Internet Gambling Advertising Best Practices

Report
Canadian Gaming Summit
CGA – Canadian Gaming Association
Wednesday, June 13th , 2012
Presented By: Lawrence G. Walters, Esq.
of WALTERS LAW GROUP
WWW.GAMEATTORNEYS.COM
This presentation will examine recent
developments in U.S. gaming law and the
potential impact of such developments on the
Canadian gaming industry as a whole.
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Current Issues / Trends in U.S. Gaming Law:
 Expanding Land-Based Gaming
 Expansion of Unregulated Gaming Activity
 Legalizing Intrastate Online Gaming
 Regulatory & Licensing Challenges
 Potential for Interstate Gambling Compacts
Dept. of Justice Opinion on Internet Gambling (Dec. 23, 2011):
Issued in response to Illinois and New York inquiries as to the
impact of Wire Wager Act (18 U.S.C. § 1084) on intrastate sales of
lottery tickets via the Internet
Concluded that “interstate transmissions of wire communications
that do not relate to a ‘sporting event of contest’ fall outside the
reach of the Wire Act.”
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Note: Opinion specifically did not discuss the UIGEA:
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Meaning; the federal Wire Act only prohibits such activities as
related to sports betting, not other forms of gambling.
“In light of that conclusion, we need not consider how to reconcile
the Wire Act with UIGEA, because the Wire Act does not apply in
this situation. Accordingly, we express no view about the proper
interpretation or scope of UIGEA.”
Arguably condones intrastate online gaming, but still unclear if
the Opinion rises to the level of permitting state-to-state compacts.
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April 15, 2011 – U.S. Department of Justice unsealed
indictments charging the 3 biggest online poker sites
(PokerStars, Full Tilt Poker, Absolute Poker) with
illegal gambling, bank fraud and money laundering.
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Various bank accounts, including those holding players’ funds,
were seized, as were the sites’ respective Internet domains.
Although considered one of the most damaging days
in online gaming history, Black Friday leveled the
playing field, and cleared the way for potential
legalization of online poker in the U.S.
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A handful of federal online poker legalization bills have come
and gone and several states are considering legalizing the
activity after Black Friday and the issuance of the DOJ Opinion
in December, 2011.
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Nevada has begun accepting applications for interactive
gaming licenses, with Massachusetts, New Jersey, and
Delaware actively considering legislation to regulate online
gaming within their geographical limits.
The Nevada Gaming Commission adopted regulations
relating to intrastate, online poker, and began accepting
applications from online poker site operators who wished to
launch online poker businesses within the state.
California – a legalization hopeful, is no longer in the
running, with its bill withdrawn June 12, 2012.
Iowa, Washington D.C., Florida, Connecticut, Hawaii, and
Mississippi all failed at previous attempts to regulate online
gambling within their borders, but may try again.
Illinois, New York, Maryland, Virginia, and Ohio have
publicly stated their willingness to regulate online poker
and are developing legislation.
Professional and Amateur Sports Protection Act of 1992 [PASPA] – outlaws gambling
on sporting events in the United States, with Nevada, Delaware, Oregon and
Montana as the only ‘grandfathered’ exceptions. New Jersey missed its
opportunity to be included when statute was passed.
New Jersey:
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Legal Challenge: Interactive Media Entertainment & Gaming Assoc., Inc.(IMEGA) v.
Holder, 2011 WL 802106 (D. N.J. March 7, 2011) – New Jersey Senator Raymond
Lesniak brought suit against U.S. government, seeking to overturn PASPA as
unconstitutional.
 The case was ultimately dismissed for lack of standing.
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Referendum: NJ Sports Betting Amendment; Public Question 1 (Nov. 8, 2011)
 In a non-binding referendum, citizens voted to support amendment of the NJ
Constitution to legalize sports betting within the state.
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New Law: Jan. 17, 2012 – N.J. Gov. Christie signs sports betting bills (S-3113 & A4285) into law that permit sports betting at the state’s casinos and four horse
tracks and also allow off-track betting on horse races at bars and restaurants in 12
counties
 NOTE: Prior to passage the NJ Legislature removed language from the law
that would have permitted online wagering.
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Status: The sports betting law has not been put into effect yet because of the
federal sports betting ban (i.e., the Wire Act), but Gov. Christie openly announced
he intends to defy PASPA’s prohibitions and move forward with allowing sports
wagering. “Let them try to stop us,” said Christie.
Florida
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Florida Gaming Centers, Inc. v. Florida Dep't of Bus. And Prof'l Reg., 2012 Fla. LEXIS 862,
2012 WL 1520863 (Fla. April 27, 2012) (denying petition for review)
 The state Supreme Court possibly opened the door to gaming expansion within the
state by allowing lower appellate court decision to stand. (71 So.3d 226).
 In October, the appeals court wrote that the "Legislature has broad discretion in
regulating and controlling pari-mutuel wager and gambling under its police
powers."
 The effect of the decision is to broaden the definition of facilities that are permitted to
offer slot machines, to include all pari-mutuel facilities in Florida. The decision
confirmed the broad authority of the Legislature to authorize more gambling in
Florida, and has been celebrated by pro-gambling interests.
 However, this legal decision may cause a battle between gaming interests and the
Seminole Indian tribe.
 The Seminoles have a compact with the state that gives them exclusivity for
games such as blackjack and baccarat, and also exclusivity of slot machines
outside of South Florida.
 This means that if lawmakers continue to move forward and permit casino
resorts, the state risks violating the terms of the compact.
The Internet Sweepstakes Phenomena:
 Considered the largest unregulated expansion of
gambling since the initial Indian casino movement.
 Internet cafes use electronic sweepstakes to promote
the sale of long distance phone minutes or Internet
time.
 Both counties and states have attempted to prohibit the
activity, but have faced constitutional challenges.
 Statistics (Florida example):
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Expanded to roughly 1,500 locations statewide.
Generating an estimated $1 billion in annual revenue.
Industry is forging relationships with lawmakers
Starting to rival traditional gambling venues
Rumors of potential similar “boom” in Canada?
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Internet sweepstakes cafes use software to reveal
the results of the game, in an entertaining format.
The software plays no role in determining whether
a player has won – all winning entries are
predetermined.
Regulation of Internet sweepstakes devices has
proved challenging due to potential infringement
on free expression rights.
Legislation has been struck down or enjoined since
it essentially prohibits a form of video game.
Canada’s Charter of Rights & Freedoms may
provide similar protection to sweepstakes
software.
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Fantasy Sports (UIGEA Exception)
Penny Auctions
Skill Gaming
Poker Tournament Websites
Virtual Currency / Free Play
*DOJ Opinion along with UIGEA exemption for intrastate
gaming opens the floodgates for statewide legalization.
*Precedent for intra-state agreements or “compacts” in other
areas (e.g., energy, environmental management,
transportation) – may support gaming compacts.
* Impact of Web 2.0 influences like the confluence of gaming
and social networking (e.g., Zynga Poker), leading to
increased social education and acceptance of gamblingrelated activity.
*Struggling U.S. economy driving the debate toward
revenue enhancement as justification for legalization of
otherwise controversial gambling activity.
*Increased use of mobile devices along with increasingly
effective geo-location tools (e.g., GPS in smartphones)
suggests that geographic player limitations are not only
possible but realistic.
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iGaming companies grappling with new
marketing concepts such as social gaming in Web
2.0 environment, in preparation for legal gaming.
Conversion of free players to paid players remains
challenging.
U.S. entities preparing for entry into the iGaming
market are looking for experienced promoters in
nations where online gambling is legal.
FTC rules and policies apply to gaming affiliate
marketing activities.
Paid Endorsements – all material connections must be
revealed
 “Refer A Friend” – communications sent by customers
may be deemed to originate from the promoted site.
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Under U.S. Constitutional Law, online gambling
advertising is considered “commercial speech”
protected from government censorship.
Under relevant Supreme Court precedent,
advertisements are legal in jurisdictions that
prohibit the gambling activity, so long as the
gambling is legal in its place of origin.
Legalizing gambling in any U.S. jurisdiction will
have the consequential impact of legalizing
advertising in every state.
Depending on effectiveness of geo-blocking tools,
non-residents will be drawn to wager in states
where gambling is legal.
District of Columbia
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Feb. 2012 – D.C. Council voted to repeal the Internet gambling law passed in 2010
that would have made the District the first to offer Internet gambling. Allegations of
corruption and insufficient public input ended the District’s brief experiment with
online gaming, and suggests future difficulties in other jurisdictions.
Mississippi
Mississippi Lawful Internet Gaming Act of 2012 (HB 1373). Recently tabled.
Iowa
State bill (SF 2275) would have authorized online poker and permit multi-state
online gambling compacts passed state Senate
California
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Intrastate Internet Gambling bill (SB 1463) withdrawn June 12, 2012, for lack of a cosponsor.
 Would have created a framework for to regulate intrastate, online gambling.
 Bwin.Party and the United Auburn Indian Community (owner of Sacramento’s
Thunder Valley Casino Resort) entered into a formal agreement to offer online
poker services in California if bill would have passed this term
Illinois (HB 4148)
 2011 – state legislature passed a bill that would greatly
expand the state’s fledgling gambling industry
 BUT… the bill was halted when the Illinois Gov. publicly
stated his intent to veto the bill
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The original bill would have brought slot machines to Chicago
airports, and also would have permitted several new land-based
casinos in the state.
Feb. 2012 – lawmakers amended the legislation per the
Governor’s request. Bill appears to have ‘quietly tabled.’
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Creates Division of Internet Gaming and authorizes it to enter into
multi-state compacts regarding online gambling.
Online Lottery: March 26, 2012 – became first state in U.S to
offer online lottery ticket sales. 21 other states considering
similar expansion into online lottery ticket sales.
Nevada
State is the first to consider applications for online gambling
through the Nevada Gaming Control Board (NGCB). Regulations
allow companies currently licensed by the state to apply for
approval of their interactive gaming software.
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Six companies filed applications: Cantor Gaming, Shuffle Master,
International Game Technology, Bally Technologies, South Point,
and Caesars Entertainment.
Approval process is expected to be less than 90 days for
companies that already own land-based Nevada gaming licenses.
Approved licensees expected to begin serving Nevada players by
the end of 2012.
State law requires that its online gaming services not conflict with
federal law. DOJ Opinion may provide the necessary legal basis to
move forward with formal licensure. Nevada is positioning itself
to be the first state to offer legal intrastate online gaming.
Nevada (cont’d.)
Licensing Details/Requirements:
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$500,000 license fee for 2 years + 6% tax on gross winnings.
Operators must prove their ability to maintain controls on player registration
Prevent underage play and establish the location of players before being licensed
Player fund transfers are not allowed.
Affiliates are allowed.
Operators must ensure that players have only one account.
Operators may pay a fixed sum to celebrity players for marketing purposes as
long as the operator does not profit beyond the rake.
Promotional credits or bonus credits offered by the operator are allowed.
An operator must maintain a reserve of cash, cash equivalents, an irrevocable
letter of credit, bond, or combination thereof, equal to the sum of all players'
funds.
Any compensation received by an operator for conducting any game in which
the operator is not party to a wager shall be no more than 10 percent of all funds
wagered in each hand.
Nevada (cont’d.)
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June 7, 2012 – Nevada issues first interactive gaming
license recommendations in U.S.
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The Gaming Control Board unanimously recommended
approval of 2 applications, becoming the first conditionally
approved systems in the US.
 Bally Technologies and International Game Technologies were
given unanimous recommendation by the Nevada Gaming
Control Board, clearing a major hurdle for intrastate online
poker.
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If finally approved by the Gaming Commission, the interactive
gaming service provider and manufacturer license will allow
them to partner with Nevada casino operators to provide
online poker to their players.
The final decision will be made by the Nevada Gaming
Commission at their upcoming meeting on June 21.
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Looming questions as to whether past acceptance of U.S. play (pre
or post UIGEA) will automatically preclude consideration for
licensure.
888 / Caesars deal, to promote World Series of Poker, approved by
the Nevada Gaming Control Board in March, 2011, suggests that
automatic preclusion, based on prior acceptance of U.S. play, may
not occur.
However, public attention given to the approval, and the limited
nature of the promotion agreement, may provide little guidance.
Note; 888 was not granted a gaming license – only an approval of
the business relationship.
Regulators’ public statements suggest that investigation of
applicants will be much “more rigorous’ when seeking an
interactive gaming license. (Mark Lipparelli, Chair, NGCB)
Questions remain as to “who” will need to be licensed; operator,
software developer, billing processor, customer service, affiliates,
etc.
New Jersey
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Internet Gambling Bill
 Proposed legislation authorizes the state Casino Control
Commission to issue licenses to casinos to operate computer
servers based in Atlantic City.
 Computer software would then have to determine if the player
was a New Jersey resident, whether the game was being played
in New Jersey and if the player was at least 21.
 May 31, 2012 – Senate bill was scheduled to be voted on, but
lacked the number of required votes – the vote will likely be
delayed until after the 2012 presidential election.
 Supporters blame NJ Governor – "Because of Gov. Christie's
ambivalence […] we're having trouble getting enough
Democratic votes to pass it because of opposition from the
racing industry.”
Delaware
 May 9, 2012 – Delaware Gaming Competitiveness Act
of 2012 (HB 333) was introduced and permits:
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May 25, 2012 – the bill made it out of Committee and is
on its way to the DE House for voting
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the state to expand lottery services to the Internet
other forms of online gambling – e.g. – poker
Multi-state compacts regulating such online gambling activities
The state Legislature and Governor are optimistic of the bill’s
chances at passage
Delaware would team up with West Virginia and
Rhode Island in an attempt for all three states to
remain competitive on the east coast due to their
smaller populations, respectively.
Connecticut
 April 2012 – Foxwoods Resort Casino (owned by the
Mashantucket Pequot Indian Tribe) publicly
announced its intent to pursue expansion to online
gambling due to declining revenue resulting from the
influx of NY casinos and the legalization of gambling
in Mass. Possible legal conflicts with the federal Indian
Gaming Regulatory Act (25 U.S.C. § 2701, et seq.)
Maryland
 Passed legislation allowing the creation of an
evaluation team to explore further gaming expansion
allowing table games and Internet gaming.
Internet Gambling Prohibition, Poker Consumer Protection, and
Strengthening UIGEA Act (HR 2366)
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Status:
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Introduced June 24, 2011
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Potential consideration during House summer session.
Enacts Office of Internet Poker Oversight in the Commerce Dept. to oversee state agencies issuing
licenses.
States automatically included unless they opt out.
States may have their own intrastate online poker only if the state passes a law establishing such
practices before the federal law is enacted.
2 yr. trial period – the only companies able to obtain licenses will be specific US casinos, race tracks
and card rooms.
Prohibits all other forms of Internet gambling that is not already legal under current laws.
Credit cards are not allowed for deposit.
The minimum age requirement is set at 21.
Criminal penalties will be established for cheating and the use of bots – fines and up to 3 yrs in prison.
Requires that all sites must locate remote gaming equipment in the U.S.
If a license is revoked, sites must return funds to players within 30 days.
Clarifies the UIGEA by requiring the Treasury Dept. to publish a list of unlawful Internet gambling
sites so that banks know what transactions to block
See also, HR 1174 (online gambling legalization) & HR 2230 (taxation bill).
Internet Gambling Prohibition, Poker Consumer Protection, and
Strengthening UIGEA Act (HR 2366) (cont’d.)
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Hurdles:
 Election year so the Congressional session is usually cut
short – this gives an excuse to let controversial bills fall
through the cracks
 Opposition from land-based casinos [most notably from
Las Vegas Sands chairman Sheldon Adelson]
 Economic competition
 Claim that technology cannot prevent minors from
participating as effectively as land-based casinos
* Opposition from Anti-gambling groups
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2012 Presidential Election
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Presidential hopeful Mitt Romney has come out
against online gambling regulations, stating that he
will not support legalizing online gaming.
 “Gaming has a social effect on a lot of people. I don't
want to increase access to gaming. I feel that we have
plenty of access to gaming right now through the
various casinos and establishments that exist.”
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President Obama has not went public with his stance
on Internet gaming - the Obama Administration has
sent mixed signals when dealing with the issue.
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Anti-Gambling Interests
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Some experts warn that legalizing online gambling
more broadly would increase the number of problem
gamblers
National Council on Problem Gambling Public
Awareness Report:
 2 million adults in U.S. are estimated to meet criteria for
pathological gambling.
 About 3% of Americans are considered problem
gamblers – this estimate is allegedly even higher for
teenagers and college students.
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Public backlash citing to “societal costs” related to legalizing
online gambling
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June 2012 –Family values groups from 13 states have publicly
called on Congress to pass legislation to prevent states from
legalizing Internet gambling, claiming that:
 Societal costs will far outweigh any benefits
 Land-based gambling expansion in any form, including to the Internet,
are efforts to separate families from their assets.
 The DOJ opinion undermines Congressional intent in implementing the
UIGEA
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March 2012 – Utah Gov. signed anti-online gambling bill
into law
Became first state to preemptively opt out of any potential federal
Internet poker regulation
 Makes it a misdemeanor offense to play Internet poker within
Utah’s borders – the original text of the bill made such a violation a
felony and required Internet service providers to block access to
the sites
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Potential for established Canadian stakeholders to become
involved in expanding U.S. market opportunities.
Canadian entities have experience to offer, given online gaming
operations licensed by First Nations; i.e., Kahnawà:ke.
 Licensing criteria may consider prior acceptance of U.S. play.
 Possible preference for U.S. applicants?
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Internet Sweepstakes – Possible bleed-over into Canada,
given success in U.S.?
U.S. legalization will create competition with site operators
providing gaming services to U.S. residents from Canada.
(E.g., possible impact on Mohawk Kahnawà:ke licensees).
U.S. can learn from Canadian provincial monopoly model.
Possible international treaty options for online gaming
operations between the U.S. and Canada.
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U.S. developments relevant to Canadian interests, in
the increasingly global marketplace.
U.S. legalization, at the state or federal level, may
provide a roadmap for increased Canadian
expansion beyond provincial monopolies.
Licensing criteria, software requirements and
hardware tools used in legalization process may
carry over to Canadian regulators.
Sweepstakes cases may be treated similarly, given
analogous constitutional provisions.
Canada may be in a position sit back and watch, as
the states experiment with private entity licensure,
and learn from any mistakes.

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