March 05, 2007
D'Amato, Poker & Elitism in Gambling Laws
Posted by Christine Hurt

Today's NYT has an article reporting that former NY Senator Al D'Amato is joining forces with poker player associations to attempt to overturn the federal ban on online gambling.  (His interest seems limited to poker playing online, which he considers a skill and not a game of chance, and not other forms of online gambling.)  While that aspect of the article is interesting to me, out of my hatred for the last-minute attaching of online gambling prohibitions to a bill on terrorism and the nation's ports, what really stood out was the very casual and frequent mentions of D'Amato's casual, frequent illegal gambling.  Apparently now D'Amato has a weekly poker game in Long Island, "where a bad night might mean that a player drops $5000 or more."  When D'Amato was at least a part-time resident in Washington, D.C., he "was the host at a Thursday evening poker game at his Capitol Hill office, playing with other lawmakers, staff members and lobbyists."  This seems like an odd subplot of this article given that, in New York and D.C., this type of gambling is illegal.

New  York General Obligation Law 5-410 states that "[a]ll wagers, bets or stakes, made to depend upon any race, or upon any gaming by lot or chance, or upon any lot, chance, casualty, or unknown or contingent event whatever, shall be unlawful."  (There are exceptions for state-run lotteries and parimutuel horse racing.)  New York Penal Law 225.00 defines "contest of chance" as "any contest, game, gaming scheme or gaming device in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein."  Now, although D'Amato's poker game is "unlawful," it may be that no player will be guilty of a crime.  Just looking at the NY statutes, it appears that players have not committed a gambling offense unless they are "promoters."  So, as long as D'Amato doesn't take a rake for hosting the game, then the whole enterprise will be overlooked, and this is how most social gambling in nice houses on Long Island is ignored.  If the game were in a public place, then even the players could be cited for "loitering" for the purposes of engaging in gambling. 

Should D'Amato' s Long Island poker game be aboveboard, we have to wonder why the same game played online is illegal or in a poker room where some sort of "rent" is paid to a host.  Does the existence of a host create more negative externalities?  Increase participation?  Isn't it funny how if our so-called immoral activities take place by happenstance ("Hey, let's get everyone over and play poker," "Hey, I know we just met, but would you like to come back to my place?") then it's fine, whereas the introduction of a paid intermediary to faciliate the activity makes it illegal? 

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January 24, 2007
The Illinois Lottery on the Auction Block
Posted by Christine Hurt

As my colleague Larry Ribstein has already pointed out, the state of Illinois is considering selling its state lottery for a one-time lump sum.  The folks at one of the other law schools here in Illinois also are talking about it.  As Larry points out, there are some obvious problems with putting up to $10 billion in the hands of a single Illinois governor, but there are some other problems, too, that go beyond the short-term profits to be gained from selling off public revenue-generating assets.  As a point of reference, lotteries have over U.S. history been both completely prohibited and freely permitted; the current state of affairs is that state may vote to legalize lotteries, and all such states use the state-owned monopoly model.  Private lotteries would represent a change in the legal landscape; currently private parties may not start their own lotteries.

As readers know, I write and think a lot about different types of gambling.  Although occasional readers probably think that I have a purely libertarian view of gambling regulation, I think my position is more nuanced.  I argue for reasoned and consistent regulation (or nonregulation)of similar speculation activities based on the net utility of such activity.  So, I would could be for either complete prohibition or permission, or a hybrid approach that treats like activities similarly.  If I were to begin prohibiting activities along a utility spectrum, the first thing I would prohibit would be the lottery.  As a negative-sum game, it creates no net positive utility but also may create negative utility through externalities.  Melissa Kearney, who is quoted in the NYT article, has studied the externalities of lotteries, including crime, bankruptcies, and domestic problems.  However, states may argue that if the profits of the lottery are 100X, and the costs of treating the additional problems as 50X, then the state still comes out ahead.  However, does this calculus still work in a world in which the 100X goes to the private owners of the lottery and not the state, which must pay for the additional social services costs?

The fix would be to tax the privately-owned lottery at a 50% rate.  The NYT article didn't say anything about the tax rate of the lottery, although many states tax commercial and tribal casinos at a higher rate.  Is this tax pre-paid somehow in the lump sum payment for the lottery?  I am not cheered by that thought; I would prefer that my state government get paid as it goes.

I also think it will be interesting to see a private-run lottery.  As it is, many states aggressively advertise their lottery.  Here in Illinois, lottery card vending machines are in the grocery stores, which makes one wonder about the effectiveness of age requirements for lottery participation.  The machines are next to the Coinstar and candy vending machines, so my son always wants to "play that game."  Nice.  The NYT article suggests that advertising will be more aggressive.  Also note that one exception to the anti-gambling provisions in the SAFE Port Act is online wagering in "intrastate transactions" authorized by the law of such state.  I would bet serious money that a private Illinois lottery would have an online game up and running fairly quickly.

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January 22, 2007
More Gambling Subpoenas -- This Time, the Investment Bankers
Posted by Christine Hurt

One week after arresting two non-U.S. shareholders in a non-U.S. financial services company that was used by U.S. online gamblers, the Justice Department has issued subpoenas to four firms -- HSBC, Credit Suisse, Deutsche Bank and Dresdner Kleinwort.  Each of these banks has major operations in the U.S.  What these banks have in common is that they participated in the IPOs of popular online gambling sites, such as PartyGaming.  The reporters do not know if the subpoenas are merely information-seeking or are a signal of a future prosecution of the firms.  The subpoenas may be designed to identify U.S. shareholders of online gambling companies for future arrests.

For everyone keeping score, here is the current list of DOJ anti-gambling targets:

  • Neteller's Canadian founders Stephen Lawrence and John Lefebvre, who indirectly own less than 6% of Neteller and hold no officer or director positions -- arrested Monday, January 15, 2007 while vacationing in Malibu and the U.S. Virgin Islands
  • David Carruthers, CEO of BetonSports, arrested while changing planes at DFW in July 2006.  Ten other arrest warrants were issued for non-U.S. BetonSports employees, and four have been arrested in the U.S. so far.
  • Sportingbet's CEO Peter Dicks was detained in New York on Louisiana warrant, but NY refused to extradict him and allowed him to return to his home in the UK.

At times like these, I wish I knew more about civil procedure and conflicts of laws than corporate law. The NYT article attributes to attorney Lawrence Ge. Walters the belief that these subpoenas are a radical departure "because the prevailing wisdom had been that investment in a company that is legal and licensed in its jurisdiction was not grounds for prosecution." So, if the U.S. can arrest non-U.S. shareholders of non-U.S. companies that are legal in their jurisdiction, then can these scenarios happen?

  • If a resident of Texas, where commercial casinos are not legal, buys stock in Harrah's, can the resident be prosecuted in Texas for illegal gambling?
  • If a resident of Nevada, where commercial casinos are legal, buys stock in Harrah's, but goes skiing in Utah, can Utah police arrest the NE resident for illegal gambling?
  • Can the state of Texas prosecute the editors of Texas Monthly for selling advertising space to Harrah's?
  • Can the state of Texas prosecute a private charter bus company for taking Texas residents from Houston to Louisiana casinos?

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January 18, 2007
Neteller Arrests on Monday; Neteller Leaves U.S. Market Today
Posted by Christine Hurt

Readers may remember that in October, Congress passed the SAFE Port Act, which contained an anti-online gambling section that was appended right before passage.  President Bush then signed the Act into law.  The provisions create civil and criminal liability for "financial transaction providers" who knowingly control bets and wagers and "operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made, or at which unlawful bets or wagers are offered to be placed, received, or otherwise made."

On Monday, the U.S. Department of Justice arrested two Canadian founders and current shareholders of Neteller Plc, the PayPal of Canada and the UK (incorporated in the Isle of Man).  Neteller is part of the Neteller Group, which is regulated by the UK Financial Services Authority and listed on the UK AIM stock exchange.  After PayPal exited the online gambling market a few years ago at the insistence of New York regulators, Neteller became the online payment system of choice for online gamblers.  Stephen Lawrence was arrested in the U.S. Virgin Islands, and John Lefebvre was arrested in Malibu, California.  Neither men are currently officers, directors or employees of Neteller, although prior to October, Lawrence was a nonexecutive director and prior to December 2005, Lefebvre was a nonexecutive director.  Following these arrests, Neteller announced today that it would no longer accept U.S. customers.

Interestingly, the two men were not charged with violating the SAFE Port Act.  The two were charged with money laundering.  Perhaps this charge is more compelling after the passage of the SAFE Port Act specifically criminalizes online gambling.  Note that money laundering carries a maximum 20-year sentence whereas the SAFE Port Act provides for a mere 5-year maximum.

What I'm most interested in knowing is under what theory are these shareholders liable?  Neither man owns more than 6% of the company, and each man owns that indirectly.  Neither man was acting as an agent of Neteller.  The release from the Southern District of New York says this:

“Michael J. Garcia, the United States Attorney for the Southern District of New York, and Mark J. Mershon, the Assistant Director in charge of the New York office of the Federal Bureau of Investigation, announced today that Stephen Eric Lawrence and John David Lefebvre were arrested yesterday in connection with the creation and operation of an Internet payment services company that facilitated the transfer of billions of dollars of illegal gambling proceeds from United States citizens to the owners of various Internet gambling companies located overseas.”

I cannot find a charging instrument on Pacer as of this morning.  If someone understands more about money laundering and how charges can extend to nonparticipant shareholders, please enlighten!

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October 09, 2006
Ripple Effect of Banning Online Gambling: Information Markets
Posted by Christine Hurt

An op-ed in today's NYT laments the end-of-September end-run that Congress did that attached provisions from H.R. 4411 to the SAFE Ports Act.  Once the Act is signed by the President, the provisions will prohibit U.S. financial institutions from facilitating transactions between U.S. consumers and online gambling sites.  The authors of the op-ed, Robert Hahn and Paul Tetlock, criticize prohibiting online gambling because of its effect on information markets.

For example, Tradesports, which is hosted offshore, would arguably come under the auspices of these new provisions, making the host bank of your credit card a criminal for processing your participation in the site.  (Note that the Iowa Electronic Markets operates under a no-action letter.)  The authors argue that some types of wagers have significant positive utility while others do not.  In the authors' view, information sent into the marketplace by these types of sites have a greater utility than the consumption value of online gambling sites. 

I don't disagree, and have even presented a taxonomy of wagering activity based in part on the utility of the wager in this article.  However, the U.S. government seems to measure the utility of a wagering activity based on how much pressure an appropriate lobby will exert to exempt its activities.  And, of course, how much pressure will be exerted will depend on the amount of profits available to whom as a result of the wagering activity.  So, if you are the NFL, you will expend great amounts to ensure that fantasy football is exempted from any prohibition.  State lotteries will do likewise.  These activities will be exempted even though the social utility of these activities may be less than the utility of information markets.  These markets need better lobbyists!

However, I would also posit that the U.S. government is not going to turn its scarce resources to information markets just yet. If these sites grow large enough to cannibalize profits from state lotteries, then we'll have a problem.

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October 03, 2006
Sleep Soundly Tonight -- Online Gambling through a U.S. Financial Institution is Illegal
Posted by Christine Hurt

This summer I was watching H.R. 4411, a bill passed by the House that prohibited U.S. financial institutions from aiding and abetting online gambling.  When asked if the Senate would pass the bill, I usually said that I was prepared to be surprised.  Although these types of anti-gambling bills had not been passed in the last four Congresses, I was prepared to be surprised.  Well, I'm surprised.

Last week, H.R. 4954 was passed by both the House and the Senate.  The title of the bill is the SAFE Ports Act, and it contains detailed provisions on increasing the security of the nation's ports.  Who would be against safe ports?  However, last week, provisions of H.R. 4411 were tacked on to the end (Sections 801 et seq.) and also passed by both houses, almost unanimously.  The text of these new sections is not included in the text of the bill on Thomas (just the subheadings), so I'm not sure if H.R. 4411 was incorporated full-text.  News accounts like this one in the WSJ seem to assume that the basic thrust of 4411 is intact -- U.S. financial institutions may not accept transactions that facilitate online gambling.

Of course, gamblers can wager through offshore financial institutions like Neteller, etc.  Where there is a will, there's a way.  But our state lotteries and tribal casinos (which were excepted in the conference report) can sleep tight knowing that their family friendly gaming operations will not be cannibalized by evil offshore gambling.

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September 19, 2006
The New Texas Hold-'Em: Blackjack
Posted by Christine Hurt

As readers know, I am often frustrated by the hypocrisies and inconsistencies inherent in U.S. gambling laws.  While six non-residents await proceedings in the U.S. after being arrested while passing through this country for violating U.S. laws by owning online gambling sites operated in foreign countries (here and here), our own country continues to broadcast gambling entertainment on television monitors to numerous jurisdictions.  Although the U.S. holds that it is illegal to allow U.S. citizens here to gamble on legal foreign-owned and operated websites, the U.S. seems to think it is perfectly fine to televise gambling that is legal at its physical location (say, a Las Vegas casino) and then broadcast that game to all 50 states (say, Utah), regardless of whether that gambling is illegal in that jurisdiction.  First, we had the broadcasting of various poker tournaments, and now blackjack.

According to this WSJ story, CBS has a new program called the Ultimate Blackjack Tour, which will air on Saturdays before college football.  The program showcases a blackjack tournament, duplicating successful broadcasts of World Series of Poker and similar shows.  The first few rounds were filmed in a Las Vegas casino, where blackjack is legal.  However, the final rounds were televised in front of a live audience in Los Angeles, where blackjack is illegal.  (California has tribal-owned casinos, and I don't believe the CBS soundstage qualifies.)  Where's the DOJ? 

Now, technically, the tournament on the show may not be gambling if the players are not wagering anything.  The article states that each player in the final rounds start with $100,000 in chips, and the player with the least chips at designated times is eliminated.  The winner may receive a pre-determined prize, making UBT look more like Jeopardy! than a back room card game.  However, the shows obviously encourage interest in real gambling, so the distinction that makes Saturday afternoon watching of UBT legal and Tuesday night playing blackjack online illegal seems fairly fuzzy.  The line between illegal prostitution and legal erotic filmmaking seems to be the camera in the room, so perhaps the camera in the room can turn illegal gambling into legal entertainment also.

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August 30, 2006
Lining Up on H.R. 4411
Posted by Christine Hurt

I'm posted on H.R. 4411 before, a bill that purports to stop online gambling by targeting financial institutions who allow monies to be routed through their system on their way to an online casino.  So, if you make an electronic payment from your bank account to a casino, or to Neteller and then a casino, the bank is on the hook under this bill.  We can guess the parties in favor of the bill:  states who believe that online gambling cannibalizes their lottery monopolies; tribal casinos who think the same thing; congressional leaders who want to distance themselves from Jack Abramoff; and those who believe that gambling is morally wrong and socially destructive and should be illegal in all forms, and who have chosen to succeed in at least one area.

At least for now, some groups are lining up to oppose this bill, which now is in the Senate.  WSJ article here.  Apparently requiring all banks to be policeman will cost banks a lot of money, especially smaller banks.  The Independent Community Bankers of America, the American Bankers Association, and the U.S. Chamber of Commerce have spoken out against the bill.  A lobbyist for the ICBA says quite pointedly, "It's very tempting to think the banking industry can stop this kind of stuff because people pay for it through banks, but the fact is the system just wasn't really designed to do it."  The author of the bill, Rep. Leach, responds:  "It's the only approach I know of that has a hope of making a significant dent in Internet gambling."

Well, just because it's the only plan that could work doesn't mean that it's a feasible plan.  It may be as infeasible as placing liability on Dell Computer Corp. (or AOL or Google or the manufacturer of your couch) anytime a user of the computer (or AOL or Google or the couch) accesses an online gambling site.

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July 17, 2006
File Under "I Can't Believe This is Happening": The DOJ Arrests CEO of BetOnSports PLC While Changing Planes in Dallas
Posted by Christine Hurt

Growing up in Lubbock, the joke was that to get to heaven, you had to change planes in Dallas.  Apparently, Dallas is also the gateway to H-E-double toothpicks if you are the CEO of a successful online sports betting site that is headquartered in the UK and traded on the LSE.  On Sunday, the DOJ indicted three online betting sites and eleven individuals on charges of "racketeering, conspiracy and fraud."  Enforcing the Wire Act against online gambling sites has many problems (although most substantive problems are not present with sports betting sites, as with online casinos), the jurisdictional hurdle was jumped by arresting David Carruthers, CEO of BetOnSports, while he was changing planes in DFW on his way to Costa Rica. 

Now the puzzle is to figure out why now?  Does this new energy on the part of the DOJ spring from the House passing H.R. 4411 last week?

So, my question is this:  If millions of Americans are gambling online at offshore sites, why is this the problem of the offshore sites?  Casinos in Monte Carlo or the Bahamas attract Americans to take vacations there and visit the casinos, but we don't arrest the owners of foreign casinos should they take a vacation here in the U.S. or change planes in our airports.  Why is creating an online casino any different?  Why is the burden on the online gambling site to keep Americans out?  (Other than that burden being almost impossible to meet.)

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July 13, 2006
The Poster Child for Outlawing Internet Gambling
Posted by Christine Hurt

In preparing for my stint this morning on Wisconsin Public Radio, I read through the debates held on H.R. 4411, a bill passed this week by the House of Representatives that prohibits the use of credit cards and other payment systems by online gambling establishments, with the exception of U.S. horseracing establishments and state lotteries.  The money quote (from Rep. Osborne):  "There is nothing that we can do right now at this particular time that I think is more germane to the welfare of families and people in the United States than this legislation."  Rep. Osborne suffers from a lack of imagination if he thinks that the American people will benefit from no other conceivable piece of legislation more than an ineffective prohibition against internet gambling.

However, proponents of the bill had a powerful weapon in their arsenal:  Greg Hogan.  Mr. Hogan, the son of a Baptist preacher (always mentioned) and president of his class at Lehigh University robbed a Wachovia bank last year by saying he had a gun.  Although the action only netted him about $2,800, his stated reason for robbing the bank was that he had an online poker habit that cost him $7,500.  Predictably, supporters of H.R. 4411 have adopted Mr. Hogan as their poster boy for outlawing (financial services that provide infrastructure for the financing of) internet gambling.  See how internet gambling can take our good boys and make them bank robbers? 

I have many thoughts on the use of this anecdote:

1.  Let's prohibit anything that might cause an otherwise good person to steal.  Debts are odious.  Let's prohibit lending.  Acohol.  Drugs (did that).  Poverty.  The average college student carries a credit card debt of $2,748 according to a 2000 Sallie Mae study.  If anything is adding to the financial woes of college students, it's credit card debt, yet colleges hand out applications all over campus.  If Mr. Hogan had run up a $7,500 credit card bill at Abercrombie and robbed a bank, whose fault would that be?  Abercrombie's?

2.  Perhaps we have a parenting crisis.  If it weren't for MySpace, then my 14 year-old girl would be playing with her American Girl doll and not meeting up with 19 year-old men who pose for 18 year-old boys.  This is MySpace's fault.  According to information included in the Congressional Record, Mr. Hogan's parents knew all about his gambling problems because they read his bank statements.  Mr. Hogan always promised to stop, even though he played 10 hours a day in his parents' basement over Thanksgiving.  What did they think he was doing?  The senior Mr. Hogan even drove to his son's college to install anti-gambling software on his son's laptop.  Unfortunately, there are other computers on a college campus. 

3.  This bill would not have stopped Greg Hogan.  Mr. Hogan's father was quoted as saying that this bill would have helped his son.  How?  Mr. Hogan built a bank account with his debit card and loans from friends.  Surely if he can circumvent his father's software program he can figure out how to use an offshore e-commerce payment system.

4.  Ironically, the son of a family friend did the same thing -- in 1986.  While in college on a basketball scholarship, our friend ran up sports gambling debts.  He decided to rob a bank in our hometown over the holiday break.  Unfortunately, he walked there from his house in the snow.  He robbed the bank in a ski mask and then walked back to his house in the snow.  Looking for a suspect who was 6'4" and who made size 13 footprints and who lived in our neighborhood was not as difficult as he might have thought.  Amazingly, this good son was turned into a bank robber without the Internet. 

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July 11, 2006
House Passes Unlawful Internet Gambling Enforcement Act of 2006
Posted by Christine Hurt

What's the difference between H.R. 4411 and every other anti-internet gambling bill introduced in the last ten years?  This one has passed the House, by a vote of 317 to 93.  Acknowledging that most online gambling sites are now run by operators in foreign countries, with no bodies within our shores for jurisdictional purposes, this bill follows the path taken in the past few years of proposed legislation and governmental enforcement of targeting the payment systems that make online gambling feasible, such as credit cards and other fund transfer systems.  However, there are certain important exceptions to this prohibition, including the use of such payment systems for intrastate online wagers (online lotteries), horse race betting, and fantasy sports leagues, an exception I've talked about before.  H.R. 4411 would provide a perfect example of interest lobbying in the political process.

Apparently this issue is part of a 10-part family values agenda designed to increase political support for the Republican party before election time.  Nice.  Let's see what the Senate does with it.  What is absent in the findings of the legislation, found here, is an acknowledgment that the carve-outs to the bill fly in the face of the WTO opinion, issued in 2005, which stated that the U.S. was in violation of GATS if it prohibited online gambling from offshore while allowing internet gambling in connection with horse racing.  I suppose that is no concern of the House of Representatives.

I will be on Wisconsin Public Radio Thursday morning at 6:00 a.m. in case anyone wants to chat about this during the hour-long call-in period.  I know it's early, but we were up all night gambling anyway.  Knowing that I was against gambling regulation, the producer asked me if I were a gambler, in particular an internet gambler.  Honestly, I personally think wagering on chance is stupid and faintly immoral.  I love games, especially games of skill, but I see no need to bet money on them to make them more interesting.  I think individuals who put their finances, and their family's finances, at risk gambling are the worst kind of suckers.  Nevertheless, like many things, I do not support its prohibition.

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March 06, 2006
Catching up on H.R. 4777
Posted by Christine Hurt

I have been in a fog lately of publication deadlines and moving minutiae, but I did notice that a new anti-gambling bill was introduced in the House a few weeks ago.  On February 16, H.R. 4777 was introduced by Rep. Goodlatte of Virginia with 118 co-sponsors.  That last part makes me a little nervous.  Most Congresses in the past ten years have seen an anti-gambling bill be introduced, but none so far have passed.  We'll see about this one.

H.R. 4777 is aptly named the Internet Gambling Prohibition Act, and does not differ wildly from other similar bills introduced in the 108th or 107th Congresses.  This bill does, however, contain a more detailed exception than earlier bills for Fantasy Sports and other quasi-gambling online activities. I blogged this post last year about a less-detailed exception in a proposed bill from the 108th Congress.

`(vi) participation in any game or contest in which participants do not stake or risk anything of value other than-- `

(I) personal efforts of the participants in playing the game or contest or obtaining access to the Internet; or

(II) point or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor; or

(vii) participation in any simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) all teams are fictional and no team is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:

(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

(III) No winning outcome is based--

(aa) on the score, point-spread or any performance or performances of any single real-world team or any combination of such teams; or

(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.

This exception would also take out of the equation promotional contests and contests such as the Winbutton, where you are merely wagering your attention. I would like to see the bill's cosponsors (really just one of them) articulate the difference between an NCAA March Madness pool and a Fantasy Football league that would require the criminalization of the former but not the latter. I see how fantasy sports have less ability to corrupt a sport because "fixing" a certain number of performances in different games per week over a season would be fairly impossible. However, I'm not sure if the potential for the corruption of sports was the only reason why sports gambling is illegal in almost every state and under the Wire Act. I thought there was this whole morality problem. I also thought that the reason why the federal government has told us that Internet gambling should be illegal is because Internet hosts might use our credit cards for bad things and might commit fraud on us. I guess this potential is less if the host is Sports Illustrated or ESPN. Surely the reason for this exception isn't that SI and ESPN lobbied for it. Surely the reason for the exception isn't that cable companies like to sell the NFL Ticket and other zillion-game packages that only fantasy sportspeople buy. Surely not.

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February 03, 2006
The Intersection of Securities Trading and Gambling, Part Two (Merrill Lynch & Sportingbet)
Posted by Christine Hurt

Sportingbet PLC is an online gambling company that owns, among other things, Paradise Poker and  Sportingbet shares are traded on the London Stock Exchange.  At about 9:30 this morning, I read in an online WSJ article that "Merrill Lynch Friday placed 8.4 million Sportingbet PLC (SBT.LN) shares, according to traders familiar with the transaction."  The shares were placed on behalf of an institution.  Although the link to the article is still currently working, the headline for the article no longer appears on the site, and the article cannot be found by searching the site.

I would like to know what the DOJ thinks of this.  The DOJ has formerly characterized such activities as the provision of credit card services to online gamblers, the provision of electronic payment services to online gambling sites, and the selling of ad space to online gambling sites as "aiding and abetting" illegal online gambling.  Wouldn't the provision of investment banking or brokerage services to online gambling firms be similarly criminal?  (Note:  in case you're reading for the first time, I don't think any of these should be illegal.)

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The Intersection of Securities Trading and Gambling, Part One (Doyle's Room)
Posted by Christine Hurt

While the prosecution has taken to having the witness read whole articles from Business Week and Fortune to the Enron jury, I'll turn my attention back to one of my other obsessions interests, the intersection of securities trading and gambling.  Exhibit A this morning is an LAT article (tip:  WSJ Law Blog) describing how the SEC has attempted to serve a subpoena on the administrator of the online poker site, Doyle's Room.  However, the SEC is not alleging that the site, which is operated out of the Netherland Antilles, allows citizens of the United States to gambling illegally online.  The SEC is interested in what it is usually interested in:  securities fraud.

The online poker site is owned by Doyle Brunson, a high-stakes poker champion.  Last July, Mr. Brunson announced a $700 million tender offer for WPT Enterprises, Inc., which owns the World Poker Tour and other things.  This offer was twice the market value of WPT and caused the stock to go up 66% to almost $30 per share.  However, when asked about the specifics of his offer, Mr. Brunson rescinded the offer, causing the stock to plummet.  The stock currently trades at a little over $7, less than its $8 original 2002 IPO price.  Was Mr. Brunson bluffing?  Did WPT call his bluff and then he folded?  (Vic, if I get these terms wrong, let me know.)  Or, was Brunson's move a pump-and-dump?  ProfB posted on that possibility in December.  WPT and Mr. Brunson are not strangers to one another, after all.  The SEC seems to thing something was fishy.  Now that Mr. Brunson, who presumably lives offshore, has refused to cooperate or be served, the SEC is trying to subpoena the site administrator through the administrator's brother, who lives in LA.  Civ Pro profs will have to tell me how that works.

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December 09, 2005
Gambling Meets Drinking Games
Posted by Christine Hurt

Depending on the TV show du jour, I'm sure many of us have been in a room in college where TV watchers play a drinking game based on betting what's going to happen next.  I once read about a Law & Order drinking game with such bets as (1) the next time Ben Stone says "sir"; (2) whether Det. Mike Logan wears his plaid tie; and (3) whether Lt. Anita foreshadows the next clue.  Well, this apparently is not lost on Vegas, where casinos are realizing that merely betting on the end result of a sporting match in our society of constant stimulation is just boring.

So, casinos are working on technology that will allow gamblers in a casino to bet on plays in a specific game:  Which team wins the toss?  Will Tiger birdie this hole?  Will the next batter get a hit?  Of course, the same fears surrounding this type of gambling are the fears cited for prohibiting Internet gambling:  quick, iterative play means that large sums may be lost quickly, quick play exacerbates problem gamblers' inclination to dissociate into a trance-like state, etc.  I have to think that as more casinos create "intranet" games that legal internet gambling cannot be that far away.

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