February 2009 Archives

Episode 3 of the UNLV Gaming podcast is up--Bill Zender discusses his career in the casino business and his book Casino--ology: The Art of Managing Casino Games.  It's a great talk from a UNLV alumnus and renowned casino expert.  It's available on the podcast page and in iTunes.

Minimum Age To Bet On The Internet

 

            About every other week I get asked, "What is the minimum age to gamble on the internet?"  Usually these are from college-age students, who know how to make sports bets or play poker online -- and, in fact, are already doing it from their dorm rooms -- but get worried they will be busted if they win.  But, I've even been asked by agents of government and law enforcement, including police, prosecutors and regulators.

            Unfortunately, there is no easy answer.  This is mainly because law-makers have not thought about Internet gambling at all, let alone a minimum age.  If legislators have considered betting online, they have made it illegal.  And if it is illegal, there cannot be a minimum age:  You might have to be more than 21 to buy an alcoholic drink.  But even if you're 22, you not suppose to be buying (non-medicinal) marijuana.

            But there are some guidelines.

            The first place to look for a minimum age to make bets online is with the operator.  Some countries that license Internet gaming require that no bets be taken from anyone under 18 or 21. 

            Other jurisdictions say that it is up to the operator to set the limits.  Many put the minimum age at 21.  This doesn't necessarily make it legal.  But it does make it hard for prosecutors to claim the operator is targeting children.  And it prevents additional charges from being leveled, such as "contributing to the delinquency of a minor."

            But some operators take the position that they cannot police the world.  Just as they will take bets from everywhere, they say that the minimum age is whatever the law says it is where the player is located.  These online operators put into their terms and conditions that it is the duty of the player to determine whether it is legal to bet money online, which would include checking to see if local lawmakers have imposed a minimum age.

            The problem is that even lawyers would find it difficult to say what their local law is on the minimum age to play poker on the Internet.

            Take California, for example.  The State Penal Code makes it a crime to allow anyone under 18 to "play at a game of chance," in "any house used in whole, or in part, as a saloon or drinking place."  But, tribal casinos almost always limited poker to 21-year-olds, because the state-tribal compacts allows 18-year-olds to play only when no booze is available.  The state's licensed cardrooms also won't seat anyone under 21.  The State Legislature recently enacted a law allowing charities to run poker tournaments; again, the minimum age was set at 21.

            But, do any of these laws apply to an overseas operator taking bets from California?  Probably not. 

            State law makes it a crime to run a commercial poker game if you are not licensed.  But it is not clear that even this law applies.  There is a strong presumption that a law does not reach beyond a state's borders unless it says so, and this prohibition on poker never mentions having operators or other players outside California.

            The funny thing about all this is that the students asking the questions have a better chance of winning the World Series of Poker than of being arrested for playing poker online.  But, there is actually some small danger in betting from a dorm room.  Colleges have rules against gambling, especially if you are using a school computer.

            And the schools don't care if you are over or under 21.

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#08-10 © Copyright 2009, all rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I Nelson Rose. His latest books Gaming Law: Cases and Materials and Internet Gaming Law (2^nd edition is about to be published) are available through his website, www.GamblingAndTheLaw.com.             

I've posted the CGR-digested, single-page breakdown of the 2008 Nevada gaming revenue numbers.  It's a pdf file: http://gaming.unlv.edu/media/2008_NV_gaming.pdf.


There are some interesting trends.  All tables games won less money in 2008 than they had in 2007.  Penny slots actually won almost 10% more than they had in the previous year, but all other slots were down.  Five-dollar machines had the biggest drop-off, Megabucks the smallest.

Basically, both visitation (37.5 million) and total gaming revenue ($11.6 billion) have returned to 2004/2005 levels. 

How Not To Be Sued In Another State

 

            I am the co-editor-in-chief of the Gaming Law Review and Economics, the law journal covering gaming law.  We reported two cases in volume 12, Number 1, involving patrons who were injured in auto accidents suing casinos.  The allegations are typical:  the casinos supposedly got the drivers who caused the accident drunk.  Nothing unusual about that.  What is different is that the suits were filed in Kentucky and Arkansas, states without casinos.

            Whether the casinos can be sued in those states is a question of personal jurisdiction.

            Those two words strike fear into the hearts of most first year law students, and more than a few practicing lawyers.  The problem with personal jurisdiction is two-fold: first, students are supposed to figure out the law themselves, through the case method, starting with the famous, or infamous, Pennoyer v. Neff, decided by the Supreme Court in 1877, and continuing with court decisions right up to the present.  Which gives a good idea as to the second problem:  If a doctrine is clear and easy to understand and apply, there would be no need for courts to have to keep clarifying it for 132 years.

            Personal jurisdiction is of practical importance for casinos, because it answers the question of whether the casino can be sued in another state.  But, I have never heard of casino executives asking their lawyers, before taking some important step, such as starting a marketing campaign or modifying a website, "Will this subject us to having to defend a suit in another state?"

            This is both a lost opportunity for lawyers to help save the company money, and an indication that one of the main justifications for the doctrine has been lost.

            Today, a discussion of personal jurisdiction begins when a casino has been sued, usually by a patron, in a federal or state court located in the plaintiff's home state.  The casino's lawyers move to dismiss the case for lack of jurisdiction.  If they win, it does not mean the case is over.  But it does mean that the plaintiff will now have to start the case all over in a court in the casino's home state.  This means the plaintiff will have to spend a lot of time and money traveling across the country to find a new lawyer and to attend hearings, only to have the trial heard in front of a judge and jury that doesn't see casinos as evil deep pockets.

            Law students learn that the decision whether to dismiss involves a multi-step analysis.  The overwhelming focus in on whether having the trial in the plaintiff's home state, called the forum state, would violate the defendant's due process rights.  This is usually framed as, "Does the defendant have minium contacts with the forum state so that maintenance of the suit would not offend traditional notions of fair play and substantial justice." 

            Lots of factors get looked at, particularly whether the defendant "purposefully availed itself of the privilege of conducting activities within the forum state."  Although tens of thousands of cases discuss this factor, the reason behind it has been lost: Due process is not only a test of fairness.  It also tells the casino: you can make a conscious decision to avoid being sued in a state by limiting your activity there.

            Of course, sometimes it is impossible to avoid being haled into an out-of-state court.  If a casino has set up an office in another state it is almost always amenable to suit there, even for claims having nothing to do with that office.  Courts have decided that having continuous and systematic contacts means it would not be too much of a burden to have to defend any lawsuit there.

            Other times, the decision of whether to step up the casino's involvement with a state is so clear that the question of being open to suit is unimportant.  Harrah's Entertainment, Inc. (HEI), was sued in a California state court by a couple who claimed they were injured in an elevator accident in the Rio in Las Vegas.  In unreported decisions, the trial and appellate courts ruled that HEI could be sued in California on any claim arising anywhere,"based on HEI's own press release announcing HEI operates and manages an Indian gaming casino near San Diego..."  HEI is not going to turn down a California casino just because someone might sue them there on an unrelated claim.

            On the other hand, even a company as big as Harrah's, with casinos in dozens of jurisdictions, can protect itself.  Here, HEI claimed that a separate company ran the Indian casino.  Unfortunately, "They submitted no evidence to support their contention a company called HCAL, Inc., actually operates and manages the casino."

            But Harrah's lawyers had been careful in setting up the parent company's relationship with two other subsidiaries, Harrah's Operating Company, Inc. and Rio Properties, Inc.  The Court of Appeal dismissed both these companies from the suit, holding that the injured plaintiffs were not able to show they did any business in California.

            Companies are considered separate legal entities, even if they are parent and subsidiary.

            Harrah's again showed how this works in a strange case brought by a couple who claimed Harrah's Marina falsely reported to the IRS that they had won money, when they had  never made a bet!  But the suit was dismissed, because the plaintiffs filed it in Louisiana and the Atlantic City casino company, technically Marina Associates, had almost no contact with that state.  The parent company and Louisiana subsidiary had nothing to do with this claim.  The plaintiffs tried to argue that they were injured in Louisiana by the allegedly false statements.  But the court held that that was merely fortuitous:  even if the allegation were true, the casino had not intentionally targeted Louisiana.

            Although every case depends on its specific facts, there are some rules. 

            Having a website alone is safe.  A court dismissed a suit filed in Missouri against Las Vegas's Imperial Palace for a slip and fall at the hotel, even though the site allowed reservations to be made and advertised an 800 number.  The casino did not direct its advertisements specifically toward Missouri.

            On the other hand, Nassau's Crystal Palace was forced to defend a suit filed in Florida, because the Bahamian company had so many contacts with that state.  It even listed the Ft. Lauderdale address of its subsidiary, Crystal Palace U.S. Inc., on many of its advertisements and checks.

            The biggest problem for lawyers and executives trying to avoid, in advance, being dragged into court in another state, is that the courts are split on how much advertising is too much, and whether they should count how many patrons live in the forum state.  In the most recent auto accident cases, the Kentucky court noted that the defendant, Caesars Indiana, "earned at least $109 million from Kentucky residents in 2000;" while the Arkansas court noted, "Over 14,380 Arkansas patrons are registered" with Harrah's Shreveport.  

            On the other hand, a Pennsylvania court held Claridge Tower at Bally's could not be dragged to Philadelphia to defend an escalator accident claim, even though Bally's advertises extensively and "thirty-three percent of all people traveling on daily buses to Claridge Tower - 11,300 people - came from Philadelphia and surrounding Pennsylvania areas."

            One court, in 1992, even held that Circus Circus and its subsidiary, the Edgewater Hotel, could be sued in California for a Laughlin boating accident, but another subsidiary, the Colorado Belle, could not be sued for the same accident, because it did not advertise enough.

            Personal jurisdiction may sometimes be clear as mud.  But casino executives would still be wise to ask their lawyers about it - before they are sued.

                                                                          END

#141 © Copyright 2009, all rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I Nelson Rose.  Professor I Nelson Rose is recognized as one of the world's leading experts on gambling law and is a consultant and expert witness for governments, industry and players.  His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.

Foreign Operators Don't Have To Pay U.S. Wagering Taxes

 

            A federal magistrate has ruled that foreign internet gambling companies are not required to pay U.S. excise taxes on wagers, if the companies have been set up correctly.  The decision is by no means final.  But if upheld, it will eventually save internet operators billions of dollars, for bets taken from Americans.

            Not that any of those companies are actually sending checks to the IRS.  But their  executives who made the mistake, say, of changing planes in Dallas, have been arrested and charged with tax evasion.  A conviction means years in prison, and millions owed to the IRS.

            The ruling was for one of the many pre-trial motions filed by Gary Kaplan, arrested in the Dominican Republic after his partner, David Carruthers, was caught in Dallas flying from his home in England to his business in Costa Rica.  Kaplan, a former illegal bookie, had grown BetonSports into a billion dollar internet gaming company.

            On April 28, 2008, Kaplan's lawyers convinced U.S. Magistrate Judge Mary Ann L. Medler that Counts 14 to 22 of the federal criminal complaint against him should be dismissed.  These all claim that Kaplan attempted to evade the federal excise tax on wagers and "corruptly interfered with the administration of the revenue laws."

            The Internal Revenue Code imposes an excise tax, much like a sales tax, on many wagers.  Illegal bookies have to pay two percent of all bets they take.  Many illegal bookies have contacted me for legal advice over the years.  All of them tell me they pay this tax.

            The modern casino sports book in Nevada was created when the excise tax on wagers authorized by state law was reduced to only one-quarter of one percent.

            Kaplan admits that the sports bets he took were not authorized by state law.  There seems little dispute that the BetonSports group booked $3.5 billion in bets from 2001-2004.  So, the Department of Justice says Kaplan owes $70 million, before penalties and interest.  And willfully evading this tax would mean years in prison.

            But Kaplan has very good lawyers.  And the first thing a good lawyer does is see what the law actually says.

            It turns out this American excise tax does not cover bets made with foreign operators:

"The tax ... shall apply only to wagers

(1)       accepted in the United States, or

(2)       placed by a person who is in the United States

(A)      with a person who is a citizen or resident of the United States, or

(B)      in a wagering pool or lottery conducted by a person who is a citizen of the United States."

            This is what is known as a jurisdictional limitation.  Congress does not have the power to tax all wagers everywhere in the world.  It felt, correctly, that it could only tax bets made from the U.S.  But it went even further.

            Clearly bets accepted in the U.S. can be taxed.  But what about wagers placed by Americans and accepted by foreign gambling operations.

            There may have been no internet when this law was passed in the 1950s, but there were telephones.  Congress expressly limited the 2% tax on cross-border wagers to overseas bookies who are American.

            U.S. lawmakers probably did not want to start a tax war with other nations.  A U.S. tax on Americans making bets with foreign licensed bookmakers would be like a tariff,  More importantly, can the federal government tax a licensed foreign operators who never leaves his home country?

            The DOJ argued that Kaplan, an American, owned BetonSports.  But the magistrate held this was a real foreign corporation, not a mere sham.

            This does not mean that Kaplan is out of trouble.

            But it does mean that internet operators may have one less law to worry about, if they get good legal advice.

                                                                          END

#08-8 © Copyright 2009, all rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I Nelson Rose.  His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.