I. Nelson Rose
Professor of Law, Whittier Law School
Home Office: 17031 Encino Hills Drive
Encino, California 91436
(818) 788-8509
Fax: (818) 788-3104
Web Site: www.GamblingAndTheLaw.com
Email: rose@sprintmail.com
Prepared for the
Fifth Annual International Symposium on Internet Gambling Law and Management
Dublin, Ireland
Nov. 25-27, 2001
NOTE: The following is an excerpt from Chapter 18 of Gambling and the Law®: The Law of Internet Gambling, to be published next year by Mary Ann Liebert Publishers.
Is it legal to advertise gambling on the Internet? Can an operator run commercials on television or radio, send advertisements through the mail, or put up billboards? What about non-operators? Is the television or radio station putting its license in danger? Will a magazine be pulled from the mails by the U.S. Postal Service? Is the billboard company or advertising agency potentially civilly or even criminally liable? Can a non-gaming website set up hyperlinks to sites which accept money for wagers?
The answers are often far from clear and can be radically different depending upon the relevant facts and applicable law. But there are ways for individuals and businesses to lessen their potential liability. The law, meaning statutes, regulations and court decisions, is the base. But the reality of how prosecutors decide which cases to file plays an important part.
It is probably best to think of advertising landbased casinos and other traditional forms of gambling on the Internet, and advertising Internet gambling online or anywhere else, as a continuous spectrum of risks. Note that this is not merely a spectrum of legality, from the fully legal to the fully criminal. It is a measure of the chances of being arrested or sued. Although the law is supposed to underlie all actions taken by law enforcement, practicalities and politics also play a role.
Individuals from the cop on the beat through attorneys general to judges have prosecutorial discretion: not every law-breaker is arrested, charged or convicted. Institution discretion also is part of any decision whether to go after anyone involved with Internet gambling. The elimination of illegal gambling of any kind has a very low priority, unless organized crime is involved. Advertising brings in the First Amendment, which only means headaches for a government regulator. The rapid development of the Internet, with its ever-changing laws, has created complex legal issues, which have never been tested, let alone answered. Although states are the primary defenders of public morals and protectors of their citizens welfare, difficult questions arise when they try to reach outside their own borders. The situation becomes even more complex when state tries to apply its local laws on a foreign sovereign. Most government lawyers would spend a few minutes prosecuting car thieves than hours figuring out how to even go after an advertiser of Internet gambling.
It is possible to be 100% safe - don't accept any ads! But it is equally safe to be advertising a legal form of gambling only in the state which owns or licenses the game under a statute which specifically allows these ads. Legal tribal gaming, either Class II, like bingo, or Class III, casinos, lotteries and off-track betting conducted under a tribal-state compact, is equally as safe. This is especially true in the state where the tribe is located, although it must be emphasized that we are talking about advertising here, not conducting a game online.
On the other end of the spectrum of risks lies unlicenced operators, who are physically present in states with activist Attorneys General armed with laws prohibiting advertising Internet gambling, can increase their chances of being arrested to 100% by going on T.V. and announcing that they are accepting bets from that state. Violating an agreement with an A.G. is also asking for trouble, and I frankly cannot understand why anyone would do that, although it happens. The goal of everyone in between is to figure out how to come as close to the risk-free end of the spectrum as they can, and still make money.
Factors - How To Lessen The Risk Of Becoming A Defendant
For Both Gaming Operators And Everyone Who Takes Their Ads:
For Anyone Not Directly Involved With Gaming:
There are two great misconceptions about the laws surrounding Internet gambling. On the one hand, some individuals, especially gaming web operators, believe that there are no laws, that the Internet is like the Wild West, or that they are protected because they are licensed in a foreign jurisdiction. I had dinner with Jay Cohen and others involved with online gaming at the First Internet Symposium on Internet Gambling Law & Management in Washington, D.C., in November 1997. Cohen told me he did not have to worry about being arrested, because he was licensed in a foreign country. He did not want to hear my warning, that the federal government was not going to agree. The federal Department of Justice did, in fact, file a criminal complaint against Cohen, charging conspiracy to violate the Wire Act. Even though he was taking sports bets by phone and online from Americans, Cohen still thought the charges would be dismissed. He became the first person to be convicted by a jury in the U.S. for taking bets online.
On the other hand, some individuals, especially law enforcement personnel and government attorneys, believe that everything connected with Internet gambling is illegal, including advertising.
The truth is that there are some restrictions on the information that can be published or broadcast about many forms of Internet gambling. However, often the government has not passed laws which would cover advertising, and the statutes which are on the books are unconstitutional, because they violate the First Amendment right to free speech and a free press.
Before looking to the constitution, it is first necessary to see what restrictions actually exist.
First are the limits that apply to all forms of public speech: libel and slander; false or misleading ads; misappropriation of celebrities' names or likenesses (Arnold Schwarzenegger filed suit against IGT for $20 million claiming it used his voice and likeness as the Terminator without his consent on slot machines); invasion of privacy (using pictures of big winners without permission); various unfair trade practices, such as antitrust violations, passing off your product as another's, falsely maligning a competitor's product, use of bait and switch come-ons; violations of copyrights, trademarks and trade names. Some of these categories overlap; there may be both civil and criminal liability, and some fall under both state and federal jurisdiction.
Pornography, especially the use of underage models, is a real concern, because there is a perceived connection between gambling and sex. The problem is not with the many gaming sites which use attractive women models in their advertising, but more with having links to X-rates sites, which, may be illegal themselves or may be linked to sites which are clearly illegal. One interesting development: DrHo.com has 60 dealers, all attractive young women, in revealing red outfits on its live casino website. The online casino, part of Stanley Ho's gaming empire, announced it is teaming up with Victoria's Secret, the maker of even more revealing lingerie. Victoria's secret also sells less intimate attire, so we will have to just wait and see what the dealers wear, or don't wear.
I have mentioned the most common restrictions on public speech. There may be others; but I am concerned here only with the additional, special restrictions placed on Internet gambling.
There are some problems unique to the Internet, shared by gaming and non-gaming operators. Cybersquatting is the word coined to describe someone reserving a website address which is identical to another company's name. The problem developed when individuals registered addresses like "www.panasonic.com" and then tried to extort money from the real Panasonic. Congress reacted by passing a powerful law, which gives the aggrieved party the right to sue and possibly drag the defendant to a courtroom on the other side of the country, or the world. It is also dangerous to use another person's trade name without permission to increase traffic. Sprinkling the word "Playboy" throughout your site to attract search engines will also attract the attention of Playboy's legal department. The law is less clear when it comes to creating hyperlinks to a site without the other site's permission.
Making Your Web Site Too Good Can Get You Into Trouble
Take the lawsuit filed by the National Football League against Ken Miller, doing business as the website nfltoday.com. Miller is a resident of California and nfltoday.com, if it is located anywhere on Earth, is in California. The NFL is a New York company with New York lawyers, who naturally filed the lawsuit in New York. Miller did not do any business directly with New York through nfltoday.com, not even advertising anything for sale. In fact, District Court Judge John S. Martin, Jr., noted that the web site operator "rarely sells anything to his visitors."
Yet Judge Martin went on to rule that Miller had to appear in his New York courtroom.
Miller made his income from selling advertising space on the nfltoday.com web site. Some of those advertisers were foreign sports books, willing to take bets from Americans. The NFL suit alleged Miller was using its trademarks without authorization and violating its copyrights. Its main complaint was that nfltoday.com was linking (in both a psychological and cyberworld sense) the NFL with gambling, causing damage to the NFL in New York.
Miller's problem was that he did too good a job in designing nfltoday.com. The web site itself provided information which might prove useful to anyone who wanted to make a bet on an NFL game. With a name like nfltoday.com, Miller was obviously targeting NFL fans. Judge Martin found that Miller "had to recognize that, since there are two major NFL teams that some people still refer to as the New York Giants and New York Jets even though they play in New Jersey, it was likely that his site would ultimately appear on thousands of computer screens in New York."
Miller's error was creating hyperlinks both to electronic bookies and to the official NFL site, nfl.com. To the NFL the final insult was that anyone who clicked on the link to nfl.com would see that site appear in the center of his or her screen, framed by the nfltoday.com site.
We will never know whether Miller would win or lose at trial. It seems likely that the NFL would lose on the merits, because it would have to prove that computer users were confused by nfltoday.com into believing that the NFL itself endorsed gambling. My personal belief is that anybody interested enough in betting on football to go to a site named nfltoday.com and then jump to the official site or an online sports book knows exactly how the NFL feels about gambling on professional football games. However, Miller greatly weakened his case by using a name that was virtually identical to the name of the NFL's own T.V. show, "NFL Today."
But, it's not whether you win or lose, but can you afford the lawyers. The problem is the cost of the lawsuit itself. Lawyers usually want cases to settle. They know that the longer the legal battle drags on, the more unhappy the client will be, even if the client eventually "wins." A major, unspoken goal of pre-trial legal maneuvers is to make fighting the case as expensive as possible for the other side, while keeping costs down for your own side. An easy way for a lawyer to do this is to have the case heard in a local court, especially when the opposing party is located on the other side of the country or the world.
Because California-based Miller had to find a New York law firm and travel 3,000 miles if he wanted to be present at every fifteen minute hearing, the case has been settled. By the way, do not bother looking for www.nfltoday.com. Miller, "as a courtesy to the NFL," changed nfltoday.com to badbet.com.
Do Not Intentionally Direct Your Advertising To A State With An Unfriendly A.G.
The first case involving the advertising of an Internet gambling website was filed in 1996 in Ramsey County District Court, a state court in Minnesota. The plaintiff was Hubert H. ("Skip") Humphrey, III, then Attorney General of Minnesota. The named defendants in the case were Granite Gate Resorts, Inc., and its president, Kerry Rogers. The court found various other Internet entities were linked to Rogers: On Ramp Internet Computer Services, WagerNet, All Star Sports and Vegas.com.
Rogers's basic idea was twofold:
1) to sell information on sporting events that would be useful for making wagers; and
2) "to match up bettors on any sport, anywhere." As he told CBS Evening News, "Someone could be taking a bet in Finland and placing that wager against someone in Ecuador." The "vig," or fee charged for betting, would be 2-1/2%, much lower than a Las Vegas bookmaker's. The gambling operation would be licensed by the country of Belize.
In December 1996, District Judge John S. Connolly held that his state can regulate Internet betting, when Minnesota gamblers are being solicited. The Court ruled that Skip Humphrey could seek an injunction to keep unlawful gambling advertisements from entering the state, even if the only way to access those ads is via a computer and modem. The Court of Appeals in Minnesota agreed, ruling that it was fair to force this Nevada company and its Nevada owner to defend a lawsuit halfway across the country. The justices of the Minnesota Supreme Court were exactly evenly divided, 4-4, so the appellate decision stands as a precedent and a guidance of what not to do when advertising online gambling.
The United States Supreme Court has declared that an out-of-state defendant can be sued in a state if it has "minimum contacts" with that state. Even a single advertisement in a state can be enough, if the plaintiff is suing on a cause of action directly arising out of that ad. The lawsuit was a civil suit, no one was charged with any criminal wrongdoing. The plaintiff's cause of action was directly connected to the defendant's connections with the state. Skip Humphrey's suit alleged false advertising, because Granite Gate advertised, on its own site, that it would soon be offering legal sports betting.
No government attorney today would file suit based solely on advertisements, there are simply too many websites advertising Internet gambling. A claim of false or deceptive advertising might be thrown in against an operator who was actually taking bets online. But individuals and companies doing nothing more than advertising are relatively safe.
Non-gambling businesses are still at risk if they blatantly advertise Internet gambling in a politically charged environment. The Director of New Jersey's Division of Gaming Enforcement ("DGE") filed complaints against Internet casinos in June 2001, not to put the operators in jail. The goal was to remove billboards directly across from state-licensed Atlantic City casinos. And it worked. The billboard company immediately took down the ads.
Casinos are a very hot topic in Arizona, because the spectacularly successful
tribal casinos are fighting for their lives in court and with the State Legislature. This is
not a good time to be advertising a gray area of gaming. Gail Thackery, the Arizona
Attorney General's Office computer crime specialist, told the Arizona Republic, "One
radio station in town was running a lot of ads for an Internet sports book. We sent
them a strongly worded It does not matter that
Arizona, like New Jersey, does not have a statute which explicitly prohibits gambling
on the Internet, let alone advertising of an online operation. Another danger arises when a prosecutor mistakenly believes the advertiser is
directly involved in the gambling business, as happened to MonetizeMedia.com. This
company had links to offshore gambling sites, but it claims it was paid a flat fee and
did not receive a share of the wagers or winnings. MonetizeMedia.com had the bad
luck to be physically located in Houston when the Texas Attorney General decided to
investigate web gaming. No charges were ever filed, although investigations are
supposedly continuing. A state court ordered the Attorney General to return the
computers, documents and money seized. It is important to note that
MonetizeMedia.com was not accused of mere advertising. The government
investigators alleged it was promoting illegal gambling by taking a cut of the profits. So what did Granite Gate do wrong? It was partly a matter of being in the
wrong place at the wrong time. Skip Humphrey was not a rapid anti-gambling activist.
But he was a crusader against what he considered frauds against consumers. He filed
suits against many online operators, having nothing to do with gambling. Granite Gate
was swept up in the crusade, because it was one of the few operators at the time who
seemed to be saying that Americans could place bets with their computers. But Kerry Rogers also did not cooperate with the Attorney General. It should go
without saying that if any official, such as a court or an attorney from the highest office
of law enforcement in a state tells you to do something, you do it. If they tell you to
stop - you stop. Here Rogers refused to turn over the WagerNet mailing list, even
after being ordered by the judge. The court punished Rogers for failing to cooperate
with his discovery orders by declaring that it would take as an established fact that the
mailing list includes Minnesota residents. It is important to note that the case did not decide that anyone actually did any
false advertising. It is not clear that merely advertising on your own website, even if
the ads are intentionally misleading, makes you liable for a claim of false advertising in
another state. In the case of Granite Gate, it would have been difficult for Humphrey
to have won, because the web operator was not yet taking any bets, so there were no
damages. But the case never went to trial, because it was too expensive to defend. The courts decided only one question, but one of great practical importance:
Can the trial courts of a state, called the forum state, exercise power over an out-of-state Internet gambling operator, who directs his advertisements residents of the forum
state? The fight was over what the law calls "personal jurisdiction." The tests are well-settled: Did the out-of-state defendant have sufficient
"minimum contacts" with the state so that it would be fair to try him in Minnesota?
When the lawsuit is based on the contacts the defendant has with the state, such as this
claim for false advertising, courts look primarily at whether the defendant purposely
directed his sales-pitch to the Minnesota market. If someone has to go to your state,
even your website, for information, you have a strong argument that you are not
directly your business toward citizens of that state. The more interactive your site is,
the more likely it becomes that you will be forced to defend yourself before a foreign
court. The safest strategy for an operator is to block residents of certain states from
playing for money. Of course you have to ask for an address. But you should do
more. This does not mean Geo Positioning Systems (GPS), which are accurate to
within 20 yards, but require orbiting satellites and the cost of installing a GPS on every
computer. There are other geographic locators available, like www.infosplit.com.
This company has come up with a less accurate, but cheaper, solution: It keeps track
of every computer server in the world. Click on www.infosplit.com and see if this
company's computer tells you where your computer is at that moment. If a gaming
operator will not accept bets from a state, there is no reason for anyone to be concerned
about advertising in that state. Rogers also made his case weaker by requiring patrons to agree that WagerNet
had the right to file suit in an appropriate court in "your state" if any disputes arise.
This is the same as saying WagerNet is going after customers in every state. It also
made it difficult for his lawyer to argue that it would be inconvenient to defend in
Minnesota. After all, if he could file a lawsuit in that state, he could just as easily
defend one there. The Government Has To Find A Law Which Might Apply It is very unlikely that a private citizen will file a suit against an advertiser of
Internet gambling, if the advertiser is not involved in the business of gambling. Even if
the advertising is by the actual gaming website operator, a patron might sue to get his
money back, but not to stop the advertising. But government regulators and attorneys
may want to stop the ads. The Federal Communications Commission and the
Department of Justice ("DOJ") could try to punish a radio or television station which
ran commercials. Less likely, the U.S. Postal Commission, and again the arm of the
federal government which enforces federal law, the DOJ, might seize mail or refuse
magazines second-class postal permits. The federal government has so far shown
virtually no interest in the advertising of even unlicenced Internet gaming websites.
But the state attorneys general would like to put Internet gambling out of business. If
an operator appears to be connected with organized crime or is publicly declaring that
they cannot be touched, state prosecutors will act. When prosecutors decide to go after an advertiser, they first have to find a law
which might apply. Normally, the search begins with state statutes, bills that have been
passed by the state legislature and signed into law by the governor. Rarely, they will
look to federal statutes, Acts of Congress approved by the President. Even regulations
from administrative agencies will be perused. What they are looking for are laws that
either directly or indirectly prohibit the specific actions they want to stop. The most direct attacks are laws which specifically prohibit the advertising of
those forms of Internet gambling which have not been approved by the state. Usually
there are no such laws, so prosecutors turn to statutes which make the promotion of
gambling in general a crime, or restrictions on false and deceptive advertising. Indirect attacks are a two-step process. First, the government attorneys claim
that Internet gambling is illegal. Second, they try and link the advertiser to the
allegedly illegal activity. This can be done through the laws making anyone who aids
and abets a crime guilty of the crime itself. If everything else fails, an Attorney
General or District Attorney will fall back on conspiracy statutes, which can usually be
stretched to cover any illegal activity involving more than one person. If government attorneys find a law which could conceivably apply, they then
have to decide whether they will go the civil or criminal route. Because the goal is to
stop the activity, not put dangerous people away, they will usually file a civil suit.
Given the choice, an A.G. or D.A. would always prefer to file a civil complaint, where
they only have to prove their cause of action by a preponderance of evidence, meaning
convincing the jury that there is slightly more than a 50% chance that their allegations
are true. Prosecutors tell war stories of obviously guilty individuals, like O.J.
Simpson, who got off scot-free of criminal charges after murdering two people,
because juries would not agree unanimously that the defendants were guilty beyond a
reasonable doubt. Trying to charge an advertiser with a crime is even worse. Not only
will the defendant raise the First Amendment, but the case will probably not even get to
the jury - almost all judges will dismiss criminal charges, when the only crime charged
is advertising. And few jurors would convict a person merely for advertising anything.
So, if a case is going to be filed against an advertiser at all, it will almost surely
be a civil suit. The plaintiff will ask for an injunction, a court order that the defendant
cease advertising, and a declaratory judgment, a ruling from the judge that the activity
is illegal. The government might also seek damages, but it is usually willing to waive
most of its claim for money. An example: In June 2001, the Director of New Jersey's Division of Gaming
Enforcement ("DGE") filed complaints against three Internet casinos. These were civil
suits; no one was arrested or charged with a crime. But the complaints did allege that the
owners, operators and everyone associated with these online gambling websites had
violated New Jersey's Code of Criminal Justice and were committing other crimes. The
bad behavior which caught the DGE's attention? Advertising on billboards in Atlantic
City. Let's look at one of the complaints in detail, the case of State of New Jersey v.
7Sultans.com, Bob Fontain and John and Jane Does, filed June 18, 2001, by John J.
Farmer, Jr., Attorney General of New Jersey. The A.G. is much too busy to actually sign,
let alone draft complaints. So the actual work was done by John Peter ("J.P.") Suarez,
Assistant Attorney General and Director of the DGE and Mark S. Herr, Assistant
Attorney General and Director of the Division of Consumer Affairs and their assistants.
The object of the complaint was to eliminate signs advertising an online casino, 7 Sultans,
as www.7sultans.com. Of course, there were other foul deeds alleged, including not only illegal gambling
but allowing "Underage Gamblers" (always capitalized in the complaint) to gamble. But
it is clear that the DGE decided to go after this one online casino, among the hundreds
taking bets from New Jersey, because it alone posted its advertising across the street from
Atlantic City's licensed casinos. The complaint is careful to never mention the fact that a lot of people entering and
leaving the state's land-based casinos would see the billboards. Instead, the allegation
stated that "a billboard on Schiff's Central Pier, 1400-14 Boardwalk, across from St.
James Place, Atlantic City, New Jersey, advertised Sultans' illegal activity.
Anyone walking east on the Boardwalk could easily view this billboard. Its
background was solid red. The right quarter contained an outline of a
minaret with the phrase "7 Sultans Casino" printed vertically on top of it.
In large print across the top half of the remaining three quarters of the
billboard was the phrase "$50 FREE!" and in letters approximately one-third that size and immediately beneath "$50 FREE!" was the phrase
"www.7sultans.com." Below that phrase and in letters slightly smaller was
the phrase "Online Casino." To go after Sultans, the New Jersey regulators had to make some jumps in factual
and legal logic which would not necessarily work, if the case ever went before a judge.
For example, the state alleges: "In order to place wagers with Sultans, a user must register. The first web
page for registration asks for personal information, such as name, address,
country, telephone number and birth date. On June 28, 2000, and May 3,
2001, Sultans accepted applications and wagers when the United States was
the user's country and New Jersey the user's state of residence. Sultans,
therefore, actively solicited bettors throughout the United States, including
New Jersey." Read this carefully. It is quite a leap to take the fact that a company accepted patrons
from New Jersey, who contacted its website, located in a foreign country, and conclude
that the company was actively soliciting bettors in that state or anywhere. The complaint contains a similar problem in its recitation of the laws Sultans
supposedly violated. Count I quotes the New Jersey Constitution, which states, "No
gambling of any kind shall be authorized by the Legislature unless [certain procedures
are followed]." A clause like this is said to be not self-executing, meaning it does not
create a new crime, but merely tells the Legislature what laws it cannot enact. Saying
Sultans violates the New Jersey Constitution might get good press, but it is legally very
weak. The government's strongest claim is a violation of the state's Criminal Code,
which does prohibit advertising, although not necessarily advertising of Internet
gambling. N.J.S. 2C:37-2a reads, in part that: "A person is guilty of promoting gambling when he knowingly: . . . . (2) Engages in conduct, which materially aids any form of gambling
activity. Such conduct includes . . . conduct directed . . . toward the
solicitation or inducement of persons to participate [in the gambling]." The complaint also alleges that the "Defendants' owning, operating and
advertising of an illegal online casino accessible in the State of New Jersey" violates
the state law, N.J.S. 56:8-2, prohibiting fraud and "unconscionable commercial
practice." The state included a separate count under the same statute, alleging
advertising to minors with an "improper or unreliable age verification and/or no
method to prevent underage gambling." Do The Laws Apply? State Laws It is far from clear whether any of these state laws cited in the Sultans complaint
would apply, even if the court were to make the leaps in facts required. There is a
strong presumption that state laws only work within that state's borders. Put another
way, courts will presume that the state legislature did not intend for its enactments to
apply to activities occurring outside of the state's borders. In many cases, states have expressly declared, by both statute and case law, that
their laws do not apply extraterritorially, unless the statute in question contains an
explicit statement of legislative intent. New Jersey is one of those states. N.J.S. 2C:1-3(a)(1) to (6). The case against applying these laws to gambling on a foreign website is
strengthened by the fact that the New Jersey Legislature does know how to pass laws
covering foreign gambling. State statutes explicitly make it a crime to sell in New
Jersey a foreign legal lottery ticket. N.J.S. 2C:37-6: "Any offense defined in this
article which consists of the commission of acts relating to a lottery is no less criminal
because the lottery itself is drawn or conducted without the State . . . " There is no
similar language covering Internet gambling, especially sites licensed by foreign
governments. Interestingly, one of the principal authors of §1.03 ("Territorial Applicability")
of the Model Penal Code, Herbert Wechsler, used gambling as an example of the need
for legislatures to be particularly explicit if they intend a criminal statute will apply to
extraterritorial conduct: . . . if this state attempts to reach conduct outside the state or conduct
involving the result which is going to occur in another jurisdiction where
it would not be an offense, it is only where the legislative purpose plainly
appears to reach conduct in this state, regardless of where the result is to
occur, that the statute is to apply . . . If the state wants to make gambling
criminal, for example, when the wager is to be placed in another state -
which it may want to do - it may do so, so far as that is constitutional;
but you read the statute carefully to see that the legislature really meant to
do that and was not only dealing with wagers within the state. New Jersey at least had a statute that could conceivably apply. In many states
the laws are so detailed that certain activity can fall between the cracks. California, for example, makes it a crime to knowingly transmit racing
information to gamblers, Cal. Penal Code §337i, and "prevailing upon a person to visit
a place of illegal gambling or prostitution, " Cal. Penal Code §318. A prosecutor who
argued that this 60-year-old statute applies to advertisements for a casino with no
physical location other than cyberspace would probably be laughed out of court. The California Legislature has also prohibited the making, recording or taking of
bets on "contests of speed skill and power of endurance." Cal. Penal Code §337a. It
is illegal to own a non-antique slot machines or operate a lottery, though there is no
prohibition on having lottery tickets, or participating in illegal lotteries. The
Legislature has seen fit to make it a crime to deal or make wagers on "banking or
percentage games," meaning casino games or games where the operator takes a
percentage of the bets or winnings. But there is no state statute against draw and other
form of poker or games with a rotating dealer/banker, like pai gow poker. Card clubs
are, in fact, very big business in the state. Local laws, passed by cities and counties,
often make the playing of these other forms of gambling illegal, but it would be
extremely difficult for a city to try and go after an overseas operator, especially one
licensed by a foreign government. This means online poker may be legal under
California state law, and there is nothing close to a state prohibition on the advertising
of a legal game. U.S. Federal Laws Federal statutes are designed to go after organized crime, so they are written
with language such as "gambling business." There are no federal laws against
gambling on the Internet. A person can, however, be found to be in the business of
gambling without being a partner. The distinctions are fairly common sense. An
advertising agency which has a licensed overseas operator as merely one of its many
clients and which charges every client the same flat fee, should be safe from a charge
based on being in the gambling business. On the other hand, a non-gaming website
which links to one or more operators, particularly non-licenced sites, and which makes
money by taking a cut of the wagers or loses, could be held to be in the business. An
individual opens himself up to liability if he becomes a necessary part of the operator's
regular transactions, such as helping to collect gambling debts. Federal statutes are also limited to specific activities. For example, the most
important federal restriction on Internet betting, the Wire Act, 18 U.S.C. §1084, may
only apply to gambling on sports events and races. Judge Stanwood R. Duval, Jr., of
the U.S. District Court in New Orleans issued this ruling, among many others, in late
February 2001. He dismissed two test cases brought against MasterCard and Visa,
allowing web casino sites to continue to take credit cards. The Wire Act also is limited
to a person (including a corporation) in a gambling business who "knowingly uses a wire communication facility for the transmission in
interstate or foreign commerce of bets or wagers or information assisting
in the placing of bets or wagers on any sporting event or contest." This language is broad enough to include instructions on how a bet should be placed.
But it is not broad enough to cover advertisements. There are only a few, special federal restrictions on the dissemination of
gambling information. Title 18 of the United States Code, dealing with federal crimes,
contains the main anti-gambling laws, in a chapter entitled "Lotteries." Section 1301 of Title 18 originally covered only physical material, like actual
lottery tickets. It is a federal crime to carry or send a lottery ticket, or lottery
information, or a list of lottery prizes in interstate or foreign commerce. In 1994,
Congress amended §1301 to outlaw lottery messenger services. These businesses
would take money from customers in one state, usually a state without a State Lottery,
and would transmit information by phone or fax to their agent in a Lottery state. The
agents would then buy the tickets, but hold on to them. Nothing tangible ever crossed a
state line. The law now subjects to criminal punishment anyone in the business of buying
lottery tickets in another state who "knowingly transmits in interstate or foreign
commerce information to be used for the purpose of procuring such a ticket, chance,
share, or interest. (An exception is made for interstate lotteries, like PowerBall, run
under state-to-state agreements). This language is so specific that is should not apply to
advertisers of Internet lotteries. Section 1302 is specifically limited to the use of the mails. It is of some
importance because it does prohibit using the U.S. mails for checks for the purchase of
tickets, and for "any newspaper, circular, pamphlet, or publication of any kind
containing any advertisement of any lottery, gift enterprise, or scheme of any kind
offering prizes dependent in whole or in part upon lot or chance." The Postal Service
is supposed to issue "stop mail" orders to prevent mail containing lottery information
from being delivered. 39 U.S.C. §§3001, 3005. On its face, this does not apply to ads
transmitted by the Internet, but it could apply to magazine ads for Internet lotteries.
The federal government, including the post office, has taken the position that virtually
all forms of gambling, including casinos, are lotteries. Fortunately, the U.S. Postal
Service does not have the resources to stop "lottery" ads, thought it has, in the past,
denied second-class postal permits to publications carrying ads for casinos. These anti-lottery statutes date back to the Louisiana Lottery scandal of the
1890s and were enacted by Congress when it looked like the states could not control
corrupt lotteries. The federal government's prohibition on the use of the mails by
lotteries was expanded to include broadcasting of lottery-related information as part of
the Communications Act of 1934. Section 1304 prohibits the broadcasting of "any advertisement of or information
concerning any lottery, gift enterprise, or similar scheme . . ." The Federal
Communications Commission has given "broadcasting" a narrow definition. Cable
television and the Internet are not broadcast and thus do not fall under this very broad
prohibition. You cannot run a lottery on cable T.V., but there do not appear to be any
restrictions on advertising a legal Internet gambling website. Licensed radio and television broadcast stations do fall under this prohibition.
Advertisers have found some broadcasters unwilling to anger their regulator, because
the FCC has the power to impose the death penalty for a station, by taking away or
refusing to renew its license. But many other stations are broadcasting commercials for
Internet gambling sites which are licensed in another country. The FCC is definitely
not proactive in this area. It will only tell a station not to run a commercial for legal
gambling if it receives a complaint, or the station makes the mistake of asking whoever
happens to answer the phone at the FCC whether the station can run the ad. Which
proves you should never ask a censor his opinion. In 1975, Congress granted a limited exemption for state lotteries. 18 U.S.C.
§1307. U.S. State Lotteries now have a distinct, though limited, advantage over
Internet lotteries: They can advertise in their own state and in other states, by mail or
broadcast media, but only if the other state also has a State Lottery. As an example of
the quirky laws dealing with legal gambling, the California Lottery and its retailers can
now advertise in Oregon and Arizona, and even in Newsweek, because the magazine is
published in New York, a lottery state. But the California State Lottery still cannot
take out ads or commercial air-time in Nevada, because Nevada has no State Lottery.
The purpose of this strange law is to protect the good citizens of Nevada from hearing
about the evils of California's legal gambling. In 1990, Congress enacted the Charity Games Advertising Clarification Act,
creating exceptions to the prohibitions on lotteries for charity games, lotteries run by
cities and counties, foreign State Lotteries and promotional sweepstakes. [NOTE - Chapter 18 of Gambling and the Law®: The Law of Internet
Gambling, to be published next year by Mary Ann Liebert Publishers, will contain a
detailed discussion of what forms of gambling and advertising are and are not covered
by these exceptions to the federal anti-lottery laws, and much more. The chapter will
discuss how the U.S. Supreme Court has applied the First Amendment to state and
federal restrictions on gambling ads, and what this means to advertisers. Also included
will be actions taken by the FCC and other regulators, self-censorship by important
media outlets, like newspapers and major websites, and a down-to-earth discussion of
the real risks involved in advertising Internet gambling.] Prof. I. Nelson Rose Professor I. Nelson Rose is an internationally known scholar, public speaker and
writer and is recognized as one of the world's leading authorities on gambling law. A
1979 graduate of Harvard Law School, he is a tenured full Professor at Whittier Law
School in Costa Mesa, California, where he teaches one of the first law school classes
on gaming law. Professor Rose is the author of more than 300 books, articles, book chapters and
columns. He is best known for his internationally syndicated column, "Gambling and
the Law®," and his landmark 1986 book by the same name. His most recent book is a
collection of columns and analysis, coauthored with Bob Loeb, on Blackjack and the
Law. Professor Rose is currently working on two books, which will be published in
2002. He is coauthoring the first casebook on gaming law, Gaming Law: Cases and
Materials, for Lexis Publishing; and, for Mary Ann Liebert Publishers, Gambling
and the Law®: The Law of Internet Gambling. A consultant to governments and industry, Professor Rose has testified as an
expert witness in administrative, civil and criminal cases in the U.S., Australia and
New Zealand, and has acted as a consultant to major law firms, international
corporations, licensed casinos, players, Indian tribes, and local, state and national
governments, including Arizona, California, Florida, New Jersey, Texas and the
federal governments of Canada and the United States. With the rising interest in gambling throughout the world, Professor Rose has
spoken before such diverse groups as the F.B.I., National Conference of State
Legislatures, Congress of State Lotteries of Europe, United States Conference of
Mayors, and the National Academy of Sciences. He has presented scholarly papers on
gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal,
Italy, Argentina and the Czech Republic.
letter suggesting that they might want to talk to their attorney." (1)