100% Legal Gambling on the Internet

written by I. Nelson Rose

©Copyright 1999 by I. Nelson Rose. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, Whittier Law School, Costa Mesa, CA.

Over the past six years, the number of websites which will accept money bets has grown from zero to more than 250.

You can bet on baseball, basketball and bowling; play blackjack, baccarat and bingo; buy lottery tickets from an Indian tribe near Boise and a principality in Bavaria. Whether it is a horse race or impeaching the president, someone somewhere is willing to give you odds over the Internet.

Many on-line bookies and casinos claim to be licensed by foreign countries. Most sites warn potential bettors that it is up to players to determine whether their local laws make the game illegal.

How, exactly, is a player supposed to know if a game is legal? The answer is two-fold:

1) First, the player analyzes the particular game or wager under all laws that might apply to both the operator and the bettor; and

2) Second, the player makes a wild guess whether laws, written before the telephone was invented, apply to 21st century technology. It is easier to know when an Internet activity is illegal than when it is legal. Two states, Nevada and Louisiana, have passed statutes outlawing most forms of Internet gambling. There is very little wiggle-room if the activity falls under these laws.

For example, if an unlicensed operator in Nevada takes a wager on-line, that operator has committed a crime in Nevada.

About the only defense would be to claim that Nevada does not have the right to outlaw activity on the Internet. This is pretty weak, but not frivolous. A federal judge in New York did rule in a pornography case that it would be too much of a burden on interstate commerce to have 50 different state laws apply to the Internet.

Most Internet operations have much stronger defenses, because they do not fall neatly under any criminal statute. Discussions about on-line gaming usually focus on issues like sovereignty and where-does-a-bet-take-place. But, every criminal case starts with a more fundamental question: Is there a law making this particular activity illegal?

Gambling consists of three elements: Consideration, Prize and Chance. If any one of those three elements is missing, the game is simply not gambling.

Consideration is a legal term, most commonly found in the law of contracts. Usually it means each side puts up something of value, such as cash for a car. However, for non-gambling contracts, consideration can be any expenditure of effort by one side or any benefit to the other side.

A very few states follow this rule for gambling contracts. The Washington State Legislature had to pass a law after a supermarket chain was busted for running a free promotion. The state Supreme Court had found consideration because players filled out forms and the store benefited by having more customers.

Most jurisdictions today find there is no consideration for gambling unless players are required to spend money. A free alternative means of entry allows players to have the chance of winning something for nothing. Legally, this is a gift, commonly called a sweepstakes.

The U.S. Supreme Court ruled in a case involving T.V. game shows, that even if players are required to spend some time and money, filling out forms and buying postage, there is still no consideration.

The Internet has recently seen an explosion of “No purchase necessary” casino sites, where players can get free chips by email. This creates an interesting legal problem, because players may buy additional chips with their credit cards.

“Prize” means the player can win something of value. If players cannot win money or merchandise, the activity is an amusement game.

Some jurisdictions define “prize” to include free replays. But no state is going to go after an Internet operator for running an amusement game, where the only thing a player can win is the right to play the same game again.

If an activity offers valuable prizes and requires consideration, but the outcome is not determined by chance, it is a game of skill and not gambling.

For the Internet, the easiest way to run a skill game is to have a tournament, where chance equalizes out over time. Players play only against other players, never the house, with a guaranteed prize to the winner. Interesting and fun skill games are difficult to design, especially when players cannot be penalized simply because they have slow modems.

Even if there is consideration, prize and chance, the game might not be illegal. Many forms of gambling are legal, and the law can be quite complicated. For example, an Indian tribe in a state where the state lottery has run telephone games probably has the right to sell lottery tickets over the Internet, at least to customers within that state.

The only way to know for sure whether an on-line game violates current law is to have a judge decide. But, few people can afford attorneys’ fees for such a case.

When the Attorney General of Missouri wanted to close down an Internet casino, he had to charge the operator with setting up an illegal gambling device.

The defendant pleaded guilty, so who knows if a judge would have bought the argument that the Internet turned the undercover agent’s personal computer into a slot machine?

[Professor Rose can be reached at rose@sprintmail.com]


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