This question is central to a number of ongoing legal disputes involving the question of whether certain games involve gambling. Secondary markets often unauthorized can complicate the analysis. These issues will be addressed in detail below. Historically, some of the most important federal gambling laws are those provided immediately below.
Other federal gambling statutes are primarily enforcement statutes and do not define what constitutes gambling. It forbids financial institutions from processing payments associated with certain illegal gambling activity. The act itself does not define what constitutes unlawful gambling, but instead generally refers to activities that are deemed illegal gambling under other federal or state law.
Federal gambling law remained static after the enactment of UIGEA until two important changes occurred. The first was the reinterpretation of the Wire Act. This had been interpreted to prohibit all forms of gambling across state lines i. As a result, states became free to legalize online gambling other than sports betting.
A number of states have done so and others are in the process of doing so. State gambling laws have changed at a more rapid pace. The following is an overview of some areas where state gambling have recently changed. With limited exceptions, the legality of fantasy sports was not challenged. Over the past few year, some fantasy sports upstarts evolved the business model from season-long to daily fantasy sports DFS.
The advent of DFS, coupled with the aggressive marketing and huge prizes offered by some of the industry leaders, led to a flurry of legal activity. This activity included enforcement actions by the New York Attorney General and others. The end game is still playing out, but a number of states have passed legislation to legalize DFS, subject to licenses, taxes, and other conditions. Some states have not yet acted. This has lead to a patchwork of regulation, requiring fantasy sports operators to exclude players from a number of states.
Much of that represents illegal sports betting. Despite the huge appetite of U. As a result of the demise of PASPA, there has been a flurry of state legislative activity related to sports betting. In anticipation of this decision, a number of states passed laws favorable to sports betting, conditioned on PASPA being struck down.
Other states have currently pending sports betting legislation. Many debate whether eSports is actually a sport, but in many ways it is being treated as such. For example, international competitors are obtaining visas based on classification as professional athletes.
One implication of this is that if eSports is a sport, wagering on it is likely sports betting. Those looking to offer eSports betting likely will benefit from the favorable changes to the sports betting laws described above. However, just because PASPA was struck down does not mean that esports betting is legal under state law. Legislative action and licensing will likely be required on a state-by-state basis. In addition to the general sports betting laws being passed, some states have or likely will specifically legalize eSports betting.
Nevada was one of the first to pass an eSports-specific betting law. This covers a range of activities including integrating skill-based games with games of chance, such that a player increases their chance of winning based on their own skill. This enables video games and other skill-based activity to be incorporated into casino games. Companies like Gameco have emerged as leaders in the commercialization of this activity. While the gambling laws have been changing, the video game industry has been evolving as well.
Of course, the video game industry has evolved since its inception. But the pace of evolution seems to be accelerating. This evolution includes changes to the business model. Video games started in arcades, where players dropped coins into a machine to play. With the advent of home-based game consoles, players purchased a game console and prepackaged game cartridges. If a new version of the game was created, players would have to buy a new cartridge.
As video games have evolved, the content has become more dynamic. With online games, the content could be changed on the server so the game could be continually updated. For some games, players paid a subscription fee. As games continued to evolve, free-to-play games and downloadable content became prominent.
Many games could be played for free, but players could buy content to be downloaded into the game. Instead of selling games, publishers made money by selling virtual goods and virtual currency. Players could obtain certain virtual items through in-game achievements or buying them. To make the acquisition of virtual items more interesting, loot boxes and other chance-based mechanics were included to give players the perception of winning certain items.
In other games, such as massively multiplayer online games or MMOs and other strategy games, various chance-based mechanics and mini-casino games have become very popular. Social casino games also became popular. Some of the top grossing mobile games include ones that are based on simulated, gambling activities, such as poker, slot machines and other casino-style game mechanics, but with an important limitation.
Players could play for fun, but could not cash out any virtual chips that they won. Esports tournaments with huge prizes and millions of viewers created a new channel for the game industry. Lastly, the rise of blockchain technology has led to a genre of games referred to as blockchain-based games.
In addition to the monetization techniques that the game industry has adopted, a variety of unauthorized monetization has occurred as well. This unauthorized monetization includes skin gambling which typically happens outside of the game in which the skins are used and the selling of virtual items on secondary markets i.
The terms of service for most games that use virtual items prohibit players from selling or trading virtual goods, virtual currencies, or player accounts. Nonetheless, there are a number of unauthorized secondary markets that enable players to do so. To the extent that these markets exist and involve real money purchases, this may be relevant to the determination of whether the virtual goods or currency have value. However, recent cases have found that they do not, at least where the game publisher does not run the market.
These evolutionary changes in the games industry have raised a number of gambling-related issues. Various factors have contributed to this. Another factor is the popularity of casino-style games. These game mechanics and games are intended to be for entertainment purposes only.
Nearly all expressly prohibit any ability for players to cash out their virtual items for money or anything else of value. Yet, many games have been targeted for allegedly involving gambling. The next section will address some of the recent legal activity.
Most of the recent cases filed against game companies have been gambling loss recovery cases. Most states that prohibit gambling include a basis for a person who loses at illegal gambling to recover their losses from the person or entity who won. A wave of these cases were filed by class action plaintiffs. In four of these cases, the district courts granted motions to dismiss the suits, finding that as a matter of law the plaintiff was not entitled to recover.
The reasons for the dismissals varied. Another basis upon which some of the courts dismissed these claims was that the game companies were not gambling winners for purposes of the gambling loss recovery statutes. The courts reasoned that when a game company sells a virtual item, it makes a set profit upon the occurrence of the transaction.
It does not stand to gain or lose based on any outcome or what a player does with the virtual items. It is important to note that this basis alone does not necessarily mean there is no gambling. Rather, it means that the statutory basis for a gambling loss recovery action against a game company is not satisfied. In all but one of the four cases that were dismissed, the plaintiff lost on appeal as well. In one case, the Ninth Circuit overturned a Washington state district court dismissal.
That does not mean that the game company was found liable for gambling. It just means that the case is now back before the district court where presumably a trial will occur and a final decision on all of the issues will be reached. In a parallel proceeding, the game company filed a petition with the Washington State Gambling Commission WSGC for a declaratory order that the game does not involve gambling. Interestingly, the WSGC previously published a document stating that the game at issue did not involve gambling.
This evidence was before the Ninth Circuit, but was not relied on due do it allegedly being an informal opinion and not an official administrative action. Recently, the WSGC held a hearing on that petition, but deferred a decision until later this fall. These cases are still pending. Loot boxes have been used in MMOs dating back to at least As free-to-play video games proliferated, this mechanic has been increasingly employed as a monetization technique in other games.
Their increased popularity has drawn greater scrutiny. A great debate has arisen over whether loot boxes constitute gambling. According to some, loot boxes target addictive tendencies. But these allegations are not universally accepted and seem to lack scientific evidence. It also authorizes the Federal Reserve System to create regulations that prohibit financial transaction providers banks, credit card companies, etc.
See 31 U. This Act, along with threats of prosecution under the Wire Act from the Department of Justice, has caused several Internet gambling businesses to withdraw from the U. In response, House Representatives introduced multiple bills in to soften federal Internet gambling law.
If passed, the Internet Gambling Regulation and Enforcement Act and the Internet Gambling Regulation and Tax Enforcement Act would license, regulate, and tax Internet gambling businesses rather than prohibit them from taking bets from the United States.
Alternatively, the Skill Game Protection Act would clarify the Wire Act to exempt certain games such as poker and chess. In addition to federal measures, some states have enacted legislation to prohibit some types of Internet gambling. In , Washington State amended its Code to make knowingly transmitting or receiving gambling information over the Internet a felony. See Wash. Other states with similar prohibitions have made it a misdemeanor instead.
See e. States have not been particularly active in enforcing these laws, possibly due to a conflict with the dormant Commerce Clause doctrine. See Missouri ex rel. Nixon v. Gambling Primary tabs Gambling Law: An Overview Gambling, though widespread in the United States, is subject to legislation at both the state and federal level that bans it from certain areas, limits the means and types of gambling, and otherwise regulates the activity.
Internet Gambling Federal Regulation In the s, when the World Wide Web was growing rapidly in popularity, online gambling appeared to represent an end-run around government control and prohibition. State Regulation In addition to federal measures, some states have enacted legislation to prohibit some types of Internet gambling. Constitution and Federal Statutes U.
Code: Title 18, Chapter 50 : Gambling U. Code: Title 18, Chapter 61 : Lotteries 18 U. United States , U. Coeur d'Alene Tribe, F.
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