Wednesday, August 12, 2009

Online Video Game Gambling Still Questionable

In the past few weeks, a lot of sites have had coverage of, a new site purporting to allow you to wager on games like Halo 3 and Madden NFL 10. I've talked about some systems like this before, and one fact still seems to be lost in the shuffle: the legality of these sites is questionable at best and consumers should proceed with caution. I've reviewed the terms and FAQs (though I have not registered for nor tried the functionality of the site), and to illustrate my point, I'm going to use my home state of Texas as an example. says it is perfectly legal in my state, but a simple review of the Texas gambling statutes indicates otherwise, though the risk is much higher for the website than for the gambler. Let me again preface this by saying that this is simply my opinion on the matter, and it is possible that the purveyors of have received an attorney general opinion which they base their business upon in some or all states. More importantly, none of this post should be considered to defame or disparage the owners or attorneys for, it's simply a disinterested arms length commentary on the system in question, of which is a prime example.

For those unfamiliar, a good summary of Texas gambling laws exists here. On the face of it, anyone participating in the site is a gambler, and the site itself is a bookmaker. There are a number of ways this violates the letter and spirit of the Texas laws. First and foremost, by collecting bets, the site is almost certainly a bookmaker by statute. And this activity is almost certainly the offense of gambling, defined as being committed when someone 'makes a bet on the partial or final result of a game or contest or on the performance of a participant in a game or contest.' And more importantly, it satisfies the test for gambling in Texas, since the answer woudl certainly be yes when asking 'does it encourage the gambling instinct?' (see Callison v. State, 172 S.W.2d 772, 774.)

More importantly, Texas has an explicit prohibition to internet gambling, which is defined as multiple people using multiple computers to play a game and bet on the outcome. In my view, this spells out exactly what we have here, and that sentiment is clearly echoed in a 1995 Texas Attorney General Opinion. This system is no different than the third question presented, using a bulletin board to facilitate online card games.

While this may look one sided, there are often exemptions in the law. So, is there an exemption, though, that the site can rely on? The 'social game' exemption is certainly inapplicable because is making money on the transaction. The exclusion of awards for certain contests of skill from the definition of 'bet' basically only includes certain kinds of prizes for contests, not one on one 'challenges' that are wagers by another name.

This, of course, ignores the fact that many EULAs and TOS (both for the games and for services like Xbox Live) may explicitly bar this kind of behavior. To that end, not only could the consumer be penalized, but could be presented with a suit not unlike the Glider case, and we all know how that turned out.

That's not to say the whole site has no legal factors in Texas. I have some questions to the legality of the online element, but land-based cash game tournaments have been legally run in Texas, with MLG events and QuakeCon being two of the most well known. Assuming the rules are being followed appropriately, at least the multiplayer bracket portion might be legal in Texas.

Of course, this opens the larger question: If there's on state with these kind of questionable issues, what about the other 38 the site allows play in? And what about the Unlawful Internet Gambling Enforcement Act, which bars most of this activity nationwide regardless? And is the site complying with the IRS rules regarding reporting of winnings? I don't want to nay-say the concept, but it certainly leaves me with questions based on my own analysis. Granted, I would greatly prefer a unified Federal stance on online gambling both legalizing and regulating the industry, and I would certainly support sites like this were the legal landscape clearer in that regard. For now, however, I would certainly proceed with caution.


B said...

You're being perhaps excessively dismissive of the "skill-based contest" exemption, as Madden is clearly a game of skill. There is some randomness in it, yes, but even the management of the minor randomness is a skill-based test.

Mark Methenitis said...

I've discussed before how many FPS and other games that included chance elements are analogous to Poker, which is still not a pure skill game. Regardless, skill games are not exempt under the current UIGEA. The important thing here, though, is not the amount of chance, but rather that the statute was intended to cover things like state fair contests and sports tournaments, not one to one wagers. That's why I point out that the tournament feature of the site is likely acceptable under the Texas statutes if managed correctly. More importantly, two friends betting on a game of Madden or Halo in the confines of their home is perfectly legal under the Texas statute (the 'social game' exception). The use of a third party agent (a bookmaker) to facilitate the transaction described above is not.

MarcWPhoto said...

To expand yet more on the tournament/skill-based exception, which is found in the law of most states, it should be noted that under most theories the exception only applies if the person is themself playing in the tournament, and their eventual prize depends only on their own ranking or score in the contest. If I enter a tournament and win a predetermined prize for coming in first, that is not gambling in most states (if the tournament is for a game or contest of skill, in the vast majority of states.) If I receive money, either from the tournament organizer or some third party, based on the score or ranking of some other player, even if I am participating in the tournament the skill-based/contest exception does not apply, because they almost universally require that the outcome of the event which produces the payment be under the control of the person receiving the payment. Since, absent fraud or collusion, I cannot affect the outcome of another player's play, a payment to me conditional on that outcome is usually going to be considered gambling.

Furthermore, if the amount of my prize is conditional on my entry fee and is not predetermined, that is going to look like gambling to a prosecutor. If there is handicapping or odds offered (say I can enter a contest, and based on my prior history, I am offered a ten-to-one payment of my "entry fee" if I win, five-to-one if I come in second, or one-to-one if I come in third, with my fee forfeit for any other outcome) the problem becomes even more specific. Now it starts to look like some bizarre parimutuel system, and parimutuel systems are something that the law is quite familiar with - and takes a very dim view of when operated without legal sanction.

It should also be noted that many states have recently adopted very broad, often somewhat contradictory definitions of what constitutes "electronic gambling," "Internet gambling," or a "gambling machine." I am personally aware of a case where a state court ruled that a particular video game was, by law, a slot machine - but that using it was not gambling! In that case there was no prosecution, precisely because of a well-written contest of skill defense. But under the law of some states, mere possession of a "gambling device" is itself a crime, so if you use your X-Box in such a way as to make it fit the definition, even if it cannot be proved that any particular act was unlawful, you could face prosecution for such possession.

James Johnson said...

I believe it is questionable but still effective if legal.

BasiaBernstein said...

When I was at BPP studying my famous law professors the, vast, majority of my class at Holborn had TCs. I can't speak for Waterloo though, didn't know anyone over there but did here that the situation was almost the opposite. Really strange.When I was at BPP studying my famous law professors the, vast, majority of my class at Holborn had TCs. I can't speak for Waterloo though, didn't know anyone over there but did here that the situation was almost the opposite. Really strange.