into content groups, including gambling, pornography and MP3’s.
International Gambling Outlook
Global gambling continues to be on the rise chiefly because of technology, which makes it possible to place bets cheaply over long distances. That allows people in countries where betting and gambling are either corrupt, as in many east Asian countries, or crippled by legislation, as in the United States, to move their business to friendlier environments. Britain is quickly becoming the dominating force behind the international betting industry. Britain’s first big advantage is a good reputation abroad. Place a bet in a betting shop, and you have someone solid to complain to if something goes wrong. Britain already has around three-quarters of the cross-border betting market. The government estimates, that cross-border gambling will grow to $15 billion by 2005. The big question now is what to do about customers in countries, mainly the United States, where cross-border gambling is illegal. The government’s DCMS (Department of Culture, Media and Sport) revealed their position paper “The Future of Remote Gambling,” which says that decisions on how far to abide by other countries’ laws should be left to individual businesses, who will decide whether they want to take the risk of legal action and other sanctions.
Malta may be a new addition to the European Community, but they are already looking to take full advantage of the new doors opened to them in the global betting industry. Using the Lotteries and Gaming Act, together with the pull of Malta’s excellent location and competitive tax incentives, the country is quickly becoming a compelling option for quality offshore operators. In fact, Malta has already attracted the attention of several gaming operators. Over 20 gaming operators have already been licensed. In what’s sure to be a further lure, the Chairman of the Gaming Authority has announced that new rules will be issued this year to regulate and license online gaming. The present rules for betting licenses prohibit local players from participating in the bets. This prohibition will most likely be repeated when online gaming licensing regulations will be formalized under the Lotteries and Gaming Act. This may be seen as Malta’s answer to protect its citizens from particular risks. At the same time it provides adequate regulation for all foreign players who access locally hosted and licensed websites.
National Outlook on Gambling
The results of a nationwide survey, released by the Interactive Gaming Council, indicate that the American public may be more open to the idea of licensed online casinos in the United States than previously thought. The survey, conducted by First International Resources, a New Jersey-based public opinion research firm, with the polling firm of TNS/Intersearch, contacted 1,000 American adults between Jan. 17 and Jan. 29, 2003. It found that many Americans, 68 percent, said they oppose a ban on online gambling. Practically three-quarters of the respondents, 72 percent, view gambling as a form of entertainment equal to attending sporting events or going to the movies. Equally noteworthy is that 55 percent of the respondents oppose efforts by the government to pass prohibitive legislation, and are in favor of passing regulatory measures to create licensed online casinos in the United States. Rep. John Conyers (D-Mich.), a ranking member of the House Judiciary Committee and author of H.R. 1223, which calls for the creation of a commission on online gambling licensing and regulation, is concerned about the viability and enforcement of a prohibition bill. Perhaps it is time for U.S. Lawmakers to finally put a halt to the online gambling prohibition movement, and examine ways to regulate this rapidly growing and lucrative industry. Maybe U.S. Lawmakers could learn a thing or two from the British government’s DCMS (Department of Culture, Media and Sport), who recently released its position paper “The Future of Regulation of Remote Gambling.” The document gives a depiction of the government’s view to date, as well as many other pointers to legislative structure that is being proposed for the British-based remote gambling industry. They are now using the term ‘Remote Gambling’ to encompass all of the concepts of online gaming and its various sectors such as online gambling, wireless gambling, and electronic gambling. The main point of the entire proposed remote gambling legislation will be that a Gambling Commission will deal with the detailed regulatory measures and procedures, while the Gambling Bill itself will only create an outline framework within which the rules will be set. Let’s hope that this is the beginning of countries looking at ways to regulate, rather than prohibit, the online gambling industry.
The effects of U.S. Lawmakers push for prohibition are being felt regardless of whether or not the company is located within the U.S. borders. MGM Mirage announced that it would discontinue operations of its online casino, PLAYMGMMIRAGE.com, on June 30, 2003. Based out of the Isle of Man, an internally self-governing dependency of the British Crown, the company established MGM Mirage Online in September of 2001 with the purpose of developing an operational model that would ensure against money laundering while providing customers with the same type of game content found in Las Vegas and other U.S. gaming markets. “We set out to prove that online casino gaming could be implemented with the same high standards of regulatory integrity as land-based operations,” said Terry Lanni, Chairman and CEO of MGM Mirage. “Unfortunately, even in light of a successful working model, the legal and political climate in the U.S. and several countries around the world remains unclear. The fact is that millions of U.S. citizens currently participate in online gaming in an unregulated environment. We believe that a more sound and realistic public policy would be to regulate the activity and hold operators to the highest standards of probity and integrity. MGM Mirage Online has clearly established that the regulatory model works,” Mr. Lanni said. “We have proven critics wrong who said that online gaming could never be properly regulated. We greatly appreciate the efforts of our staff who have paved the way for the implementation of a regulatory structure from a technological perspective. We simply have to wait for the political climate to change and reality to set in,” Mr. Lanni went on to state.
Online Gambling Innovations
Live online gaming and person-to-person betting are rapidly growing sectors of the online gambling industry, providing players experiences similar to land casinos. This technology is becoming more significant as online casinos are starting to compete with big name casinos. AngelCiti Entertainment, Inc., announced that its wholly owned subsidiary Worldwide Management has reached agreement to launch its own private label version of the popular Be the Dealer person-to-person casino gaming platform that enables players to be the dealer in playing online casino games, www.TheHouseWins.com. This novel new approach to online gaming has proven exciting to players looking for a unique angle on the entertainment action. While Easybets.com, an online sportsbook, and CasinoWebcam, a live online gaming company, have teamed up to announce the development of EasybetsCasino, an online casino with real tables, real dealers, and real cards. EasybetsCasino will use state of the art technology and the Internet to bring the actual land based casino gaming experience into players’ own homes. Using a real time webcast, EasybetsCasino players will be able to see, hear, and play live casino games run by CasinoWebcam’s croupiers and floor supervisors. “Our customers enjoy betting on sporting events because of the excitement and fairness. When it comes to casino games, they wanted the same level of fairness and integrity. By partnering with CasinoWebcam to launch EasybetsCasino, we are now able to provide our players with the same standards of fairness and integrity associated with regulated, land based gaming,” said Tim Lambe, CEO of Easybets.
In a move that many experts believe will change the face of online gambling, Chris Moneymaker, 27, walked away with $2.5 million and the title of champion in the 34th Annual World Series of Poker, making him the first person to win the tournament by qualifying on the Internet. Players and experts said Moneymaker’s win will revolutionize poker, solidifying the merger of the Internet and big-name casinos and boosting the game’s popularity. “This is the sonic boom of poker,” said Nolan Dalla, media director for the World Series of Poker. “This means anyone in their home can become a poker player.” Of the 839 players, only 63 paid the $10,000 buy-in price. Others, like Moneymaker, qualified on such sites as ParadisePoker.com, ultimatebet.com and PartyPoker.com. Moneymaker was among 37 players sent to the tournament after paying $40 and qualifying at PokerStars.com. “We’ve proven that people who play on the Internet are just as good as those who play in casinos,” said Dan Goldman, vice president of marketing for PokerStars.com.
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.”