Diversity of Online Gambling Landscape Creates Ambiguity

JURIST Guest Columnist Patrick Fleming, Litigation Support Director at the Poker Players Alliance, says that the recent decision by the Department of Justice to permit online non-sports gambling has bolstered the legitimacy of Internet betting, but the gambling landscape remains a patchwork of many distinct standards and statutory definitions...
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On December 23, 2011, the US Department of Justice (DOJ) released a public letter officially reversing its long-standing position that all gambling conducted over the Internet was illegal under the Wire Act and instead determined it was applicable only to gambling conducted with respect to betting or wagering on sporting events or contests ("sports betting"). As this news quickly spread through the world of Internet gambling and poker, reactions among that community were uniformly positive, though at varying levels.

Despite what some have opined, Internet gambling, other than sports betting, did not just become legal in the US. Instead, what has changed is the method for determining the legality of Internet gambling activity other than sports betting. Where the DOJ used to argue that the Wire Act created one federal standard making all forms of Internet gambling operations illegal throughout the US, it has now recognized that no such single standard exists (a position the Poker Players Alliance (PPA) has long held based on its legal analysis and interpretation of case law, namely In Re MasterCard International, Inc.). In sum, at least with respect to Internet gaming, where the DOJ's approach to the Wire Act used to be "E Pluribus unum" (out of many, one), it is now "Ex uno plures" (out of one, many). Whether this will or should remain the case is a matter of much debate that this article hopes to address.

To be sure, the federal government is not without other methods to prosecute Internet gambling other than sports betting. There are three other federal laws which create gambling offenses: the Travel Act, the Illegal Gambling Business Act (IGBA) and the Unlawful Internet Gambling Enforcement Act (UIGEA). Each of these statutes makes certain gambling operations under certain circumstances illegal under federal law. Unlike the Wire Act, none of these statutes creates an independent federal crime of illegal gambling; instead each requires, as an element of the federal offense, that the activity also violate a state gambling law (the PPA believes that the IGBA and UIGEA only apply to games of "chance" and thusly a game of predominant skill, like poker, would not violate these statutes).

Of course, each US state has laws making certain gambling activities illegal, but no two are identical. The result then is a patchwork of many distinct standards and statutory definitions whereby the same activity may be prosecutable by the federal government when it takes place in one state, but not prosecutable when it takes place in a different state. Therefore, without the overarching applicability of a single federal statute like the Wire Act, the future dynamic has shifted dramatically. It is quite possible that some online gaming is already legal in some states. If an online operator can correctly identify those states where the operation is not illegal, and confine its operation to those states, that operator can operate without fear of federal prosecution.

This, as noted, is hardly an easy task. Many state gambling laws were written decades ago, well before anyone even dreamed of something called the Internet. According to a summary of state laws, only nine states have a gambling statute that expressly references the Internet (Illinois, Indiana, Louisiana, Montana, Nevada, Oregon, South Dakota, Washington and Wisconsin). Among the other 41 states, one often finds statutes such as Rhode Island's 11-19-18 and Arkansas's 5-66-103, which prohibit gambling specifically in reference to gambling places and gambling devices. How can anyone say for certain whether such statutes apply to Internet gambling? On the other hand is a statute like Maryland's 12-102, which makes it illegal to "bet."

To add to that, the definition of gambling varies from state to state, and states may make different decisions about what is or is not gambling even if they are using the same standard. For example, in most states gambling laws are limited to those games where chance predominates over skill in the determination of the outcome. Many scholars and lawyers believe the game of poker to be one of predominantly skill (the PPA certainly does and has participated in litigation on the subject in many states). Since states are able to answer this question independently, in some states poker may be declared illegal gambling, and in other states it may not.

In sum, what forms of online gaming are legal or illegal under state law is an exceptionally open question that should make current and future federal prosecutions very interesting cases to watch.

However, far and away the most dramatic effect of the DOJ change in position is the possibility of states changing their laws to specifically allow for online gambling. Previously, the DOJ had advised state legislatures that any venture into state regulated online gambling would be illegal under the broad reading of the Wire Act. It did so explicitly in North Dakota in 2005. More recently, in Nevada and New Jersey, the DOJ was reported to have told state legislators that the Wire Act limited those states to passing online gaming laws that only allowed persons located within that state to participate. All of that posturing is now gone.

Without the federal prohibition contained in the Wire Act, states are free to allow any and all forms of online gambling they want. Most importantly, states can allow cross border play so long as the specific activity is legal in both jurisdictions. States that want to allow Internet gambling can now do so without fear of federal government interference. If New Jersey wants to allow its citizens to play online slot machines, it can now clearly do so. Indeed, the state of Nevada has already begun the process to license and regulate online poker operations from within its borders. The only legal issue regarding Nevada allowing its operators to accept players from other states is the law in that other state. Even if current law in that other state would prevent Nevada online poker sites from accepting a play from that state, that state could change its law. That state could also require concessions or make deals with the sites, or from Nevada directly, in exchange for changing its laws.

Essentially, out of the changing of this one overarching interpretation of one federal law will come many new laws regarding Internet gambling that will vary from state to state. These laws will most likely develop along different paths including choosing some games over others, creating government monopolies for online gambling, partnering among states and, in some cases, banning some or all online gambling outright.

For some games, such a mixture of state policies will be merely an interesting development to watch. For online poker players, a patchwork of differing state laws may actually be counterproductive. Poker players play against each other, not the operator. Accordingly, for poker players to get the most enjoyment out of their game there needs to be a large number of other players wanting to play at the same time, allowing players to choose from a wide variety of games and stake levels.

Having too few total poker players means that many will not be able to find the game they want at the time they want. Additionally, not playing against the operator means that to make money the operator must take money from the total amount of the players' wagers. An operator who takes too high a percentage can therefore easily turn a winning poker player into a losing poker player. Realizing this, players fear the game being operated in a manner that does not allow operators to compete. Only competition will ensure that the operators' take is kept to levels that still satisfies players. In the end, the "many out of one" created by the DOJ letter will lead to many interesting developments. However, "many" may not be the best result for poker players. Instead poker players will likely see the need to create a new "one out of many" — a single poker market with open competition, licensed and regulated at the federal level.

Patrick Fleming is the Litigation Support Director at the Poker Players Alliance and is also a sole practitioner in Portsmouth, New Hampshire. Prior to founding his own private practice, he served as a Public Defender in New Hampshire for five years. His areas of expertise are criminal defense and civil rights litigation.

Suggested citation: Patrick Fleming, Diversity of Online Gambling Landscape Creates Ambiguity, JURIST - Hotline, Jan. 10, 2012, http://jurist.org/hotline/2012/01/patrick-fleming-online-gambling.php.



This article was prepared for publication by Stephen Krug, an assistant editor for JURIST's professional commentary service. Please direct any questions or comments to him at professionalcommentary@jurist.org

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