An Exploration of Cyber Gambling Law

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An Exploration of Cyber Gambling Law

By Robert Spencer

Throughout history, we as human beings have been fascinated with the concept of risking possessions on the hope that a desired outcome will take place. Immeasurable amounts of wealth have been spent on the thrill of betting. With gambling being such a lucrative industry, governments all over the world have attempted to capitalize on the profits, although have struggled to keep up with the growing number of methods that people use to gamble. One of the more recent forms of gambling to break forth into the market is cyber gambling, or the use of the World Wide Web to transfer bets from remote locations, such as: kiosks, laptops, and mobile devices.

Online gambling established its roots in the mid-1990s, spearheading the popularization of the World Wide Web. A software company, Microgaming, teamed up with a monetary encryption company, Cryptologic, in 1994 to form the first online gambling venue available commercially worldwide via the Internet. This conjunction was made possible by the passing of the Caribbean nation of Antigua and Barbuda’s Free Trade and Processing Zone Act. For the first time, a country provided legal jurisdiction and licensing to operate Internet gambling.1 With legal grounds to stand on, the cyber gambling industry has flourished. Small countries, in particular, invested money into propelling the growth of Internet gaming; as is the case in Liechtenstein. Liechtenstein is a 61 square mile country that is landlocked between Switzerland and Austria with the second highest gross domestic product per capita primarily due to its Internet gambling organizations’ success.2 By 1997, the online industry was raking in revenues in excess of $1 billion. Four years later this number grew to nearly $8 billion per year.3 Although, many large countries neglect to profit from the industry. Due to legislation restricting remote gambling in many countries around the world, online gambling companies have primarily been headquartered in offshore countries, such as Antigua, New Zealand, and Costa Rica.

The World Wide Web revolutionized the ways in which people can gamble. Rather than locating and engaging a brick and mortar business, cyber gambling allows patrons to place bets from any place with an Internet connection. This reached an untapped niche in the gambling market: the homebound. Additionally, it simplified the process of betting for many established businesses that participate in a lottery or sports betting practice. The online gambling market has stretched out in three primary directions: games of chance, casino games, and sports betting.

A front-runner of cyber gambling was national lotteries. Since the legislation in many countries exempts games of chance, gamblers have at least one online venue to participate legally on the web. The United Kingdom, for example, details a separate license for games of chance than from that of a casino-operating license in section 65 of the 1978 Royal Commission Report on Gambling. Per the Royal Commission Report on Gambling, “Bingo is a lottery played as a game.” 4 Since all players are given a random set of numbers, the odds are equal for all participants. The Royal Commission Report of 1978 set precedence for online bingo to dig a foothold along with lotteries in shielding against the laws prohibiting online gambling in the United Kingdom. The British Gambling Commission leaves a very open interpretation of the definition of bingo. The primary principles it lists include: bingo being played as an equal chance game, involving an undefined degree of participation, and have a definitive end point. The commission provides no limitation on the jackpot or prize value.5 The bingo community has taken advantage of the lenient statutes in the United Kingdom and been given room to flourish within the highly contested cyber gambling industry.

Law writers have not opened their arms to welcome traditional casino games, such as poker and blackjack, as they had with lotteries and bingo. Many of these casino gambling styles fall beneath the United States Treasury and Federal Reserve Board joint ruling of the Unlawful Internet Gambling Enforcement Act of 2006, which severely limits the payment methods that gambling business are legally allowed to accept.6 For years, the Unlawful Internet Gambling Enforcement Act has prevented supply for a legal, tax paying avenue for cyber gambling within the most internet consuming nation in the world. However, the remote gambling community recently got a huge surge of support from the Virgin Group, backed by Sir Richard Branson. Teaming with Tropicana Resort of Atlantic City, Virgin Group hopes to rake in close to $1 billion per year via cyber gambing, which translates to $170 million in New Jersey state taxes. Seeing such a potential for boosting state revenue, Delaware and Nevada are also testing the waters of cyber gambling legalization.7 These are some of the first experiments with decriminalizing online gambling since the 2006 law passed.

Sports betting has been a part of society since the invention of sport. The sports betting community had an influx in popularity since the commercialization of the Internet. Though most major countries have firmly banned online sports betting, that has hardly deterred many sporting gamblers. For instance, the People’s Republic of China is currently struggling to battle its citizen’s demand for betting on the 2014 World Cup. Two Internet giants, Tencent Holdings Ltd. and Alibaba, promote so called “World Cup lotteries” which narrowly sidesteps the Chinese legislation banning gambling.8 If there is such a demand for sports betting then why are so many countries opposed? The United Kingdom Gambling Commission cites integrity as an issue.9 An issue that has stemmed from sports betting has been events being “fixed”, as was the case within the Portugal Football League recently. Early in 2014, three Portugal Football League football matches came under investigation for the outcome of the matches being prematurely altered. Issues such as these are typically followed by stiffer regulation, and the Portuguese government is expected to introduce additional online gambling regulation later in the year.10

Fantasy sports are the latest form of sports betting. The Fantasy Sports Trade Association, FSTA, estimates that over 40 million Americans intend to participate in fantasy sports in 2014. 11 The options for fantasy sports range from the fan favorite, Fantasy Football (American), to the most in depth fantasy game, Fantasy Baseball, to a lesser-known Fantasy F1 Racing. Fantasy sports differ from standard sports betting because the winning outcome reflects the knowledge and skill of the participants and are determined on the statistical results of individual athletes rather than team score, point spread, or the performance of a real world team as a whole.12 The goal of winning fantasy sports is to display superior knowledge by creating a team picked from a real life cast from sports leagues. Fantasy Points are determined by an individual player’s stats for a game. The participant who finishes a given time period with the highest accumulation of Fantasy Points is the winner. While the real world team that the participant roots for may lose, his or her fantasy team may still earn points as it is based on individual player performance rather than the team outcome.

Laws on cyber gambling in each country vary as much as the online gambling methods that the laws restrict. In Canada, for instance, individuals may place bets amongst themselves on the Internet, but cannot gamble through a business. Purchasing a ticket for a foreign lottery is illegal, as well, under Canada’s Criminal Code, Section 206.13 While next door in the United States, the FBI is against internet gambling, stating on their website: “No placing cyber bets…No transferring money electronically for gambling. No wagers in offshore Internet casinos…” and promise to continue to crack down on cyber betting.14 In New Jersey, however, the state government has been hard at work for legislative reform on the matter since 2012. New Jersey Senator Ray Lesniak said, “For our casinos and race tracks, it may be the difference between life and death. Both are dying industries.” Prior to the legalization of gambling in New Jersey, Governor Chris Christie speculated that $180 million would be brought into the state the first fiscal year from a 15 percent state cyber gambling tax. However, popularity for cyber gambling has been stunted because only the residents of New Jersey are allowed to gamble remotely and banks continue to decline credit cards for use on gambling websites.15 The state is being met by rivals from the United States’ gambling capital, Las Vegas, where casino tycoon, Sheldon Adelson, has rallied four state governors, including Texas’ Gov. Rick Perry and Florida’s Gov. Rick Scott, along with Senator Lindsey Graham to discourage federal proposals to loosen the reigns on cyber betting in fear that online gambling will tarnish the appeal of Las Vegas vacation gambling.16

Eastern Asian countries are looking at cyber gambling law reform as the desire to gamble overwhelms current laws. National governments have monopolized the only legal cyber betting operations in many countries throughout the South Eastern region, including: China, South Korea, and Japan to name a few. The Philippines, on the other hand, embraces gambling and host nearly 70 online gambling businesses.17 In countries where gambling is harshly punished by police and military, such as the case is in Thailand, citizens have taken to crossing the border to Cambodia in order to gamble where casinos have online gambling booths to bet on the 2014 World Cup.18 Like the Thais, gamblers in India have also struggled to find means of gambling online since the Federal Internet Technology Act passed in 2011, as it orders any site promoting anything taboo, offensive, or illegal is to be blocked by Internet service providers. Online gambling websites are typically blocked since most forms of gambling are forbidden under India’s Public Gambling Act of 1867. While these countries are fighting the demand for cyber gambling, they are losing out on the tax revenue that goes unpaid by underground and foreign gambling operations.

Several European countries have taken to an interesting method of not criminalizing cyber gambling, but rather taxing it to the point that businesses stay out of the country. France, for example, taxes an Internet gambling company €8.7 million to cover technical and administrative costs for maintaining a national license through the European Gaming and Betting Association. This has driven businesses to countries such, as Sweden, who lack enforcement of national gambling laws regarding Internet gambling.19 Cyber gambling laws in the United Kingdom are slowly becoming loosened. Between 2010 and 2011, the British National Lottery branched into an online means for gamblers to participate. The United Kingdom Gambling Commission attributes a full 1% increase in gambling participation nation wide to the launch of a web-based lottery.20 That translates to over half of a million additional individuals gambling. With the popularity of mobile devices on the rise, application developers are hoping to tap into a niche opening up in mobile gambling. United States based Big Fish Games Inc. introduced a real money betting application to the Apple App Store in 2012 and estimate mobile gambling to quickly grow into a $100 billion per year industry within the next few years.21 The British government hopes to capitalize on the rising success of cyber gambling by imposing a 15 percent point of consumption tax and introducing the Gambling (Licensing and Advertising) Act 2014, which expands the cyber gambling businesses that are required to be licensed through the United Kingdom Gambling Commission to territories owned by the British government.22 This appears to be a positive move toward embracing remote gambling, as the legislation in most countries has struggled to keep pace with understanding technology, gamblers, and operators.

With gambling being such a part of life for people all around the world, it was only natural for it to break through into the World Wide Web. The legality of cyber gambling is still floating though murky waters as businesses position themselves in countries with loose laws governing the Internet and continue to lobby in more legislatively developed countries. Lawmakers have wrestled with the issue since the commercialization of the Internet and the ever-increasing technology available is sure to continue to press the issue in congresses and judicial hearings all over the world. One thing remains clear, there is most certainly a demand for online gambling. As the law of supply and demand states: where there is a demand, there will be a supply. In such a lucrative industry, that supply will be sustained either from legal, tax paying business or underground, criminal organizations.

REFERENCES
1 Spectrum Gaming Group. "Internet Gambling Developments in International Jurisdictions." : 12. http://www.indiangaming.org/info/alerts/Spectrum-Internet-Paper.pdf (accessed June 30, 2014).
2 Central Intelligence Agency. "The World Fact Book." . https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html (accessed July 1, 2014).
3 Oliver, James. "Internet Gambling; Will History Repeat Itself." . http://www.uiowa.edu/~cyberlaw/cls01/oliver2.html (accessed June 30, 2014).
4 Great Britain. Royal Commission on Gambling. : H.M. Stationery Office, 1978.
5 United Kingdom Gambling Commission. "What constitutes bingo? ." . http://www.gamblingcommission.gov.uk/PDF/What%20constitutes%20bingo%20-%20advice%20note.pdf (accessed June 30, 2014).
6 FDIC. "Unlawful Internet Gambling Enforcement Act of 2006." . http://www.fdic.gov/news/news/financial/2010/fil10035a.pdf (accessed January 1, 2014).
7 Koprowski, Gene. "Cybergambling returns -- and this time it's legal." . http://www.foxnews.com/tech/2014/01/21/cybergambling-returns-and-this-time-it-legal/ (accessed June 30, 2014).
8 Jie, Yang, and Paul Mozur. "China's Internet Giants Raise Stakes for World Cup Wagers." . http://online.wsj.com/articles/chinas-internet-giants-raise-stakes-for-world-cup-wagers-1403615258 (accessed June 30, 2014).
9 United Kingdom Gambling Commission. "Integrity in Sports Betting." . http://www.gamblingcommission.gov.uk/pdf/integrity%20in%20sports%20betting%20-%20issues%20paper%20-%20consultation%20-%20may%202007.pdf (accessed June 30, 2014).
10 Wright, Chris. "Three Portuguese Second Division football matches 'fixed' - bookie organisation." . http://www.theportugalnews.com/news/three-portuguese-second-division-football-matches-fixed-bookie-organisation/31773 (accessed June 30, 2014).
11 Fantasy Sports Trade Association. http://www.fsta.org/ (accessed July 1, 2014).
12 The United States Government. "UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT OF 2006." TITLE VIII--UNLAWFUL INTERNET GAMBLING ENFORCEMENT.
13 Kelly, Robin, Peter Todosichuk, and Jason Azmier. "GAMBLING@HOME: INTERNET GAMBLING IN CANADA." . http://dspace.ucalgary.ca/jspui/bitstream/1880/48403/1/gambling%40home.pdf (accessed July 1, 2014).
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15 Dawsey, Josh. "New Jersey Out of Luck on Sports Bet Push." . http://online.wsj.com/articles/new-jersey-out-of-luck-on-sports-bet-push-1403571138 (accessed July 1, 2014).
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17 Chan, Kelvin. "World Cup highlights Asia's illegal betting boom." . http://www.wsvn.com/story/25805405/world-cup-highlights-asias-illegal-betting-boom (accessed July 1, 2014).
18 "Thais swarm into Cambodian casinos to beat junta's betting ban." . http://www.scmp.com/news/asia/article/1538424/thais-swarm-cambodian-casinos-beat-juntas-betting-ban (accessed July 1, 2014).
19 Gainsbury, Sally. Internet Gambling: Current Research Findings and Implications. New York: Springer Science+Business Media, 2012.
20 United Kingdom Gambling Commission. "Industry statistics." April 2008 to September 2011. http://www.gamblingcommission.gov.uk/pdf/Industry%20Statistics%20-%20June%202012.pdf (accessed July 1, 2014).
21 MacMillan, Douglas. "IPhones Become Mobile Casinos by Adding Real-Money Bets." . http://www.bloomberg.com/news/2012-08-16/iphones-become-mobile-casinos-by-adding-real-money-bets.html (accessed July 1, 2014).
22 Thomas, Nathalie. "New gambling laws to be challenged through the courts." . http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/10912780/New-gambling-laws-to-be-challenged-through-the-courts.html (accessed July 1, 2014).

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