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Jurisdiction snapshot

Trends and developments

How would you describe the state of the gaming industry in your jurisdiction, including any notable trends and recent commercial/legal developments?

Gaming has achieved mainstream acceptance in nearly every state, with some form of gambling now permitted in 48 states (see Marie-Cecile O Tidwell et al (2015), “Gambling Modes and State Gambling Laws: Changes from 1999 to 2011 and Beyond”, Gaming Law Review and Economics 19:13-26). The types of gambling permitted by the states vary widely – some states permit only state-sponsored lotteries, while others allow racetracks, cardrooms, casinos or, more recently, sports wagering.

The popularity of daily fantasy sports – coupled with the recent Supreme Court decision invalidating a federal prohibition on sports betting – is leading to an explosion in gambling and related non-gambling activity. While many in the gaming industry are concerned that the US market may be reaching a saturation point in the bricks-and-mortar arena, the country seems to be in the early stages of a massive shift towards mobile and online gaming.

Government approach

How would you describe the government’s general approach to regulating gaming in your jurisdiction?

Gaming is regulated principally at the state or tribal level in the United States. States serve as the primary regulators of commercial gaming activity, taking a lead role in defining the scope of permitted and unlawful activities, enforcing criminal gambling prohibitions and licensing legal gaming operators. On tribal lands, Native American tribes play this role. The federal government principally confines itself to the use of federal law to prosecute unlawful offshore or multi-state enterprises.

Regulatory framework

Legislation

What primary and secondary legislation governs gaming in your jurisdiction and to which activities do these laws apply? Does the legislation distinguish between games of skill and games of chance?

States principally determine what forms of gaming are lawful and set out the regulatory frameworks that govern them. Gambling in all of its forms is unlawful unless expressly authorised by the state in which the activity occurs. The status of certain types of non-gambling activities that resemble gambling in some respects (eg, daily fantasy sports or skill games) varies by state – some states adopt more restrictive positions and either prohibit or regulate the activity, whereas others take a more permissive view or leave the question unsettled. There are a few federal criminal laws of relevance as well. Each of the principal federal statutes is addressed in turn below.

The Wire Act (18 USC Section 1084(a)) prohibits anyone “in the business of betting or wagering” from:

knowingly us[ing] a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers.

However, it exempts from liability any transmission:

of information assisting in the placing of bets or wagers on a sporting event or contest from a state or foreign country where betting on that sporting event or contest is legal into a state or foreign country in which such betting is legal.

The main effect of the law is to prohibit interstate sports betting. States are generally free to license and regulate sports betting within their borders. There is at least some conceivable question regarding the implications of the Wire Act for mobile and online sports betting, even if intrastate in scope.

The Illegal Gambling Business Act (IGBA) (18 USC Section 1955) attaches liability to anyone who “conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business”. ‘Illegal gambling business’ includes a gambling business that (among other things) is a violation “of the law of a state or political subdivision in which it is conducted”.

The Interstate and Foreign Travel or Transportation in Aid of Racketeering Act (the Travel Act) (18 USC Section 1955) makes it unlawful to ‘travel’, or:

use… any facility in interstate or foreign commerce… with intent to… distribute the proceeds of any unlawful activity; or… otherwise to promote, manage, carry on, or facilitate the promotion, management, establishment or carrying on of any unlawful activity.

Under the Travel Act, ‘unlawful activity’ is defined specifically to include “any business enterprise involving gambling... in violation of the laws of the state in which [the unlawful acts] are committed or of the United States”.

The Wagering Paraphernalia Act (18 USC Section 1953) precludes the transportation in interstate or foreign commerce of any record, paraphernalia, ticket, certificate, bills, slip, token, paper, writing or other device used, to be used, adapted, devised or designed for use in:

  • bookmaking;
  • wagering pools with respect to a sporting event; or
  • a numbers, policy, bolita or similar game.

The Johnson Act (15 USC Section 1172) similarly prohibits the transportation in interest or foreign commerce of any “gambling device”. Both statutes have exceptions for materials or devices to be used in lawful gambling.

The Anti-lottery Act (18 USC Sections 1301-1302) prohibits the carrying (or mailing) in interstate or foreign commerce of:

any paper, certificate, or instrument purporting to be or to represent a ticket, chance, share, or interest in or dependent upon the event of a lottery, gift enterprise, or similar scheme, offering prizes dependent in whole or in part upon lot or chance.

This statute also contains exceptions for lawful, state-sponsored lotteries.

The Indian Gaming Regulatory Act (IGRA) (25 USC Section 2701(5)) deals with tribal gaming and grants federally recognised Native American tribes the exclusive right to regulate gaming activity on Indian lands if the gaming activity is:

  • not specifically prohibited by federal law; and
  • conducted within a state which does not, as a matter of criminal law and public policy, prohibit such gaming activity.

IGRA has led to the growth of a vibrant tribal gaming industry in the United States.

The Interstate Horseracing Act regulates interstate commerce with respect to wagering on horse racing in order to further the horse racing and legal off-track betting industries in the United States. The act allows telephonic and online pari-mutuel horse race wagering between states where the activity is permitted.

The Unlawful Internet Gambling Enforcement Act (UIGEA) was enacted to attack the perceived problem of internet gambling by targeting the processing of the financial transactions necessary for the gambling to take place. Enacted in 2006, it is the only federal statute expressly addressing internet gambling. The UIGEA created a federal crime – the knowing receipt by a person in the business of betting or wagering of money in connection with the participation of another person in unlawful internet gambling (13 USC Section 5363). It also led to the issuance of a federal regulation (‘Regulation GG’, 12 CFR Part 233), requiring financial transaction providers to implement procedures to identify and prevent financial transactions relating to unlawful internet gambling.

How does the relevant anti-money laundering legislation in your jurisdiction apply in practice to gaming activities?

Since 7 May 1985, the Bank Secrecy Act has subjected casinos to its recording and record-keeping requirements (50 Fed Reg 5065 (6 Feb 1985)). Specifically, casinos are required to:

  • keep records of cash purchases of negotiable instruments;
  • file reports of cash transactions exceeding $10,000 as a daily aggregate amount; and
  • report suspicious activity that might signify money laundering, among other activities.

(See 31 CFR Part 1021 (Rules for Casinos and Card Clubs)). Certain states maintain similar requirements.

Regulators

What bodies regulate gaming activities, and what is the extent of their powers?

In the United States, the state agency or tribal commission has the authority to regulate gambling. The regulator’s powers are quite expansive – including licensing, rule making and enforcement. Although many states have developed robust regulatory structures, Nevada and New Jersey – as the states with the longest tradition of casino gambling – possess the most significant track records in this area. For example, in New Jersey, the Division of Gaming Enforcement has regulatory oversight authority of New Jersey’s casino gaming industry, which includes investigations, inspection, audit and criminal and regulatory prosecution (see NJSA Sections 5:12-1 et seq). There is no federal entity that regulates gaming as states serve as the primary regulator. The federal government mainly plays a supporting role in prosecuting multi-state enterprises that violate federal gambling laws.

General prohibitions and restrictions

What primary prohibitions and restrictions apply to gaming activities and participants?

All states impose a minimum age requirement of 21 for participation in lawful gambling. States that regulate daily fantasy sports – which is generally not considered gambling – typically impose an age requirement of 18. In 2006 Congress enacted the UIGEA, which defined ‘unlawful internet gambling’ to mean a “bet or wager [that] is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made”.

Unlawful gambling can be sanctioned at both the state and federal levels, with the type of punishment varying by statute. While the federal statutes generally do not criminalise mere play, some states criminalise gambling, often making it a misdemeanour. Both federal and state law apply far more severe criminal penalties against those who offer or promote unlawful gambling. For example, at the federal level, potential penalties range from five years’ imprisonment under the Wire Act (18 USC Section 1081 et seq) to as many as 20 years under the Racketeer Influenced and Corrupt Organisations Act (18 USC Section 1961 et seq) and the federal anti-money laundering statutes (18 USC Sections 1956-1957).

Land-based gambling

Authorised establishments

What types of gambling establishment are authorised to operate in your jurisdiction and how are they classified?

There are two broad categories of gambling establishments:

  • land-based gaming (ie, casinos); and
  • remote gaming (ie, internet gambling).

The types of land-based gaming permitted by the states or tribes vary from the state-sponsored lottery to cardrooms, horse-race wagering, casinos offering house-banked games and slots or sports betting. Remote gaming is more limited – while telephonic and internet pari-mutuel horse-race wagering is available in many states, other forms of remote gaming are still in their nascent stages, with:

  • three states (Delaware, New Jersey and Pennsylvania) permitting online casino and poker gaming;
  • one state (Nevada) permitting online poker; and
  • four states (Nevada, New Jersey, Pennsylvania and West Virginia) permitting mobile or online sports betting.

That list is expected to grow significantly in the near future. The permissibility of either land-based or remote gaming is dependent on a state’s express authorisation of such activity by law. If such activity is permissible, the states’ respective gaming regulators will have oversight and enforcement authority over the activity.

Licensing

What licensing procedures and requirements apply to gambling establishments (including any fees)?

States will generally limit the number of available licences and the licensing criteria will vary from state to state. For example, in New Jersey, licences or registrations are required for casino owners and operators, certain casino employees and companies that do business with casinos (see for example NJAC 13:69C (Casino Licensees) and NJAC 13:69J (Persons Doing Business with Casino Licensees)). Nevada also has a licensing regime for (among others) gaming employees and locations, like taverns, where gaming is incidental to the main business (known as a ‘restrictive’ licence in Nevada) (see Nev Gaming Reg 3 (Licensing: Qualifications)).

How can licences be renewed, and what terms and fees apply?

Licence renewal varies from state to state. For example, in New Jersey, licences for casino service industry enterprises (CSIEs) and ancillary CSIEs never expire. Therefore, the filing of renewal applications is no longer required. However, five years from the date of licensure a ‘re-submission’ must be filed, demonstrating that the applicant and all associated still meet the criteria for licensure. Re-submission fees for CSIEs and ancillary CSIEs are $5,000 and $2,000, respectively. Other states may apply different fees or have different re-filing requirements.

On what grounds can licences be revoked? Can revocation be challenged in any way?

Licence revocation will vary from state to state. For example, in Nevada, casino licences are granted only if applicants show that they:

  • possess adequate business acumen, competence and experience; and
  • have secured adequate and appropriate funding (see Nev Rev Stat Section 463.170(3)).

Licences can be revoked if an applicant is shown to no longer be honest and of good character and integrity (eg, by committing fraud). Licence revocation is unlikely to be automatic and occurs through a review process conducted by the regulator – whether and how a decision for revocation can be appealed will depend on state law.

Employees and suppliers

What rules and restrictions govern the hiring and ongoing relationship with employees of and suppliers to gambling establishments?

While the rules vary from state to state, some states require suppliers and their key employees to be separately licensed. For example, in New Jersey, enterprises that provide goods or services directly relating to casino, simulcast wagering, gaming activity, sports pools, online sports pool or internet wagering activity must be licensed as a CSIE (see NJAC 13:69J-1.2).

Zoning restrictions

Are there any zoning or other planning restrictions for gambling establishments?

Zoning considerations will vary between jurisdictions. In a heavily gambling-focused metropolitan area such as Las Vegas, for example, there are few – if any – zoning restrictions that will inhibit resort development within the designated gaming area. However, jurisdictions generally maintain strict rules regarding the areas in which gambling resorts may be located.

Operations

What rules, restrictions and ongoing obligations govern the operations of gambling establishments (eg, reporting and monitoring requirements, customer due diligence)? What are the penalties for non-compliance?

Rules, restrictions and ongoing obligations governing the operation of gambling establishments will vary from state to state. As previously discussed, casinos must:

  • keep records of cash purchases of negotiable instruments;
  • file reports of cash transactions exceeding $10,000 as a daily aggregate amount; and
  • report suspicious activity that might signify money laundering, among other activities.

Other obligations include:

  • limitations on advertising;
  • support for responsible gaming; and
  • self-exclusion rules (requiring casinos to exclude patrons who voluntarily identify themselves and ask to be excluded).

Penalties for non-compliance can range from monetary fines to licence revocation.

Taxes

What taxes and duties apply to gambling establishments?

Gambling activity is generally taxed by states based on gross gaming revenue. The rate varies from jurisdiction to jurisdiction. Although the definition of ‘gross gaming revenue’ also varies, it generally refers to the gross amount received from wagers minus winnings and bonuses or promotional credits offered to the customer.

Compliance

What best practices are advised in order to ensure compliance with the relevant regulations?

The US gaming industry is heavily regulated. A panoply of rules and regulations govern its activities. As a result, as with other heavily regulated sectors (eg, financial services), robust compliance mechanisms are essential. These include:

  • substantial compliance departments;
  • regular and extensive training of all key employees; and
  • meticulous record keeping and reporting.

Experienced external legal counsel is also advised, particularly for companies operating in multiple jurisdictions or in emerging areas (eg, sports betting or remote gaming).

Online and remote gaming

Regulation

To what extent is online and remote gaming regulated in your jurisdiction? Are there any notable rules and restrictions in this regard?

In 2006 Congress enacted the Unlawful Internet Gambling Enforcement Act (UIGEA) to attack the perceived problem of internet gambling by targeting the processing of financial transactions necessary for the gambling to take place. ‘Unlawful internet gambling’ means a “bet or wager [that] is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made” (31 USC Section 5362(10)(A)).

Only five states – Delaware, New Jersey, Pennsylvania, Nevada and West Virginia – currently permit forms of internet gambling. Nevada allows only poker and sports betting. West Virginia authorises only sports betting. Delaware allows poker and casino (eg, slots, blackjack and other banked games). New Jersey and Pennsylvania permit poker, casino and sports betting. Three of those states (Delaware, Nevada and New Jersey) have entered into an agreement to share liquidity by allowing poker or (except for Nevada) casino gambling between the states, and Pennsylvania – which passed its internet gambling law in late 2017 – is likely to follow suit.

In addition, many states permit off-track telephonic or internet pari-mutuel wagering on horse racing. The Interstate Horseracing Act sets out the conditions under which such wagering can be offered across state lines. Among other requirements, the wagering activity must comply with the laws of the states in which the race and wagerer are located. Lastly, several states sell lottery tickets or, in a few cases, allow lotteries to be played online.

Jurisdiction

What is the attitude of the courts and regulatory authorities to jurisdiction over foreign operators? Where is gaming activity deemed to take place?

The Unlawful Internet Gambling Enforcement Act (31 USC Section 5362(10)(A)) definitively settled this question in 2006 by defining ‘unlawful internet gambling’ to mean a “bet or wager [that] is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made”. Thus, operators located in other countries may not offer internet gambling to consumers in the United States without a licence issued by the state in which the consumer is located. Only one state (Pennsylvania) has announced an intention to allow offshore operators to obtain licensure. However, foreign operators may obtain licensure as service providers in states that permit remote gaming, then contract with licensed operators.

Licensing

Are there any licensing requirements for online and remote gaming activities?

Yes. The licensing criteria to operate remote gaming are largely the same as for land-based gambling. While the licensing regime will vary from state to state, it is typically intrusive and requires deep scrutiny of the licence applicant and its key employees. Even certain categories of service providers are subject to scrutiny, although typically at a lesser degree of intensity. Certain activities not traditionally regarded as gambling (eg, daily fantasy sports) may also require licensing or registration in certain states.

Taxes

Do any taxes or duties apply to online gaming activities?

Yes. Remote, or internet, gambling tax rates vary among jurisdictions. For example, Nevada taxes internet gaming based on gross gaming revenue at the same rates as it does land-based gaming. Conversely, New Jersey assesses a 15% tax on internet gross gaming revenue, plus an investment alternative tax of 5% (or an actual investment of 2.5% in the Atlantic City area).

Loot boxes

What is the legal status of and regulatory approach to ‘loot boxes’ or other in-game items in online games?

At this time, no court has held that ‘loot boxes’ or similar in-game items cause a game to be considered gambling, and several courts have held to the contrary – see for example Mason v Mach Zone, Inc (140 F Supp 3d 457 (D Md 2015), aff’d, 851 F3d 315 (4th Cir 2017)) and Soto v Sky Union, LLC (159 F Supp 3d 871 (ND Ill 2016)).  The legal status of these items is subject to state law, and states generally define gambling as requiring the presence of three elements:

  • price or consideration;
  • chance; and
  • prize or reward.

As a general matter, all three elements must be present for a game to be considered gambling. So far, courts addressing the status of loot boxes have not found them to constitute a ‘prize’ for purposes of gambling.

That said, in Kater v Churchill Downs Inc (886 F3d 784 (9th Cir 2018)) the US Ninth Circuit Court of Appeals held that virtual chips or coins which extend gameplay – because they extend the “privilege of playing the game without charge” – can be a “thing of value” (ie, prize) under Washington state law. The court’s analysis appears to have rested on the (erroneous) premise that users of the game must purchase additional chips if they exhaust their initial supply and wish to continue playing. The court remanded the case for further proceedings in the district court. Several other cases alleging the same claims against other defendants are also pending in that court and have not yet been decided. As a result, it is too early to assess the implications of the decision, which is at odds with those of other courts to have considered the question under other state laws (see for example Phillips v Double Down Interactive LLC (173 F Supp 3d 731 (ND Ill 2016))).

Cryptocurrency

What is the legal status of and regulatory approach to the use of cryptocurrency in online games?

Cryptocurrencies are treated no differently from fiat currencies for purposes of criminal gambling laws. Use of a cryptocurrency would not allow a game that would otherwise be prohibited as unlawful gambling. Conversely, state regulators have been hesitant to permit licensed operators to accept cryptocurrencies in licensed gameplay.

Foreign and unauthorised gaming sites

What measures are in place to block foreign and other unauthorised gaming sites?

The principal method used to deter gambling on unlawful sites is Regulation GG, which requires financial transaction providers to implement procedures that identify and block unlawful internet gambling. In addition, authorities may seize domains hosting unlawful sites if the domain name registrar or registry is located in the United States. The Department of Justice’s 2011 crackdown on unlawful poker sites – known as ‘Black Friday’ – began with the seizure of two prominent poker domain names.

Lotteries, sweepstakes and prize competitions

Lotteries

What rules and restrictions govern lotteries in your jurisdiction (both commercial lotteries and any national lotteries)?

Lotteries are operated directly by the state and are not offered by commercial operators. Every state except Alabama, Alaska, Hawaii, Mississippi, Nevada and Utah has a state lottery. Lotteries are a subclass of gambling, and, like gambling, states serve as the primary regulators – taking a lead role in defining the scope of permitted and unlawful activities, enforcing criminal prohibitions and licensing lotteries and lottery retailers. The federal laws applicable to gambling, as discussed earlier, also apply to lotteries.

Sweepstakes, prize draws and prize competitions

What rules and restrictions govern sweepstakes, prize draws and prize competitions?

The traditional definition of ‘lottery’ requires three elements:

  • consideration;
  • chance; and
  • prize.

Although the distribution of prizes does not have to be purely by chance, chance must be the dominant element in the distribution, even if the distribution is affected to some extent by the exercise of skill or judgement. Sweepstakes determine a winner by random drawing from a pool of entries or through some other chance-based method. Sweepstakes must eliminate the element of consideration to avoid being defined as an illegal lottery. This is generally accomplished through a cost-free alternative method of entry. Most states statutorily permit sweepstakes provided that no consideration is required. A cost-free alternative method of entry must be of ‘equal dignity’ (ie, it must allow the free entrant the same chance of winning as a paying entrant) and cannot be overly onerous to use. Other forms of prize competition – that are skill-based or where the prize is determined independently of any cost of entry – also are permissible in many states and are subject to varying rules and limitations.

Advertising and marketing

Media advertising

What rules and restrictions govern media advertising for gaming establishments and activities?

While limitations will vary from state to state, states generally set out requirements to ensure that advertisements are aligned with responsible gaming principles and may include content and placement restrictions designed to avoid appeals to minors.

Other marketing methods

Do any rules or restrictions apply to other means of marketing and advertising gaming establishments and activities?

Yes. While limitations will vary from state to state, there are some limitations on the number and type of brands and logos that can be used in line with general consumer protection principles (eg, prohibitions against false advertising). For example, in Nevada, failure to conduct advertising in accordance with “decency, dignity, good taste, honesty and inoffensiveness, including, but not limited to, advertising that is false or materially misleading” can be grounds for disciplinary action (Nev Gaming Reg 5.011(4) (Grounds for disciplinary action)).

Consumer protection

Protection of minors

What measures are in place to protect minors against gaming activities?

All states impose a minimum age requirement of 21 (or 18 in most states that regulate daily fantasy sports). Regulators will generally not permit advertisers to use brands or logos designed to appeal to children.

Responsible gaming

What measures are operators required to put in place to promote and ensure responsible gaming?

Responsible gaming obligations for licensees will vary from state to state. For example, in Nevada, licensees that engage in the issuance of credit, check cashing or direct mail marketing of gaming opportunities must implement a programme that allows patrons to self-limit their access to such marketing by that licensee. The programme devised by the licensee sets out the standards and procedures that allow a patron to be removed from such marketing. Licensees must also train all employees who directly interact with gaming patrons, and the training must consider the nature and symptoms of problem gambling behaviour (see Nev Gaming Reg 5.170).

Suspicious transactions

What measures and procedures are in place to report suspicious gaming transactions?

Casinos are subject to the same types of federal reporting requirement that govern financial institutions. They must:

  • keep records of cash purchases of negotiable instruments;
  • file reports of cash transactions exceeding $10,000 as a daily aggregate amount; and
  • report suspicious activity that might signify money laundering, among other activities (see 31 CFR Part 1021 (Rules for Casinos and Card Clubs)).

Disputes

How are consumer disputes in the gaming industry resolved?

State gaming regulations govern the resolution of consumer disputes with licensed gaming operators. State laws typically afford consumers a process for registering a complaint with the gaming regulator. Claims against unlawful gambling operators may be brought by private plaintiffs in several states:

  • under state gambling loss recovery statutes; or
  • pursuant to broad state consumer protection or unfair trade practice laws.