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September/October 2014 • Public Gaming International
(A) any bet or wager, or
(B) information assisting in the placing of any bet or wager,
14
or
(C) a communication entitling the recipient to receive money or
credit as a result of any bet or wager.
However, the Bill contains four exemptions, which would:
(1) preserve the status quo as to internet betting on horse races;
15
(2) preserve the status quo as to internet betting on charitable games;
16
(3) not apply to pay-for-play online fantasy sports tournaments con-
ducted in accordance with the UIGEA; and
(4) not change or limit “the ability of a State licensed lottery retailer
to make in-person, computer-generated retail lottery sales under
applicable Federal and State laws in effect on the date of the en-
actment of [the Bill].” Thus, “in-person” lottery sales by licensed
lottery retailers would remain lawful to the extent they were law-
ful before the Bill became law.
Of course, among the Bill’s intended consequences is a ban on
sales of lottery games via PCs and/or mobile devices. However, if
the Bill became law, there would be other, seemingly unintended
consequences to state lotteries. For example, due to the wording of
the Bill’s fourth exemption (the “Lottery Exemption”), the amended
Wire Act would render unlawful the operation of a state lottery (in-
cluding traditional online games) by any current non-lottery state that
had not enacted lottery legislation by the date the Bill became law.
In addition, due to the ambiguity of the “in person” sales require-
ment in the Lottery Exemption, the exemption likely would not cover
and thus it would be unlawful for a state lottery to (1) operate video
lottery games where the video lottery terminals exchanged wagering
information (even if not actual wagers) with a central system via the
“internet” (i.e., a network of interoperable packet switched data net-
works), or (2) to sell lottery games via player-activated terminals (be-
cause such terminals exchange wagering information with a central
system via the internet). This would be true even if the wager-related
transmissions were between points in the same state, because the Bill
clarifies that the phrase “uses a wire communication facility for the
transmission in interstate or foreign commerce,” as used in the Wire
Act, “includes any transmission over the Internet carried interstate or
in foreign commerce, incidentally or otherwise.” (emphasis added)
Thus, if the intermediate routing of the wager-related transmissions
crossed state lines (or was considered to cross state lines), it would
violate the Wire Act, when the Lottery Exemption did not apply.
17
Advocates of the Bill have claimed that state lotteries’ concerns
about video lottery gaming and player-activated terminals are unwar-
ranted, and that the Lottery Exemption would exempt from prohibi-
tion such lottery activities.
18
However, the Lottery Exemption does
not appear to “carve-out” such lottery gaming, and thus state lotteries’
concerns are indeed valid.
Specifically, courts and regulators have often distinguished between
“in-person” sales and sales via vending machines. For example, in 1993
a California court was called upon to determine whether a California
state law governing the sale of cigarettes preempted a local ordinance
adopted by the City of Rancho Mirage.
19
Describing the state law, the
court stated that it “identifies the person liable in the event the pro-
scribed sale is accomplished through a vending machine rather than
in person.”
20
The Court thus distinguished between sales via a vending
machine and “in person” sales (the latter being over-the-counter sales
by a sales clerk), making clear that they were different methods of sale.
The Washington Supreme Court made a similar distinction, noting in a
2008 opinion, that in an earlier case, it “struck down an ordinance taxing
vending machines but not-in person sales.”
21
Finally, Providence, Rhode
Island is among the cities that distinguish between “in-person” sales of
tobacco products and sales of such products via a “vending machine.”
22
Thus, because courts and regulators in other contexts have distin-
guished between “in-person” sales and sales via a vending machine,
concerns regarding the Bill’s application to video lottery and player-
activated lottery sales terminals are valid. Looking to the above cases
and regulations as guidance, a court could interpret the Lottery Ex-
emption in the Bill as not applying to—and thus not preserving—the
ability of state lotteries to (1) conduct video lottery gaming where the
video lottery terminals exchange wagering information with a cen-
tral system over a wide area network, or (2) sell lottery tickets via
vending machines or by any method other than over-the-counter sales
involving personal interaction between a sales clerk and a purchaser.
The above illustrates but two unintended consequences of the
Bill—the elimination of player-operated lottery ticket vending ma-
chines and the prohibition of certain video lottery games. Others
would no doubt become evident if the Bill were to become law. (One
consequence of the Bill that seems entirely intentional, incredibly,
would be its elimination of certain rights Indian tribes had prior to
the DoJ’s 2011. Nothing in the Bill addresses Indian gaming, and the
concerns of Indian tribes have simply been ignored.)
23
In summary, as has been the case when Congress regulated gaming
in the past, if the Bill became law, there would be unintended conse-
quences, and those affecting state lotteries could be devastating in ef-
fect. For this reason, among others, the regulation of internet gaming
should be left to the individual states—which historically have been
allowed to regulate gaming occurring within their borders. States
have historically performed this regulatory responsibility prudently
and wisely, keeping in mind the sensibilities of their citizenry.
u
14) However, there would be an exception for the transmission of information assisting in sports betting (but not actual bets) transmitted between states in which betting on such sports events was lawful.
15) It is generally accepted that internet betting on horse races is lawful under a 2000 amendment to the Interstate Horseracing Act (15 U.S.C. § 3001 et seq.).
16) Thus, to the extent internet betting on such games were lawful under state laws in effect on the date the Bill became law, it would remain lawful.
17) Note, in this regard, that the U.S. courts of appeal in the 1st, 3rd and 5th federal circuits have held that transmissions via the internet are considered to be in interstate commerce, regardless of the actual
routing. “[B]ecause of the very interstate nature of the Internet, once a user submits a connection request to a website server…data has traveled in interstate commerce.” U.S. v. MacEwan, 445 F.3d 237, 244
(3rd Cir. 2006); “Transmission…by means of the Internet is tantamount to moving [data] across state lines.” U.S. v. Carroll, 105 F.3d 740, 742 (1st Cir. 1997), followed by U.S. v. Runyan, 290 F.3d 223 (5th
Cir. 2002) and by U.S. v. Yong Wang, 2013 U.S. Dist. LEXIS 16153 (S.D.N.Y. 2013).
18) See, for example, “Lotteries, Retailers Clash Over ‘Unintended Consequences’ of Wire Act Fix,” Gambling Compliance, May 14, 2014, by Tony Batt, in which NACS attorney Douglas Kantor is quoted
referring to such claims as “misleading” and “fantasy land.”
19) Bravo Vending v. City of Rancho Mirage, 20 Cal. Rptr. 2d 164 (Cal. Ct. App., 4th App. Dist. 1993).
20) Id., at 174 (emphasis added).
21) Ventenbergs v. City of Seattle, 178 P.3d 960, 975 (Wa. 2008), referring to City of Seattle v. Dencker, 108 P. 1086 (1910).22 Providence, Rhode Island Code of Ordinances, Article XV, sec. 14-303 (2013).
23) This is in contrast to the UIGEA and other federal bills that sought to regulate internet gaming. For example, although deeply flawed, the UIGEA at least expressly provides that the term “unlawful Internet
gambling” does not include sending or receiving bets or wagers within the Indian lands of a single Indian tribe or between the Indian lands of two or more Indian tribes (to the extent that intertribal gaming is
authorized by the Indian Gaming Regulatory Act (25 U.S.C. § 2701 et seq.) and meets certain other conditions in the UIGEA. 31 U.S.C. § 5362(10)(C). Similarly, the “Internet Gambling Prohibition, Poker
Consumer Protection, and Strengthening UIGEA Act of 2010, drafted by Senator Harry Reid’s office in late 2010 but never introduced (the “Reid Bill”), expressly “carved out” such wagering within tribal
lands. Reid Bill discussion draft, Title I, Section 102(2)(B)(iv) on page 12.
