The Mouthpiece


By Martin Owens
Contributing Editor


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    Martin Owens

    States of Confusion

    U.S. Local Politics Block Rational I-gaming Policy

    "there have been equal confusion, insecurity and injustice in the administration of the State governments...."
    W.H. Wharton


    Philadelphia, PA (Sports Network) - Europe moves ahead

    The thing about conventional wisdom is, you always have to be ready to kiss it goodbye. One conventional belief( among Americans, anyway) is that European governments are , well, not quite as effective as ours. Prone to be distracted by old prides and old prejudices; can't quite bring themselves to do the right thing at the right time. That's why they're fun to visit but you wouldn't want to live there.

    Here's another: U.S. State governments should be first to authorize and license expanded Internet gaming because it's an easy income source. Because it will actually help protect the problem and underage gamblers: inasmuch as the unlicensed sites are accessing the American market at will anyway, a licensed and supervised state system will provide a rational alternative. Because they can move much faster in responding to popular feeling, and Internet gambling, especially poker, is very popular.

    But this time it looks like two conventional wisdoms going down for the price of one- at least as far as I-gaming is concerned.

    First, the Europeans are wising up. France and Italy, through the EU Treaties, had an obligation to allow other European operators access to their home markets - a mutual obligation of member countries. Now, after years of essentially slipping and sliding and defying the EC council's directions, they are finally hammering out the fine points of Internet poker within their respective borders. Most of the rest of Europe is already there.

    Second , by comparison U.S. authorities are all over the road. Some U.S. state governments are taking the first small steps toward a sane , licensed I-gaming regime -California, and Florida are contemplating bills for study, perhaps implementation, and Iowa and New Hampshire, have begun to debate it . But at the same timed other states are taking backward steps and dumbing down the debate. Massachusetts is trying to outlaw I-gaming, Minnesota is trying to blacklist it, and Kentucky, having been balked of confiscating I-gaming URLs, is trying to sue online operators for triple "damages" that the State of Kentucky is not entitled to- not that there's any way to prove or even estimate them, let alone collect.

    Roots of U.S. Stagnation

    The American confusion stems from the separation of powers. The Tenth Amendment to the Constitution specifies that powers not specifically granted the Federal government go to the states and the people. Since gaming was believed to be a minor crime at the time, it fits under the general police power, reserved to state governments. Which means that each state government gets to set its own gambling policy. This was no particular problem when everybody in a given poker game, for instance, necessarily had to be in the same place at once. Then, there was no question about jurisdiction.

    But today, when people can wager and play games across continents, real-time, jurisdiction can be a real problem, especially for online gaming operators. If a resident of State X accesses an offshore gambling site, does that mean that the operator has violated X's gambling laws? Is that sufficient, by itself, to confer criminal or civil jurisdiction on the authorities of State X? To this day, 15 years after the inception of Internet gambling, the question has barely been discussed, let alone resolved.

    Naturally, state authorities will say of course their laws cover Internet gaming, too. Sadly, the facts are mostly otherwise. Only eight American states even mention the Internet in their gambling laws. Of the rest, 16 states and the District of Columbia don't even have a coherent statutory definition of what gambling is or isn't in the first place. And now this is more than a matter of local preference.

    The Need for One Policy

    For, like it or not, Internet gambling is a global market, and any venture into the industry will necessarily connect with that global market sooner or later. True, UIGEA authorizes Intra-state networks. But let's take the example of New Hampshire or Iowa, two of the smaller states that are playing with the idea of legalizing I gaming. Neither one of them has a big enough population to support an in-state only Internet gambling network. Just as with horse racing and state lotteries, one state legalizing Internet gaming would immediately exert pressure to expand it into a nationwide state to state network, so as to maximize the prizes, the number of participants, and the profits all around. Under US gambling law- and this includes UIGEA and the Wire Act, whether or not certain factions want to admit it- if a gambling transaction is legal at Point A, and legal at Point B, then it is also legal between Point A and Point B.

    The problem is: in order to enter the market effectively and quickly, rather than reinvent the wheel, U.S. state governments are going to need the help of proven and experienced offshore operators. But those operators are being quite cautious about approaching the American market openly. Beginning in 2006, the US Department of Justice staged a number of very public arrests of foreign gaming executives, and used its administrative wallop to squeeze "voluntary settlements" out of their companies and service providers. The memory of this has made foreign operators more than a little wary of operating in the USA again- either that, or it has driven them underground.

    Either way, a foreign Internet gambling operator today sees little reason to play by the U.S. rules. Because, as a practical matter, there aren't any yet. In all but the largest and most populous states, an Internet gambling operator is going to want to look at the United States as one market. But how can he do that when Internet gambling might be legal in New Hampshire, is against the law in Massachusetts, maybe or maybe not in Connecticut, and they haven't thought about it in New York yet? From his point of view, it's not even a playing field that ain't quite level- it's a minefield. Mr. Dicks, CEO of Sportingbet, was picked up in New York on a complaint written in Louisiana. Why should someone like him have to interpret the difference between different state gambling laws, when the states themselves won't do it?

    What is needed is some kind of guideline between the various states, particularly between those that want to participate in Internet gaming and those that don't. It should be legislation, but if that's too difficult, it could be in the form of state Attorney Generals opinions, or even letters of understanding between responsible public officials. After all it's been done before with horseracing bets, Powerball and MegaMillions. Before foreign operators will seriously look at participating in state licensed I-gaming, it needs to be clear that no one has to face the guillotine if an online gambling site accidentally takes a play from two miles over the wrong state line, or if someone accesses his poker account from an unapproved airport. We need rules of engagement. We need a Truce of God to the on-again, off-again, fundamentally dishonest anti-gaming jihad, especially against the Internet, by states that license plenty of their own gambling.

    If not, then we will have no choice but to wait for the fairly distant day when a national scheme to license Internet gaming is imposed on everybody from Washington. Such as scheme will be sure to contain lots and lots of things that nobody likes. There will be the necessity of state governments having to share revenue with the Feds that they could have kept for themselves. There will be the question of what to do when Indian gaming tribes and state governments disagree with each other's policies. There will be the imposition from afar of standards that don't fit local conditions. Finally, a little bit more of the state sovereignty envisioned by America's founding fathers will be eroded.

    But, as they say in the cop movies, if you won't do it the easy way, there's always the hard way.

    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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