ONLINE GAMING
A Comparison of U.S. and Canadian Law
Governing Online Gaming
April 17, 2009
Danielle Bush
OVERVIEW OF PRESENTATION
A. Review of American gaming law
B. Review of Canadian gaming law
C. Comparison of American and Canadian law
applicable to three types of online gaming:
Sports betting
Fantasy sports leagues
Skillgaming
AMERICAN LAW
generally speaking, in the US gaming is
governed by state rather than federal law
each state has passed legislation governing
this activity, with significant disparities in
approach from state to state
given the above, it will be clear that a full
review of American gaming law cannot be
provided in this format
this presentation therefore provides only a
very broadbrush overview of the subject with
apologies for the oversimplification
most obvious example of this disparity is
gaming laws in Nevada as opposed to
neighbouring Arizona
Nevada permits the operation of casinos and
wagering on sports events
in Arizona, it is illegal to engage in any
wagering activities which would certainly
exclude sports betting and the operation of
casinos
US federal government has passed a number
of statutes that make certain gaming activities
illegal, subject to state law
Wire Wager Act
Professional and Amateur Sports Protection
Act
Unlawful Internet Gambling Enforcement Act
of 2006
A. Wire Wager Act (aka "Wire Act", "Federal
Wire Wager Act")
this legislation is not a separate statute but
rather section 1084 ("Transmission of
wagering information; penalties") of Chapter
50 ("Gambling") of Part I ("Crimes") of Title 18
("Crimes and Criminal Procedure") of the
United States Code ("USC")
the legislation therefore does not have a
legislative title and so is referred to by a
variety of names by legal commentators
The prohibitive section reads:
"1084(a) Whoever being engaged in the
business of betting or wagering 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, or for the
transmission of a wire communication
which entitles the recipient to receive
money or credit as a result of bets or
wagers, or for information assisting in the
placing of bets or wagers, shall be fined
under this title or imprisoned not more than
two years, or both."
Subsection (b) provides an exemption:
"1084(b) Nothing in this section shall be
construed to prevent the transmission in
interstate or foreign commerce of ........
information assisting in the placing of bets
or wagers on a sporting event or contest
from a State or foreign country where
betting on that sporting event or contest is
legal into a State or foreign country in
which such betting is legal."
this exemption theoretically appears to permit
betting by a resident of Nevada (where sports
betting is legal) on an online sportsbook
operated from England (where betting is
legal), subject to state law and regulations
it has been argued that the Wire Act makes it
illegal to engage in online gaming of any
nature whether or not the betting or wagering
involves sports events
other commentators argue that the
parliamentary history of the legislation clearly
shows the legislation was enacted specifically
to stop cross-border bookmaking and so
should only apply to sports betting
in the case of In re: Mastercard International
Inc. (132 F.Supp.2d 468 (E.D. La. 2001), the
Eastern District of Louisiana and the Fifth
Circuit on appeal both rejected the argument
that the Wire Act was broad enough to cover
transmissions concerning any type of gaming
activity
while some argue that the Wire Act should not
be read broadly to cover the Internet, the
definition of "wire communication facility" is
broad enough to capture online activity:
"The term “wire communication facility”
means any and all instrumentalities,
personnel, and services (among other
things, the receipt, forwarding, or delivery
of communications) used or useful in the
transmission of writings, signs, pictures,
and sounds of all kinds by aid of wire,
cable, or other like connection between the
points of origin and reception of such
transmission." (Section 1081)
Professional and Amateur Sports
Protection Act
Chapter 178 ("Professional and Amateur
Sports Protection") was added to the USC in
1992
s. 3702 of the Act makes it illegal for any
person (including a state government) to
operate a betting, gambling or wagering
scheme based on a sports event
"It shall be unlawful for (1) a governmental
entity to sponsor, operate, advertise,
promote, license, or authorize by law or
compact, or (2) a person to sponsor,
operate, advertise, or promote, pursuant to
the law or compact of a governmental
entity, a lottery, sweepstakes, or other
betting, gambling, or wagering scheme
based, directly or indirectly (through the
use of geographical references or
otherwise), on one or more competitive
games in which amateur or professional
athletes participate, or are intended to
participate, or on one or more
performances of such athletes in such
games."
the Act grandfathered states under certain
circumstances; as a result Nevada was
exempted as well as sports lotteries run by
the states of Delaware and Oregon
Nevada is currently the only state that allows
sports betting
Unlawful Internet Gambling Enforcement Act
of 2006 ("UIGEA")
this Act attempts to control online gaming
activity by regulating the activity of financial
service providers
it requires that financial service providers
comply with regulations requiring the
identification and blocking of financial
transactions relating to "unlawful Internet
gambling"
s. 5362(10)(A) defines "unlawful internet
gambling":
"The term `unlawful Internet gambling'
means to place, receive, or otherwise
knowingly transmit a bet or wager by any
means which involves the use, at least in
part, of the Internet where such bet or
wager is unlawful under any applicable
Federal or State law in the State or Tribal
lands in which the bet or wager is initiated,
received, or otherwise made."
s. 5362(1) defines "bet or wager" to include the
following:
A. means the staking or risking by any person of
something of value upon the outcome of a contest of
others, a sporting event, or a game subject to chance,
upon an agreement or understanding that the person
or another person will receive something of value in the
event of a certain outcome;
B. includes the purchase of a chance or opportunity to win
a lottery or other prize (which opportunity to win is
predominantly subject to chance);
C. includes any scheme of a type described in section
3702 of title 28 [the Professional and Amateur Sports
Act].
there are a number of interesting exclusions
(both explicit and implicit) from the definition
of "bet or wager" and so from the application
of the Act
the reference to a game "subject to chance"
has been read to mean that paying to play
games of pure skill in order to win a prize
("skillgaming") does not constitute unlawful
internet gambling at least under federal law
s. 5362(1)(E)(9) specifically excludes the
playing of fantasy sports leagues from the
definition of "bet or wager"
Online Gaming
very few states have specifically addressed
online gaming
Louisiana appears to be one of the few
exceptions with its prohibition against
"gambling by computer" (La. Rev. Stat. s.
14:90.3)
the general approach seems to be that if the
activity is taking place between a gaming
website operator located in the state and a
customer also in the state, state gaming laws
apply
issues arise once the activity is cross-border -
if a bet is placed in Louisiana (where betting
is illegal) on an online sportsbook operated
out of Nevada (where sports betting is legal),
is the activity legal or illegal?
the UIGEA does not make it illegal to engage
in online gaming - it simply defines unlawful
internet gambling
further, the definition makes it clear that the
legality of the activity depends entirely on the
legality or not of betting and wagering in the
state where the recipient or the operator is
located
Conclusion
gambling in the US is regulated state by state
although there is federal legislation that
provides umbrella regulation in certain areas
generally speaking, intrastate gambling is
either prohibited or very tightly controlled by
state government
interstate gambling is prohibited with the
exception of wagering on horseracing (which
is legal under the Interstate Horseracing Act
of 1978 (15 USC 3001))
online gaming per se has not been addressed
in most states but it is very likely that state
gambling laws will apply to online instrastate
gambling
the status of interstate or even international
online gaming is less clear
it is likely that the law governing online
gaming will follow the developing case law on
internet commercial transactions and the
jurisdictional issues that must be settled in
such cases
CANADIAN LAW
Overview
Canadian gaming law is far simpler than
American gaming law in most respects
Canada has a federal Criminal Code (the
"Code") which is the only penal legislation in
the country
gambling is prohibited by the Code with some
exceptions, including an exception for the
operation of gambling operations by provincial
governments and by licensees of the
provinces
almost all of the provinces have passed
legislation that regulates gaming in their
jurisdiction and, like most monopoly gaming
authorities, a large part of their annual
revenue now derives from provincial gaming
activities
Criminal Code Provisions
Section 197(1) of the Code defines "bet" ( the
noun) as "a bet that is placed on any
contingency or event that is to take place in or
out of Canada...., includes a bet that is placed
on any contingency relating to a horse-race,
fight, match or sporting event that is to take
place in or out of Canada"
the same section defines "common betting
house" as " a place that is opened, kept or
used for the purpose of (a) enabling,
encouraging or assisting persons who resort
thereto to bet between themselves or with the
keeper, or (b) enabling any person to receive,
record, register, transmit or pay bets or to
announce the results of betting"
thus if a company runs a sportsbook in
Canada, they are likely keeping a common
betting house
Section 202(1) provides that every person who
does any one of the following is guilty of a
criminal offence:
a)
uses or knowingly allows a place under his
control to be used for the purpose of
recording or registering bets; ....
b)
has under his control any money or other
property relating to a transaction that is an
offence under this section;
c)
records or registers bets;
engages in book-making, or in the business
or occupation of betting, or makes any
agreement for the purchase or sale of
betting or gaming privileges, or for the
purchase or sale of information that is
intended to assist in book-making, poolselling or betting;......
e) transmits or receives any message that
conveys any information relating to bookmaking, betting or wagering, or that is
intended to assist in book-making, poolselling, betting or wagering; or
d)
f)
aids or assists in any manner in anything that
is an offence under this section.
given the breadth of this section, a sportsbook
operator as well as persons providing
services to the sportsbook are exposed to
charges under s. 202(1)
Section 203 is specifically targeted at
bookies, providing that:
Every one is guilty of an indictable offence
who (a) places a bet on behalf of another
person for a consideration paid or to be
paid by or on behalf of that other person,
(b) engages in the business placing bets
on behalf of other persons, whether for a
consideration or otherwise, or (c) holds
himself out as engaging in the business of
placing bets on behalf of other persons,
whether for a consideration or otherwise.
section 204 is the Canadian equivalent, more
or less, of the American Interstate
Horseracing Act of 1978
it provides that ss. 201 and 202 do not apply
to bets made on horse races provided by
organizations running pari-mutuel systems or,
stated positively, it legalizes certain types of
betting (pari-mutuel but not fixed-odds) on
horse races
section 206 is possibly the single most
convoluted and poorly drafted section of the
entire Code, as illustrated by the following:
206(1)(b) [Everyone commits an indictable
offence who] sells, barters, exchanges or
otherwise disposes of, or causes or
procures, or aids or assists in, the sale,
barter, exchange or other disposal of, or
offers for sale, barter or exchange, any lot,
card, ticket or other means or device for
advancing, lending, giving, selling or
otherwise disposing of any property by lots,
tickets or any mode of chance whatever;
generally speaking, s. 206 makes all games
of chance and all lotteries illegal, as well as
criminalizing any service provided to assist in
the operation of games of chance and
lotteries
thus, under s. 206, the operator of an
unlicensed land-based or online sportsbook
that accepts bets from Canadians is likely
committing a number of criminal offences, as
are their service providers
Provincial Exemption
section 207(1)(a) provides that it is lawful for
the government of a province, either alone or
in conjunction with the government of another
province, to conduct and manage a lottery
scheme.
section 207(4)(b) defines "lottery scheme" as
any activity described in subsections
206(1)(a) to (g), whether or not it involves
betting, other than ..... (b) bookmaking or the
making or recording of bets on any race or
fight, or on a single sport event or athletic
contest;
as a result, with the exception of pari-mutuel
betting, it is illegal for any person or
organization in Canada (including the
provincial governments) to offer betting on
races, fights or single sports events or athletic
contests
Online Gaming Operations
1. Online Sportsbooks
United States
as noted previously, sports betting is illegal
everywhere in the U.S. except Nevada
it is a given that unlicensed online
sportsbooks will be illegal if they are operating
from anywhere in the US
the situation is less clear in the case of an
offshore sportsbooks that accepts bets from
the US
they could certainly be charged with offences
under the Wire Act, the Professional and
Amateur Sports Protection Act, RICO
("Racketeer Influenced and Corrupt
Organizations Act"), and various money
laundering statutes
the issue of internet jurisdiction would loom
large in this situation
based on the developing jurisprudence in this
area starting with the Zippo case (Zippo
Manufacturing v. Zippo Dot Com Inc., 952
F.Supp. 1119 (W.D. Pa. 1997)), it is likely that
a US court would find that the provision of
illegal gaming services to persons in the US
by an offshore online sportsbook constituted
sufficient contact with the US to give the court
jurisdiction
while this hypothesis has yet to be tested, it
appears that the Departments of Justice
responsible for the arrest of various
executives of offshore sportsbooks (such as
BetOnSports) over the past three years do not
have any doubt about the likely outcome of
such a case
Canada
sports betting (other than pari-mutuel betting
on horse races) is illegal in Canada unless
licensed by a provincial government
single-event sports betting is illegal
throughout Canada - not even the provincial
governments can offer this type of betting
at present, most if not all legal online sports
betting in Canada is provided by provincial
lottery corporations
the legality of offshore online sportsbooks has
not been tested in Canada but the probable
outcome of such a case is becoming clearer
as Canada's internet jurisdiction jurisprudence
develops
the Supreme Court of Canada in R. v.
Libman, [1985] 2 S.C.R. 178, and then later in
Society of Composers, Authors and Music
Publishers of Canada v. Canadian Assn. of
Internet Providers, [2004] S.C.J. No. 44 (the
"SOCAN" case) found that online activity can
be found to have taken place in several
jurisdictions concurrently
a Canadian court is therefore now likely to
find it has subject matter jurisdiction over the
provision of illegal gaming services to
Canadians by the operator of an offshore
online sportsbook
in conclusion, it is likely that unlicensed online
sportsbook activity in Canada is illegal
whether or not the operator is located in
Canada
3. Fantasy Sports Leagues
United States
s. 5362(1)(E)(ix) of the UIGEA provides that
fantasy sports leagues do not constitute
unlawful internet gambling because to "bet or
wager" does not include:
"(ix) participation in any fantasy or simulation
sports game or educational game or contest
in which (if the game or contest involves a
team or teams) no fantasy or simulation
sports team is based on the current
membership of an actual team that 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-
a.
on the score, point-spread, or any
performance or performances of any single
real-world team or any combination of such
teams; or
b.
solely on any single performance of an
individual athlete in any single real-world
sporting or other event.
provided a fantasy league meets the
requirements set out above (including in
particular compliance with subsection (II)
which requires that the game be purely or
predominantly one of skill), the US federal
government apparently believes it to be a
legal activity, whether online or not
notwithstanding the view of the federal
government on the matter, many states may
well find fantasy leagues to be illegal simply
because the players must pay to play a game
for a prize
Florida, Louisiana, and Arizona have all seen
their attorneys general rule at one time or
another that fantasy leagues were illegal in
their respective states
Canada
according to s. 206 of the Code, it is an
offence to run a game in which people
provide consideration to play a game of pure
chance in order to win a prize
further, s. 206 prohibits schemes in which
people pay consideration in order to play a
game of mixed chance and skill if the prize is
goods, wares or merchandise
s. 206 does not prohibit or even mention
games of pure skill and therefore it is
generally agreed that paying to play a game
of pure skill for a prize of any nature is legal in
Canada
it should be noted here that the concept of
'predominance of skill' was specifically
rejected by the Supreme Court of Canada in
the case of R. v. Ross [1968] S.C.J. No. 60
the Supreme Court, in a spirited discussion
concerning the nature of the game of bridge,
held that if a game contained any element of
chance, it would be considered a game of
mixed chance and skill, not a game of pure
skill
although Spence J. objected vigorously, the
other four justices held that because bridge
players had their hands dealt to them, there
was sufficient chance involved to render the
game one of mixed chance and skill
as a result, the person running the bridge club
was found guilty of operating a common
gaming house contrary to s. 201 of the Code
it is therefore critical that any fantasy sports
league be structured so that winners are only
chosen at the end of a long period of play that
amply demonstrates that the eventual winner
has won on the basis of pure skill
4. Skillgaming
this term refers broadly to the playing of
games (usually online) in which the outcome
is determined entirely by the skill of the player
for the purposes of this presentation,
skillgaming is defined to include the payment
of some form of consideration by the players
for the opportunity to win a prize by playing
the game
United States
as noted previously, the central definition of
"bet or wager" in the UIGEA does not appear
to include games of pure skill or games that
are predominantly skill-based
the absence of reference to such games has
been taken as strong indicator that the federal
government did not intend to have the UIGEA
apply to skillgaming
no matter the apparent position of the federal
government on this issue, it is still necessary
to determine on a state by state basis
whether skillgaming is legal
it appears that the majority of states use some
form of predominance test to determine
whether an activity constitutes an illegal game
of chance rather a legal game of skill
even presuming a game is found to be
predominantly one of skill, there are still a
number of states (such as Arizona, Arkansas
and Delaware) where gaming is illegal
whether or not skill is the only determining
factor in the outcome
as is the case with other forms of gaming, the
provision of online skillgaming will clearly be
governed by the laws of the state in or from
which the website is operating
it also appears likely that online skillgaming
will be governed by the laws of the state
where each player is located
Canada
as noted in the previous discussion of the
Code, games of pure skill are not caught by
the various anti-gaming provisions of the
Code
it is therefore almost certainly legal to provide
online skillgaming throughout Canada
caution is required with respect to the nature
of the games provided because of the bright
line approach taken by the Supreme Court
concerning the presence of chance in games
as discussed previously, the Supreme Court
takes the position that any element of chance
in a game transforms it from a legal game of
skill to a potentially illegal game of mixed
chance and skill
CONCLUSION
American gambling law is extremely complex
because of the number of jurisdictions
governing the activity, the diverse federal
statutes that could be brought to bear on the
activity, and the issuance of opinions on the
subject from time to time by various state and
federal attorneys general
the primary result of this complexity is an
alarming lack of clarity with respect to the
legality of gaming activities at any given time
or place
this is compounded by the complexity of the
case law and legislation surrounding the
subject of internet jurisdiction
in contrast, Canadian gaming law is relatively
straightforward, primarily because the legality
of gaming can only be addressed in one
statute, the Code
what Canada lacks is subject-specific
legislation and case law that would provide
clarity and certainty in this arena
online sportsbooks, whether operating from
inside or outside the US, are clearly operating
illegally (with the exception of Nevada
licensed sportsbooks) if they accept bets from
the US
in Canada, it is also likely that the operation of
an unlicensed online sportsbook that accepts
bets from Canada would be found to be
operating illegally in Canada
fantasy sports leagues that conform to the
definition set out in the UIGEA may or may
not be legal in the US depending on the laws
of the state in which they and their players are
located
in Canada, fantasy leagues are likely legal
provided that the game is structured so as to
be one of pure skill
finally, skillgaming appears to be legal in the
US according to the federal government but it
may be illegal depending on the state in
which the activity is being carried on
in Canada, skillgaming is almost certainly
legal provided that the games are truly games
of pure skill with no element of chance
involved in the outcome of the games
Danielle Bush
320 Bay Street, Suite 1600
Phone: 416-644-9969
Toronto, Ontario
Fax:
M5H 4A6
416-368-0300
[email protected]
www.chitizpathak.com
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