Some Thoughts on the Ban and industry response

[mary]

neenar neeenar neeenar I TOLD YOU SO!

OK, I got that out of the way.

Seriously, I have been very surprised by the responses of large, wealthy companies to this turn of events. It's not like it was a surprise, it's been a sword over the industry for years, yet it appears that there were no contingency plans formed and some of the responses are very curious in terms of legal plans or consistency.

*For one thing, California is a state with an explicit ban on internet gambling, yet it is not on many banned states lists.

*This is actually a very effective way for US authorities to block Internet gambling. They can't arrest the executives offshore, they can't shut down the servers, they can't stop the connectivity. They can screw up the movement of money--something they already want to do anyway--the Patriot Act and other banking acts have increased scrutiny of *all* banking transactions and offshore transfers in particular. This gives them a hook for shutting down the nascent money-transfer industry or increased supervision over it, which they wanted.

*Of course Louisiana is going to go after online gambling. Their land gambling infrastructure was wiped away by hurricanes, literally. Those casinos contribute a lot to depressed local economies; the more gamblers they can bring back to the land industry the better. The internet poker industry did a nice job of creating more American gamblers, now the land industry can harvest them.

*Of course the US law enforcement and government entities are going to go after internet gambling, especially after Party Gaming's "In Your Face IPO" and the aggressive ad campaigns all over the US. A porn queen and an Indian programmer are successfully sucking money out of the US and have no supporters in the US. They were making everybody look bad, and let me tell you, the US political establishment is already looking really, really bad. The internet industry handed them an opportunity to both look better and have more power over financial transaction monitoring.

*I received an email from a Microgaming casino telling me my account was closed. The heading was about a 20% offer. How sad is that?

*Of course this act applies only to "unlawful" gambling, that's to keep the door open for legalized horseracing between the states that have it.

*I was amazed that sportsbook operators were still setting foot on US soil after the first arrests. Being an executive of a company does not distance one from criminal activity--it increases the responsibility. Shareholders need to take notice of such arrogance and stupidity on the part of executives. Louisiana didn't have to actually bother with a trial or slapping anybody into jail; they accomplished their goal. Nor was what they did illegal or unethical, it's standard playing of the game, and everybody should have anticipated that.

*Players should take careful note of how all parties--money transfer agencies, casinos, and software providers--are handling things. This is a great opportunity for a last cash grab out of the departing American players: a ready-made excuse. Gee, we couldn't get all the transactions done within the timeline. Gee, we couldn't get the money into your American account. Non-American players should take note: if anybody does this now to the Yanks, they'll do the same to you.

I'm getting some incredible offers from the Oliver Curran casinos by they way. That's going to be some trouble building up right there.

*Investors should take note of how publically traded companies are handling this. Does the company look like it knows what it is doing? Does it look like it has competent legal advice? (hint: I think CRYP is handling things well. I'm biased.)

*Nobody is going to care about the loss of advertising revenue. Advertising revenue spent on an industry that sucks money out of the US is a net loss. US gamblers will still need their fix; the advertising revenue lost will be replaced by revenue from the land industry. The shady advertising tricks and annoying web clogging sites will get worse, unfortunately, from the new crop of really skanky software providers and advertisers, but at least they won't have as much money to spend as did Party Gaming and Golden Palace.

[cipher]

Hi Mary:

Would you be able to provide me wth a link that shows California has a ban on internet gambling?

Have a good one.

[mary]

California has a ban on internet gambling offered by operators not explicitly legal and licensed to offer internet wagering within California. It's similar to Nevada and New Jersey: it opened the door to horse racing and potential in-state betting if the Wire Act ever gets clarified.

In other words, if it isn't licensed in California, it isn't legal. That's every online operator to date and it's the same in Nevada, New Jersey, and Washington. Why are online casinos not putting California on that same list being used to exclude bettors from those states?

Even bans that are supposed to be universal will often be so poorly worded that they result in the accidental legalization of Internet gambling by local legal operators. for example, California=s A.B. 2179, attempts to outlaw, by name, every form of gambling imaginable. But, the proposed statute defines AA prohibited online gambling game@ as including ALottery games, other than games lawfully conducted by the California State Lottery.@

The Future Legal Landscape for Internet Gambling

The author says: "California, for example, makes it a crime to play 11 named games, including '21' and any 'banking or percentage game.' The California Penal Code also makes it a misdemeanor to make sports bets. But other wagers are not forbidden. It is not a crime to buy a lottery ticket, even in an illegal numbers games." Thus, his view is "So, at least in California, it seems it is not a crime to play poker online for money." (Emphasis supplied.)

I think the better, more legally supportable, conclusion is: playing poker for money in California at the popular online poker websites is illegal, but in today's tolerant atmosphere the risk of being charged with a criminal misdemeanor is far less than the chance of getting a speeding ticket, and the actual penalty to befall anyone who is charged will be not much more serious than the speeding ticket. Here is my analysis and reasoning to support that conclusion.

California Penal Code Sec. 330. provides: "Every person who plays... any banking or percentage game played with cards... for money, checks, credit, or other representative of value, and every person who plays or bets at or against any of those prohibited games, is guilty of a misdemeanor..." (Emphasis supplied.)

The conclusion Professor Rose reaches is correct for the situation where the player bets in an online poker game that is NOT also a percentage game. This is because playing poker for money in California is legal so long as the particular game being played does not run afoul of the other provisions of the law. Social home games are an example. As long as no one makes money, other than as a mere player, it is OK to play in a real money home poker game. In addition, playing in duly licensed California cardrooms does not run afoul of the prohibition because those cardrooms charge players in a manner that is not considered to be a percentage rake.

However, the conclusion is incorrect where the player bets in an online poker game if that game is a "percentage game." All of the major online websites that offer real-money betting on poker games charge a fee of some kind for the opportunity to play. Usually the fee takes the form of the website operator being entitled to a rake that is a percentage of the money in a given pot, limited to a maximum amount. In tournament play there is an entry fee that may be viewed as a percentage of the buy-in amount each player pays, the sum of which buy-ins make up the prize pool to be split among the winners, since the amount increases as the buy-in amount increases. I am not aware of any online real-money poker games that do not have a rake or entry fee for most real-money poker games and tournaments.

Is Playing Online Poker in California Legal?*

The truth is that California law bans (i) most lotteries, (ii) a few specific games and (iii) all unlicensed “banked” or “percentage” games played with cards or dice. There is no mention of “games of skill” in the last two categories The “raked” games are all played for money where the host, or “house,” makes money on the game other than as a mere player competing on equal terms with the other players. All other games are legal.


California Lottery v. Gambling

[cipher]

Originally Posted by mary

California has a ban on internet gambling offered by operators not explicitly legal and licensed to offer internet wagering within California. It's similar to Nevada and New Jersey: it opened the door to horse racing and potential in-state betting if the Wire Act ever gets clarified.

In other words, if it isn't licensed in California, it isn't legal. That's every online operator to date and it's the same in Nevada, New Jersey, and Washington. Why are online casinos not putting California on that same list being used to exclude bettors from those states?

Even bans that are supposed to be universal will often be so poorly worded that they result in the accidental legalization of Internet gambling by local legal operators. for example, California=s A.B. 2179, attempts to outlaw, by name, every form of gambling imaginable. But, the proposed statute defines AA prohibited online gambling game@ as including ALottery games, other than games lawfully conducted by the California State Lottery.@

The Future Legal Landscape for Internet Gambling

The author says: "California, for example, makes it a crime to play 11 named games, including '21' and any 'banking or percentage game.' The California Penal Code also makes it a misdemeanor to make sports bets. But other wagers are not forbidden. It is not a crime to buy a lottery ticket, even in an illegal numbers games." Thus, his view is "So, at least in California, it seems it is not a crime to play poker online for money." (Emphasis supplied.)

I think the better, more legally supportable, conclusion is: playing poker for money in California at the popular online poker websites is illegal, but in today's tolerant atmosphere the risk of being charged with a criminal misdemeanor is far less than the chance of getting a speeding ticket, and the actual penalty to befall anyone who is charged will be not much more serious than the speeding ticket. Here is my analysis and reasoning to support that conclusion.

California Penal Code Sec. 330. provides: "Every person who plays... any banking or percentage game played with cards... for money, checks, credit, or other representative of value, and every person who plays or bets at or against any of those prohibited games, is guilty of a misdemeanor..." (Emphasis supplied.)

The conclusion Professor Rose reaches is correct for the situation where the player bets in an online poker game that is NOT also a percentage game. This is because playing poker for money in California is legal so long as the particular game being played does not run afoul of the other provisions of the law. Social home games are an example. As long as no one makes money, other than as a mere player, it is OK to play in a real money home poker game. In addition, playing in duly licensed California cardrooms does not run afoul of the prohibition because those cardrooms charge players in a manner that is not considered to be a percentage rake.

However, the conclusion is incorrect where the player bets in an online poker game if that game is a "percentage game." All of the major online websites that offer real-money betting on poker games charge a fee of some kind for the opportunity to play. Usually the fee takes the form of the website operator being entitled to a rake that is a percentage of the money in a given pot, limited to a maximum amount. In tournament play there is an entry fee that may be viewed as a percentage of the buy-in amount each player pays, the sum of which buy-ins make up the prize pool to be split among the winners, since the amount increases as the buy-in amount increases. I am not aware of any online real-money poker games that do not have a rake or entry fee for most real-money poker games and tournaments.

Is Playing Online Poker in California Legal?*

The truth is that California law bans (i) most lotteries, (ii) a few specific games and (iii) all unlicensed “banked” or “percentage” games played with cards or dice. There is no mention of “games of skill” in the last two categories The “raked” games are all played for money where the host, or “house,” makes money on the game other than as a mere player competing on equal terms with the other players. All other games are legal.


California Lottery v. Gambling

Thank's Mary

One thing that I might add is that I find Professor Rose's writings amusing if nothing else, but the fact remains that Professor Rose is a college professor in Souther California. Moreover, I don't believe that Professor Rose has actively practiced law or even seen the inside of a Courtroom in one hell of a long time.

Have a good one.

[mary]

They aren't all from Rose.

I've attended meetings of the California Gambling Commission and have had experience with their laws regarding land gambling. To offer any form of gambling that is not explicitly permitted is prohibited, to the degree that if one owns a gambling licensed property in California (such as a card room) one can have no ownership interest in any business offering forms of gambling prohibited in California.

In other words, any one who owns any percentage of a California card room cannot have any ownership of a Washington State card room (California prohibits some games that are legal in Washington), nor have any ownership in even publically traded stock for slot companies! That's much tighter ownership control than that done by other states. To have an internet gambling interest that served California customers would automatically disqualify one from having a California license, so no owner or operator of an online site will be able to ever be legal in California.

Rose has pointed out that California amended their law code to explicitly permit internet wagering of horse races--a form of Internet gambling and arguable an expansion of gambling--but they did not permit online casino games, online poker by non-licensed operators, online sports betting, so on.

California hasn't made noises about law enforcement taking an active interest in charging illegal online providers of gambling--not like New York, Washington State, Louisiana--but that could change at any time. My guess is that cutting out California players is too much of a revenue drop to be absorbed. There's a lot of computer owners in California and the state is probably a large percentage of US players.

Whether or not a legal opinion has been tested in court does not make the opposing untested opinion correct and does not prevent being arrested or other hassles that can drop share price without ever going to trial.

My conclusion is any California *player* needs to be aware that conditions can change rapidly; that claims that online gambling is legal are incorrect; and that online casinos being fearful of other states with very similar laws should be a warning flag.

[mary]

The argument could be made by law enforcement that a home computer with online casino software is itself and illegal gaming device.

"Gambling game device" means any equipment or mechanical, electromechanical, or electronic contrivance, component or machine used remotely or directly in connection with gaming or any game which affects the result of a wager by determining win or loss. The term includes any of the following:
(1) A slot machine.
(2) A collection of two or more of the following components:
(A) An assembled electronic circuit which cannot be reasonably demonstrated to have any use other than in a slot machine.
(B) A cabinet with electrical wiring and provisions for mounting a coin, token, or currency acceptor and provisions for mounting a dispenser of coins, tokens, or anything of value.
(C) A storage medium containing the source language or executable code of a computer program that cannot be reasonably demonstrated to have any use other than in a slot machine.
(D) An assembled video display unit.
(E) An assembled mechanical or electromechanical display unit intended for use in gambling.
(F) An assembled mechanical or electromechanical unit which cannot be demonstrated to have any use other than in a slot machine.
(3) Any mechanical, electrical, or other device that may be connected to or used with a slot machine to alter the normal criteria of random selection or affect the outcome of a game.
(4) A system for the accounting or management of any game in which the result of the wager is determined electronically by using any combination of hardware or software for computers.
(5) Any combination of one of the components set forth in subparagraphs (A) to (F), inclusive, of paragraph (2) and any other component that the commission determines, by regulation, to be a machine used directly or remotely in connection with gaming or any game which affects the results of a wager by determining a win or loss.


California Gambling Laws

[mary]

Rothken Law Firm: California Court Gives Green Light to Lawsuit Against Yahoo!, Google, FindWhat and Other Search Engines for Alleged Illegal Involvement in Internet Gambling Advertising; Plaintiffs' Case to Move Forward
Business Wire, June 4, 2005

SAN FRANCISCO -- Defendants, including Yahoo!, Google, FindWhat and other major search engine websites lost their motion to strike core allegations in plaintiffs' complaint in the case of Cisneros et al v. Yahoo! et al (San Francisco County Superior Court). These allegations ask the Court to provide a remedy against the search engine's alleged illegal advertisement of Internet gambling. The Court made a ruling that allows the case to move forward.

Plaintiffs' complaint, filed last August in California Superior Court in San Francisco, alleges that Yahoo!, Google, Overture, Ask Jeeves, LookSmart, AltaVista, Terra Lycos, Jupiter, FindWhat, Kanoodle, Business.com, and Sex.Com all aided and abetted illegal gambling websites and violated California law by providing paid advertisements in violation of California Penal Code provisions and the Unlawful Business Practices Act. Californians, including minors, the elderly, and the poor, according to the complaint have lost millions of dollars to unscrupulous Internet gambling websites.

"The search engines, such as Yahoo! and Google, attempted to convince the court that they could advertise Internet gambling with immunity -- the court rejected that notion and allowed the case to proceed," said Reed Kathrein, an attorney for the plaintiffs.

"We are pleased that the Court denied the search engine defendants' motions to dismiss and strike allegations and we are optimistic that the Court will find that the defendants were involved in an unlawful business activity when they actively advertised for a fee illegal Internet gambling and that the Court will enjoin such activity," said Ira Rothken, an attorney for plaintiffs.

Plaintiffs allege that the defendants made enormous revenues actively supporting Internet gambling. For example, it was alleged that defendant Yahoo! (through its Overture subsidiary) recently made as much as $12.97 (or more) per "click-through" for directing its users to illegal Internet gambling websites. "The Court's ruling now clears the way for plaintiffs to investigate defendants' net gambling activities in the discovery process and learn the magnitude of their alleged wrongdoing," said Stan Mallison, an attorney for the plaintiffs. Plaintiffs are requesting in the complaint injunctive relief, a declaration from the court that such behavior is illegal, and the restoration to the general public of defendants' ill-gotten gains.

CONTACT INFORMATION: If you are California resident who has been adversely impacted by the search engine defendants' actions as alleged in this case or are otherwise interested in speaking to an attorney regarding this case, please contact any of the co-lead counsel below:

Reed Kathrein at Lerach Coughlin Stoia Geller Rudman & Robbins, LLP, via email at netgambling@lerachlaw.com.

Ira P. Rothken at the Rothken Law Firm via email to feedback@techfirm.com -- a copy of the complaint can be found at Home.

Stan S. Mallison at the Law Offices of Stan S. Mallison via email to Stanm@mallisonlaw.com.

COPYRIGHT 2005 Business Wire
COPYRIGHT 2005 Gale Group

[mary]

I don't want to give anybody the impression that I'm happy about all this. I'd love to see online gambling legalized and regulated. The lawmakers are idiots; the technology exists, and has for many years, to prevent underage gambling, detect addictive gambling and supply treatment, and to make online gambling safer than what are now called "paper tables" in casinos.

It's just that it has been painful to watch the slow motion train wreck that is this industry and America's political forces coming to inevitable collision. Market forces cause the gambling businesses to get louder and less PR palatable for politicians and law enforcement; at some point they had to push back and the most effective means, which had already been proven, was to choke up the movement of money.

Land gambling in the US is now more available, so the internet sector will have done a nice job of creating a bigger market for them; eventually, even politicians will become familiar enough with computer technology (after they get over setting the clocks on their vcr's and using laser scanners in supermarkets) that they will legalize and regulate. It's just a matter of time.

[Westland Bowl]

Originally Posted by mary

Land gambling in the US is now more available, so the internet sector will have done a nice job of creating a bigger market for them...

I, for one, MAY just may visit a land-based casino or two but I've all my life never visited them because I know the games are money-losers, in the long run I'll lose money. Card-counting is just too much trouble to learn and use for me.

Online gambling was different because some of the games were/are predictable to a certain extent. Combined with low minimum bet limits, various strategies are workable and profitable for me. Try finding a land-based casino with $1 minimum bet limit.

All the lights, flash, razzle-dazzle of land-based casinos means nothing to me if I can't consistently make a profit from the games. Sure, casinos can be a fun place for entertainment and such if your are on somebody else's dime but not if I'm going to lose hundreds/thousands of dollars of my own for this. Forget it! So land-based casinos are not going to see and profit from this introduced-to-gambling-via-internet-casinos guy.

[spearmaster]

Mary -

Regarding the percentage game in poker, where the house takes a percentage of the total pot as rake - could this not be avoided by simply taking a fixed rake (ie $1 per game)? This could then be construed as a service (or service access) charge as opposed to a percentage of winnings...