The Mouthpiece


By Martin Owens
Contributing Editor


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    Martin Owens

    OOPS!... State-run I-gaming and its hidden perils... for the state.

    Philadelphia, PA (Sports Network) - British Columbia opened up Playnow.com, its expanded I-gaming site, on July 15th. It was the first government sanctioned online casino in North America. Nine hours later, the site crashed and was taken offline. What was the problem? Well, it seems that the player accounts weren't properly accounted for, and for a short while it was possible for player A to play with player B's money. There also seems to be a question as to whether the site was able to service all the players who showed up.

    The official site is still down, with a posted notice: "A solution has been implemented and we are now in the process of third party testing and verification. Once complete, next steps will be to receive regulatory certification and the site will be re-launched." Here's wishing that they get back on their feet soon, ready to go.

    Government's role in gambling

    British Columbia's bad luck, however, may be a blessing in disguise for other jurisdictions which are considering offering Internet gambling of their own. There are the obvious lessons: look before you leap, double and triple check everything. But there are other, deeper considerations that merit a second look as well.

    Governments who actually run gambling operations are in a self-imposed quandary. On the one hand, the conventional wisdom is that gambling is dangerous to the young, weak willed, and unwary, and must therefore be suppressed, or at least tightly controlled. On the other hand, the usual reason for allowing expanded gaming is the revenue it will bring in. Raise a business man's taxes $500, and he'll turn around and lay out $1000 to beat them. And consider it money well spent. Next, to celebrate, he'll go to Vegas for the weekend and lose $2000. The gambling table is the only place where citizens step up and put their money down, no questions asked.

    It's a built-in conflict of interest. The government profits from selling the citizens something it believes they shouldn't have in the first place, something they need protection from. So, if gambling is harmful, why is the state peddling it? If it's not, why they controlling it so tightly?

    And there are more immediate and real-world concerns, like liability. People in trouble (like problem gamblers who have lost all their money) tend to sue the deep pockets , and there are no deeper pockets than the government's. Quebec has just this year settled a massive class-action lawsuit against Loto-Quebec, the province's gambling authority. The case of Brochu c. Societe des loteries du Qu?bec will cost the province $50 million as it covers the rehab bills of 120,000 problem gamblers. Even so, they got off lightly: the original claim was for $1 billion. A sobering thought! Canadians, after all, are not known as particularly litigious people. New York, California, and Florida, all mentioned as front runners to legalize I gaming in the USA, also contain powerful plaintiff's bars, and a citizenry notorious for suing at the drop of a hat. American state governments will probably need them much more in-depth defense.

    Checklist

    Since so many American states, and even the Federal government, are now dabbling with the idea of legalizing and licensing Internet gambling, it's time to ask some basic questions. What would a state government have to prepare for, adjust, or eliminate in order to properly handle the new challenge is coming with Internet gambling?

    First, many states would have to get rid of their Puritan era laws which decreed that gambling debts are uncollectible. All very well to be vindictive toward petty criminals, but now these laws stand in the way of collecting state revenues!

    Second, the fundamental decision will have to be made - does the government directly own and control the gambling business? This could make a huge difference in potential liability. Probably the best model is the state of Nevada, where state authorities license gambling businesses to operate, but do not actually own them. This makes it far easier to supervise and, when necessary, discipline those businesses. The lines of authority and liability are clear and simple. If, on the other hand, state authorities insist on actually owning and operating the action, it is inevitable that they will face "devil-made-me-do-it" lawsuits like the Quebec class-action. Direct control may be satisfying to the bureaucratic mindset, and those who believe the government should control everything in the first place, but it could get expensive.

    Third, a very visible effort to prevent and control problem and underage gaming will have to be part of the effort from the very beginning. From the point of view of Internet gambling this will be much easier to do than with land based gambling. Returning again to the Quebec example, it is far easier to trace the activity of account bettors online than to look in every bar, hotel, and gas station to check out how the video lottery terminals are being used. Internet gambling automatically creates a record

    That would make it possible, number four, for the lawmakers to limit the liability that the state and any licensees operating Internet gambling under their supervision. In fact, three and four need to run as an entry- problem gamblers will be prevented, as much as possible, from injuring themselves. In return, claims made against the state or its licensed operators will be limited to the amount actually bet or at risk. Awards for pain and suffering, mental anguish, lost income, punitive damages, and the other favorites of jackpot lawyering should be taboo in this context.

    A fifth, and still very important consideration would be the state's reputation. If the gambling is provided by private parties under license, errors, failures, and plain old bad luck are on them. If the operation is entirely state run, as with British Columbia and Quebec, the government owns all the bad things that happen, no exchanges, returns, or refunds. In any case, it would be much quicker to license a reputable and successful Internet gambling operator. Nothing makes up for experience, and the time pressures associated with Internet commerce are the most intense in the world. Not only does it not pay to reinvent the wheel; there isn't time, especially when several states are each looking to be first.

    Along that line, it isn't possible to micromanage Internet gambling in the actual legislation, and probably a bad idea to try. The industry is simply changing too fast, and the legislative process was never meant to supervise such a nimble technology in fact, the principal problems with American state gambling laws is that so many are hopelessly outdated, with precise, detailed descriptions of games and gaming devices that went out of use a century ago, and righteous denunciations that newfangled radiophone. It's amusing to read buggy-whip laws, but little sad, too. The best thing to do would be to write a plain-vanilla law for authorization, and leave the details to the state gambling control commissions. This is not a particular challenge anymore. The Internet has been around for almost forty years now, and Internet gambling for the past fifteen. That means that there is a pool of experienced and knowledgeable people to draw from.

    Steps toward the future?:

    In sum, not only is the licensing and legalization of Internet gambling perfectly possible, it is probably inevitable. But what the various affected governments need to do is take a little forethought and get it right.

    Because there's one more important thing to remember: in this business the customer is God. In the digital world, a legal monopoly for a certain location doesn't mean what it used to mean. Nobody HAS to play, and when they want to, they have other choices than the government offering. The offshore industry is still out there. If the governments can't or won't compete effectively, the market goes to the wise guys by default. Just like it's doing now.

    Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming since 1998. Co-author of INTERNET GAMING LAW with Professor Nelson Rose,( Mary Ann Liebert Publishers , 2nd ed 2009) ; Associate Editor , Gaming Law Review & Economics; Contributing Editor, TSN. Com Comments and inquiries welcome at to mowens@trade-attorney.com.

    Copyright 2010


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