online gaming: are you rolling the dice with roll …dialogue between industry players, regulators...

SHAPING THE FUTURE OF AMERICAN GAMING LAW

American

VOLUME 11 • NO. 2AUTUMN 2015

ONLINE GAMING: ARE YOU ROLLING THE DICE WITH ROLL PLAYING GAMES?

GamingLawyer

INTERNATIONAL MASTERS OF GAMING LAW

REGULATORS OF THE YEARAWARDS

2015

The Future of Gaming inAtlantic City and the U.S.

The Changing Legal andRegulatory Landscape

of the UK

PLUS:New Developments

in the European Union

INTERNATIONAL MASTERS OF GAMING LAWPUBLICATION

IMGL Officers

Joerg HofmannPresident

MELCHERS law firmHeidelberg, Germany +49 6221 1850 140

[email protected]

Michael E. ZatezaloFirst Vice-President

Kegler, Brown, Hill & Ritter Co.,L.P.A.

Columbus, Ohio +1 614 462 5400

[email protected]

Jamie NettletonSecond Vice-President

Addisons LawyersSydney, Australia+61 2 8915 1030

[email protected]

Quirino ManciniSecretary

SCM LawyersRome, Italy

+39 06 322 [email protected]

Justin FranssenAssistant SecretaryKalff Katz Franssen

Amsterdam, [email protected]

D. Michael McBride III Treasurer

Crowe & Dunlevy, P.C.Tulsa, Oklahoma+1 918 592 9824

[email protected]

Marc H. EllingerAssistant Treasurer

Blitz, Bardgett & Deutsch, L.C.Jefferson City, Missouri


Douglas L. Florence, Sr.Affiliated Vice-President

eConnectLas Vegas, Nevada+1 702 683 6016

[email protected]

Keith C. MillerVice-President Educator

Drake University Law School Des Moines, Iowa+1 515 271 2071

[email protected]

J. Kelly DuncanImmediate Past President

Jones Walker LLPNew Orleans, Louisiana


Morten RondeDirector of Education and Association Development

International Masters of Gaming Law

[email protected]

Sue McNabbExecutive Director

International Masters of Gaming Law

[email protected]

Michael E. ZatezaloFirst Vice-President


www.gaminglawmasters.com �

Jamie NettletonSecond Vice-President


Justin FranssenAssistant Secretary

D. Michael McBride IIITreasurer


Douglas Florence Sr.Affiliated Vice-President


Sue McNabbExecutive Director

Morten RondeDirector of Education andAssociation Development


Keith C. MillerVice-President Educator

Contents AUTUMN 2015VOLUME 11 • ISSUE 2

4 Message from the PresidentBy Joerg Hofmann

5 Letter from the EditorBy Sue McNabb

21 Members in the News

New Developments in Jurisdictions:

United States

6 The Future of Gaming in Atlantic City and the U.S.by Robert Heller

International

10 Gambling: The ChangingLegal and Regulatory Landscape of the UKby Susan Breen and Stuart McMaster

12 New Developments in the European Unionby Dervla Broderick

15 The ‘Mahalakshmi’ Saga Unfolds An update on the Supreme Court’sstand on the case of the OnlineRummy Operators by Ranjana Adhikari & Gowree Gokhale

Native American Gaming

18 Tribal Interests Face StackedDeck in Latest Skirmish OverLimits of Tribal Jurisdictionin the Supreme CourtBy Heidi McNeil Staudenmaier and Anthony J. Carucci

New Developments in Online Gaming:

22 Are You Rolling the Dice With Roll Playing Games?Some video games may actually be an unlawful form of gamingBy Ron Segev, Eric Stein and David McHugh

New Developments in Lotteries:

27 New Developmentsin Lotteries:“Misprinted” Lottery Ticketsand the Disappointment of a Non-Winning TicketBy Dan Russell

Departments

Columns

4

5

30 International Masters of Gaming LawRegulators of the Year Awards 2015By Sue McNabb

Features31North AmericaMark OstrowskiAdministrator/Executive Director, Illinois Gaming Board

32 South and Central AmericaManuel San Roman BenaventeGeneral Director of Casino Games and SlotMachines, Ministry of Foreign Trade andTourism of the Republic of Peru

34EuropeJenny WilliamsCommissioner and Chief Executive, Gambling Commission, Great Britain

Mark Ostrowski

Manuel San RomanBenavente

JennyWilliams

Message from the President

4 AMERICAN GAMING LAWYER • AUTUMN 2015

>>

Honoring the 2015 Regulators of the Year

Welcome to this brand-new edition of theAmerican Gaming Lawyer! You will find that thisedition once again demonstrates IMGL’s con-tinued positive and significant development, in

particular in relation to the high standards that we have setourselves regarding the educational purpose and internationalorientation of our organization.

One of the highlights of this edition clearly is the announce-ment of this year’s winners of the prestigious “Regulator of theYear Award” for the Americas and Europe.You may recall that in 2014 the IMGL intro-duced a new Regulator of the Year categoryfor Asia/Australasia in order to account for theincreasing number of members from the Asiaand Pacific region and the significant develop-ments of markets and regulation in this partof the world. For similar reasons the IMGLthis year decided to subdivide the “Americas”category into a “North America” and a“Central/South America” category and toselect a winner for the 2015 Regulator of theYear Award from both of these regions. Thisnot only underlines IMGL’s endeavors to fur-ther expand globally but also honors the outstanding achieve-ments by regulators in the emerging markets ofCentral/South America more accurately as political andcultural variances between North and Central/South Americacan better be taken into account.

But now, without further ado, let me introduce you to thisyear’s winners of the Regulator of the Year Award for NorthAmerica, Central/South America and Europe. I congratulate:

Mark Ostrowski, Administrator/Director, Illinois GamingBoard (2015 ROY - North America),

Manuel San Roman Benavente, General Director of Casino Gaming and Slot Machines, Peru (2015 ROY - Central/South America) and

Jenny Williams, Commissioner and Chief Executive, Gambling Commission, Great Britain 2015 ROY - Europe)

and I wish to thank them for their exceptional commitmenttoward sensible gambling regulation and for encouraging an opendialogue between industry players, regulators and all otherparties involved. You will find a lot more information on ouraward winners later in this edition.

Although not a surprise considering Mr. San Roman’sremarkable achievements and the pioneering role of Peru in gam-ing regulation, I consider it a happy coincidence that our Regula-tor of the Year 2015 for Central/South America operates in thecountry where our next IMGL Autumn Conference will be held.The IMGL Autumn Conference in Lima (14-16 October 2015)marks a historic step in IMGL history as it will be the first IMGLconference ever to be held in South America. Being able to handover our very first Regulator of the Year Award for

Central/South America on this occasion andbeing able to hand over this award to a Peru-vian official gives me great pleasure and willmake this historic step even more special.

Speaking about the IMGL Autumn Con-ference, I would like to take this opportunity toremind you to register for the conference soon.I hope to see many of you there and am alreadylooking forward to the conference, not least asI am confident that it will continue IMGL’sstreak of very successful and well-recognizedconferences. In fact, this reminds me of some-thing I have wanted to share with you:

During my travels – and visiting over adozen gaming law conferences and gaming shows world-wideand being the President of the IMGL I have been traveling a lotthis year – I have had the pleasure of observing and experiencingjust how well-recognized the IMGL and our conferences are. Beit America, Asia or Europe – in none of the places I visited it wasnecessary to introduce the IMGL. Quite the contrary: Time andagain I notice that IMGL members are welcomed with openarms, high expectations and utmost respect when acting as speak-ers, moderators or guests at global conferences. The uncompro-misingly high standard of our own conferences andMasterclasses, the quality and the international profile of ourpublications and the open debate and dialogue that has beenestablished between stake holders in the industry, advisors andregulators within our organization are gratefully received. I amconvinced that when the founders of the IMGL noticed that thegaming world lacked a platform which could bring together thesedemanding assets they made the best decision in creating theIMGL. I am proud that the IMGL stays true to its roots by beingthe pre-eminent international networking and educationalorganization that it is and still constantly continues to grow andimprove from strength to strength.

Keep up the good work and see you all in Lima!

Joerg HofmannBy Joerg Hofmann

Time and again I notice that IMGL

members are welcomedwith open arms, high

expectations and utmostrespect when acting

as speakers, moderatorsor guests at global

conferences.”

“

AMERICAN GAMING LAWYER • AUTUMN 2015 5

SHAPING THE FUTUREOF GAMING LAW

American Gaming Lawyeris published two times a year by the

International Masters of Gaming Law. It is distributed to more than 25,000

gaming professionals around the world.

VOLUME 11 • ISSUE 2

© 2015 International Masters of Gaming Law.All Rights Reserved. American Gaming Lawyeris a registered trademark of the IMGL. No por-tion of this publication may be reproduced with-out expressed written permission of thePublisher. Not responsible for typographicalerrors.

IMGL OFFICERS


Michael E. Zatezalo1st Vice President

Jamie Nettleton2nd Vice President


Justin FranssenAssistant Secretary

D. Michael McBride IIITreasurer


Douglas Florence Sr.VP Affiliate Members

Keith C. MillerVP Educator Members


www.gaminglawmasters.comINTERNATIONAL MASTERS OF GAMING LAW

EXECUTIVE DIRECTORSue McNabb

DIRECTOR OF EDUCATIONAND ASSOCIATION

DEVELOPMENTMorten Ronde

EDITORSue McNabb

CONTRIBUTING WRITERSRanjana Adhikari

Susan Breen Dervla Broderick

Anthony J. CarucciGowree Gokhale

Robert HellerDavid McHugh

Stuart McMasterHeidi McNeil Staudenmaier

Dan RussellRon SegevEric Stein

DISTRIBUTION

AD SPACE RESERVATIONSContact Sue McNabb at

[email protected]

Letter from the Editor>>

This year marked the rebranding of CasinoLawyer, now American Gaming Lawyer(AGL), to unify the Gaming Law mast-head which now includes five IMGL

publications including European Gaming Lawyer,Canadian Gaming Lawyer, La Ley Del Juego, and thelatest addition to our brand, Asian Gaming Lawyer.AGL is very proud to continue the tradition ofIMGL publications worldwide in furthering the mis-sion of advancing gaming law through education.IMGL’s membership of leading attorneys, industryexecutives, and regulators reflects its diverse appeal.

This autumn issue of AGL is dedicated to hon-oring the 2015 Regulators of the Year, regulatorswho meet the rigorous nomination and evaluationprocedure maintained by IMGL. President JoergHofmann has announced these three outstandingindividuals in his President’s Message. The featurearticle in this issue presents the achievements andpersonal philosophies regarding the regulatoryresponsibilities and challenges of these distinguishedregulators.

The articles in this issue continue to reflect thediversity and interests of IMGL membership fromvarious jurisdictions around the world. The juris-diction updates in this issue begin with an in-depthdiscussion of the evolution of gaming, emphasizingthe potential of the New Jersey market to join LasVegas and Macau as the next gaming and entertain-ment hub. Author Robert Heller divides the history ofgaming into four distinct phases to present the growthof the gaming industry in his thorough discussion.

Authors Susan Breen and Stuart McMaster focustheir jurisdiction update on the UK. They discusschanges in online gaming regulations which includeinter alia an increased focus on responsible gaming andplayer protections using data analytics to identify prob-lem gambling issues and to increase self-exclusioneffectiveness. The discussion also explains the shift to“point of consumption” regulations in the UK.

Author Dervla Broderick contributes aninformative update on EU online gaming and thechallenges faced by operators in jurisdictions which,if not disparate, are definitely self-protective. Thearticle discusses lack of cohesive regulation ofonline gaming across borders, focusing on Germany,Sweden, and Great Britain.

IMGL member Ranjana Adhikari, along withGowree Gokhale, discusses the state of flux in India’sonline gaming business, focusing on the Mahalak-shmi Cultural Association case, very recently beforethe Supreme Court of India, and the questions thecase left unanswered regarding skill-based games.

Authors Ron Segev, David McHugh and EricStein present an enlightening analysis of massivelymultiplayer online role playing games (MMORPGs),the high-grossing online personal computer games.For any reader unfamiliar with “World of Warcraft”

and “Riot Games,”among others, thisarticle is an excellentprimer. The authorsaddress the issue ofwhether these gamescross the boundaryinto gambling, point-ing out the dangersthat lurk in the highlylucrative MMORPGmarket.

Next, IMGL member Daniel Russell continueshis thought provoking articles on the lottery indus-try, this time discussing “misprinted” lottery tickets.Dan discusses the disappointment of the purchasersin these situations and the potential threat to theintegrity of state lotteries. He also points out inter-estingly the power of the press in influencing anOntario Lottery case.

The Indian Gaming Section features an excel-lent analysis of Dollar General Corp v. Mississippi Bandof Choctaw Indians, a case presently before the U.S.Supreme Court. This case regarding the limits oftribal jurisdiction addresses the issue of a tribalcourt’s jurisdiction “to adjudicate civil tort claimsagainst nonmembers.”

In closing, and perhaps most important toeditors, authors, and readers of gaming journalsworldwide, is the recent loss on one of our own, PeterMead, founder of Casino Enterprise Managementand a mentor to many of us in the gaming industry.As happens with the death of all great figures in ourindustry, we feel the loss and share our sorrow withthose whose lives he touched.

As always, IMGL and your editor thank you foryour articles and sponsorships that contribute to thepublication of AGL. We invite all readers of IMGLpublications worldwide to join the ranks of contrib-utors to the publications. Without our valued mem-bers, authors, and sponsors, we could not continueour IMGL mission of advancing gaming lawthrough education.

Sue McNabbEditor, AGLExecutive Director, IMGL

Sue McNabb has worked with the state legislature and served as Assis-tant Attorney General for the Louisiana Department of Justice and asan attorney for the Louisiana Legislative Auditor. She has an exten-sive background in corporate law in the private sector where she workedas General Counsel of an INC 500 Company and as Vice President ofAdministration with a national not-for-profit corporation.

Sue serves on the board of directors of the Louisiana Association on Compulsive Gambling and was formerly a member ofthe board of the National Council on Problem Gambling. She alsoserves on the board of the Louisiana Center for Women in Govern-ment and Business and was recently appointed by Governor BobbyJindal to serve on the Louisiana Women’s Policy and Research Commission. She received the IMGL president’s award for 2013.

GamingLawyer®American

Sue McNabb


>>NEW DEVELOPMENTS IN JURISDICTIONS: UNITED STATES

The Future of Gaming in Atlantic City and the U.S.By Robert Heller

The futurist, James Burke said:“To predict the future we mustlook to the past, because…

there is nowhere else to look!”

Looking back to 1931 when gamingwas legalized in NV and tracking gaminguntil today, we can see four themes:

I. The industry has been tamed, movingfrom the “wilds” of the desert to ourcities and into our homes.

II. Gaming has matured and stabilized,moving from a few states to many, fromthe hands of entrepreneurs to those ofinstitutions, and from a destinationexperience to one of convenience.

III. It is a large global business.

IV. Two unique gambling based enter-tainment cities thrive, Las Vegas andMacau; and Atlantic City still has achance to become a third.

I. DomesticationGaming began in a frontier town wheregamblers and prostitutes practiced theirprofessions legally. Forty years later, asanitized version moved to Atlantic City, afading resort town.

Twenty years later it came to therivers in America’s Heartland, floating onboats down the Mississippi River in Iowa,Indiana and Mississippi, but still in noone’s backyard. Then it came inland toother towns down on their luck and awayfrom population, such as Tunica, MS, andBlack Hawk, CO.

But the draw of tax revenues and

developers’ aspirations brought gamingcloser to population centers, like down-town New Orleans and Detroit. It prolif-erated in the suburbs around places like St.Louis and Kansas City.

Ultimately, it came to large cities likePhiladelphia and New York. Now, WynnResorts is developing a $2B project sixmiles from Boston, and Paul Fireman pro-posed a $4B project in Jersey City on thebanks of the Hudson River, just threemiles from Wall Street.

Casinos are now everywhere. Sowhat is the future?

It is coming right into our homes. Ifyou live in New Jersey and Delaware, it’salready there, and in Nevada, online pokeris available. High stakes poker will comewith interstate compacting. Daily FantasySports games are available online in most

U.S. states. Social casinos are a simulated experi-ence but have grown substantially. In 2014,Caesars generated about $180M from its CaesarsInteractive subsidiary, as much as from all threeof Caesars’ AC properties combined.

II. Maturation, expansion, consolidationThe gaming business went from being a semi-criminal enterprise, to the place where pensionfunds invest for a safe yield. The 1988 passage ofthe Indian Gaming Regulatory Act legalized tribalcasinos. By 2013, tribal gaming accounted for 42%of the total industry. The massive expansion ofcommercial gaming from 1995 to 2007 repre-sented a 12-year compound growth rate of 8%,rising from $16B in 1995 to almost $40B in 2007.The industry declined, along with similar enter-tainment businesses, in the Great Recession,falling 9% by 2008. The less than 1% growth ratesince then reflects a mature industry.

This growth required a lot of capital. By thelate 1960’s, the plans for casinos in Las Vegasoutgrew the mafia lenders. Nevada changed thegaming laws to allow public company ownership.Since then, gaming has been dominated by publiccompanies accessing Wall Street capital to buildever-larger projects.

Like most expanding businesses, gamingenterprises began to consolidate to gain opera-tional and financial efficiency. In 1995, Gamingwas a $16B industry with at least thirty U.S. pub-lic gaming companies. Now the industry is 2.5times larger, yet there are fewer than twenty pub-lic companies. Today, MGM and Caesars aloneown over 80% of the 85,000 rooms on the LasVegas Strip.

I predict that within five years only two-thirds of today’s U.S. public gaming companieswill remain.

Consolidation in gaming has led to institu-tional ownership. Pension funds, mutual funds,and hedge funds own most of the stock in pub-lic gaming companies and several operators areout-right controlled by licensed private equityand hedge funds.

As the business moves from the entrepre-neurs to institutional investors, the fundingapproach is changing. Investors view gaming as areal estate based entertainment business, likehotels, ski resorts and theme parks. Part of thebusiness success comes from its real estateelements – building and location - separate fromthe quality of the operation.

Enter the Real Estate Investment Trust, akaa “REIT”, which is viewed as less risky byinvestors. In 2013, Peter Carlino, one of the greatvisionaries of the regional casino business, splitoff from Penn National Gaming, a REIT calledGaming & Leisure Properties, leaving PENN asthe operating company. Because of the differencein valuation metrics of real estate and gaming,PENN stockholders generated about 30% profitpost-split.

My outlook for the future: In five years, wewill have at least three gaming REIT’s, one possi-bly spun out of MGM or BYD, and GLPI willdouble in size. Caesars, which is going through arestructuring, may spin off a REIT; that REITcould become a big force in the business.

III. Globalization There is only so much gaming to exploit in theU.S., so the larger companies looked abroad fornew growth opportunities. In 2001, Las VegasSands made a deal to build a casino in Macau andgot a coveted license that made Sheldon Adelsonone of the richest men in the world. Wynn andMGM followed suit. By the time Caesars tried toenter the market, it was too late.

In China gambling is more socially accept-able, with a population three times the size of theU.S. and an economy growing at three times therate of the U.S. The GGR results were extraordi-nary - $3B in gaming revenue in 2002 to $44B in2014, a 12-year CAGR of 32%. One city gener-ated 68% as much GGR as all of the U.S.

With that success gaming spread to neigh-boring countries like Singapore and Philippines,Korea, Cambodia and Vietnam. These have

Continued on next page

Robert Heller is co-founder andCEO of Spectrum Gaming Capital. He joined SGC fromUBS Investment Bank where hewas responsible for coordinatingthe bank’s gaming franchise glob-ally. Previously, he was presidentof Heller Gaming & Leisure, aboutique investment banking andadvisory firm specializing in casinos, hotels and resorts, operating since 2003. As part ofhis efforts there, from 2004 to2006, Heller was founding President and CFO of Baha MarResorts, Ltd. Baha Mar Resorts iscurrently constructing a $3.5bn redevelopment on its 1,000 acre assemblage. Prior to that, Hellerspent 23 years in investment banking, having established andmanaged teams as a ManagingDirector of Lehman Brothers and Bear Stearns, and at Salomon Brothers.

Robert Heller


As the business moves from the entrepreneurs to institutional investors, the funding approach

is changing. Investors viewgaming as a real estatebased entertainment business, like hotels,

ski resorts and theme parks.

“

”


>>NEW DEVELOPMENTS IN JURISDICTIONS: UNITED STATES

offered good and not-so-good opportunities,but the next big prize is Japan, where twocasinos could cost up to $10B each to build.

Dependence on a control-economysuch as China is risky. As the Chinese Gov-ernment cracks down on corruption, we areseeing 40% year-over-year declines inMacau gaming revenue. At the same time,the economy slowed and credit marketstightened. This is happening just as sixnew multi-billion dollar properties are setto open over the next three years. This isthe reason WYNN stock price is down over50% over the last twelve months and LVSand MGM are down a third.

Global expansion will continue tobe an important part of gaming. SomeAsian gaming companies are now here in

the U.S. Asian gaming giant Genting ownsthe #1 grossing casino in America –Resorts World at Aqueduct Racetrack inNYC and is now building a $4B Asianthemed casino that will include a replica ofthe Great Wall of China, pandas, and awater park.

LVS spent three years working on a$40B development in Madrid, which didnot obtain enough support from the EU tomake it feasible. However, Europe may nowbe ready for a transformation. The gov-ernment of Cyprus is trying to attract anintegrated resort by offering one gaminglicense with 15-year exclusivity.

So what is the future of gaming glob-alization? More U.S. companies will seekgrowth overseas, more foreign companieswill come here. We may see a foreign com-

pany buy a U.S. operator. More foreignjurisdictions will legalize gaming aroundthe world and the early participants willreap the rewards. Eventually, a U.S. com-pany will step foot into a big project inLatin America.

IV. The Gaming CitiesConcluding with the final theme - if every-thing is so big, bland and corporate, whereis the opportunity for differentiation?

Las Vegas has already shown how tobe different, how to reinvent itself viaconsolidation of gaming, lodging andleisure into multi-faceted entertainment“department stores.” GGR grew by al-most 5x from 1984 to 2014, while gamingrevenue shrank from two-thirds to onlyone-third of total revenue.

The Las Vegas transformation overthe last 25 years happened while gamingwas spreading across the country. LasVegas was inventive and resilient. In theearly 1990’s, MGM built a theme park andWynn built Treasure Island, family-friendly entertainment. That trend failedto develop and was replaced with celebritychefs, Cirque du Soleil shows, ubiquitousadult entertainment, and an adult theme -“What happens in Vegas, Stays in Vegas.”

Comparable to Las Vegas, Macau willremain a unique gaming and entertainmenthub. There are six new properties underconstruction, adding 50% to the Macau roomsupply by 2017. Accompanying this expan-sion are some great non-gaming attractionsincluding a movie studio, themed hotels,and LV-like shows and architecture.

Like LV and Macau, Atlantic City toocan offer something special and needs todevelop its non-gaming appeal. It has closeproximity to massive population, a large,mostly unused airport, a world-class beach,and a fascinating history. What Americanhasn’t played Monopoly?

Atlantic City has underutilized infra-structure - over 20,000 rooms; 1.3M SF ofconvention space; the longest boardwalk inthe U.S. at 4 miles; 700-slip marina; 19 golfcourses within 1-hours’ drive; and greatshopping including the Quarter, The Walk,The Pier Shops and Bass Pro Shop.

Continued from previous page


We are seeing the beginnings of a renaissance:

� Tilman Fertitta spent $150M transforming Trump Marina into the Golden Nugget.

� Carl Icahn renovated the Tropicanawith restaurants on the Boardwalk anda sound and light show.

� Morris Bailey and Mohegan Sun introduced Margaritaville at Resortswith a beach bar and restaurant. “Resorts” is also bridging land basedand internet gaming with the first Internet gambling lounge adjacent tothe casino floor.

� Harrah’s introduced a dome-coveredpool/club experience to create a sum-mer atmosphere year-round and is nowbuilding a new convention center.

� Revel could still be a catalyst for AC ifa big vision is executed like combiningwith Showboat and building a waterpark between the two projects.

The city has the right mayor now –Don Guardian – a booster and facilitator of

change and improvement, but Atlantic Cityneeds a faster expansion into non-gaming.

Surprisingly, funding could come fromNorthern NJ. Casinos in Northern NJ willhurt the gaming business in AC only alittle as Northern NJ customers alreadyvisit convenience gaming locations in NewYork and Pennsylvania. NNJ gaming taxrevenue could send a billion dollars to ACover ten years and AC could lever that into$5B – $10B in development – big numbersthat could bring a “sea change” for AC’sfuture.

AC should seize this opportunityquickly as its monopoly on gaming in theNortheast is long gone, and the state needsthe tax revenues. AC needs a new game,and it’s not called “Monopoly”. Withmoney from Northern NJ, AC could joinLas Vegas and Macau as one of threeunique gaming and entertainment hubs inthe world. �

Like LV and Macau, Atlantic City too, can offersomething special andneeds to develop its non-gaming appeal.

It has close proximity tomassive population, a large,mostly unused airport, a world-class beach, and a fascinating history. What American hasn’t played Monopoly?”

“

The UK has recently seen major legal and regulatorychanges in the online gambling sector. The most sig-nificant recent changes have been the shift to “point

of consumption” regulatory and tax regimes, and the in-creased focus on responsible gaming. Further devel-opments relating to customer due diligence and socialresponsibility are on the horizon. This article focuseson how the recent changes and future developments affectonline gambling operators.

Data Analytics versus Individual PrivacyIn August 2014, the UK Gambling Commission (UKGC)launched a review focused on improving the social responsibilityprovisions of the Licence Conditions and Codes of Practice(LCCP) which licence holders are required to observe. Amongthe new and amended provisions of the LCCP that came intoforce on 8 May 2015 is the requirement for licensees to use dataanalytics to identify those customers who are potentially at riskof gambling-related harm, even if they are not displaying obvi-ous signs of behaviours associated with problem gambling.

The details of how and when data analytics should be usedhave been left open; the UKGC simply requires operators to makeuse of ‘all relevant sources of information’. The UKGC has givensome broad examples of the types of data it considers relevant,such as where a customer undergoes a change in spending levelsor in the types of product used. Of course, such changes maysimply reflect a change in habits or tastes, rather than a develop-ing problem; this will result in a complex series of judge-ment calls having to be made, whether by individuals orsuitable algorithms.

The UKGC has also observed that the use of data analyticsin this way involves a certain sacrifice. The gathering of the dataneeded to develop better player protection measures comes at acost to the privacy and personal freedoms of the consumer.Despite sounding a note of caution on this front, the UKGCevidently feels that the sacrifice is worthwhile.

Improving the effectiveness of Self-ExclusionThe option for consumers to self-exclude themselves from gam-bling has in the past been undermined by the fact this self-imposed restraint would only be effective at one particularlocation or with one particular operator. The UKGC has decidedthat online operators will be required to participate in a nationalmulti-operator self-exclusion scheme, which is expected to comeinto force in 2017. This will enable individuals to self-excludefrom all UK-licensed online operators through a centrally-runscheme. The UKGC will be consulting throughout summer 2015on the draft architecture of the scheme, its estimated cost, anddetails of how the scheme will be managed and funded. Follow-ing the consultation, there will be a competitive-tender processfor a contractor to run the scheme.

The upcoming changes to the LCCP also include a require-ment on most remote operators to offer customers a ‘timeout’ facility, which shall be for a reasonable duration of up to sixweeks (effective 31 October 2015).

Customer due diligence developments aheadThe UK, along with other EU member states, has until 26 June2017 to introduce national legislation giving effect to the fourthmoney laundering directive (4MLD). While the third money laun-dering directive (3MLD) applied only to casinos, the fourth direc-tive applies to all providers of “gambling services” and expresslyincludes betting transactions provided by electronic means.

4MLD increases the emphasis on the risk-based approach tocustomer due diligence, which is likely to be one of the mostsignificant issues for online gambling operators. Under 4MLD,an operator must carry out customer due diligence (CDD) whenit establishes a business relationship with a customer, whencarrying out transactions amounting to €2,000 or more, andwhen there are doubts as to the veracity or adequacy of previ-ously-obtained CDD information.

To ensure compliance, operators will need to ensure that theirterms and conditions allow them to request CDD information fromtheir customers and to terminate the customer relationship if those


>>NEW DEVELOPMENTS IN JURISDICTIONS: UNITED KINGDOM

The Changing Legal andRegulatory Landscape of the UK

GAMBLING:

By Susan Breen and Stuart McMaster

CDD checks cannot be successfully completed.There is general consensus that 4MLD’s increasedemphasis on the risk-based approach will mean thatmore detailed guidance on its application will beneeded than under 3MLD. By 26 June 2017, theCommission must produce two regulatory technicalstandards (RTS) to supplement 4MLD in areaswhere uniform standards across the EU are requiredand the European Supervisory Authorities (ESAs)are responsible for producing non-binding “complyor explain” guidelines. The ESAs may also publishinformal guidelines. When the RTS and variousguidelines have been published, it will be easier togauge the practical impact on operators.

The requirements under 4MLD apply in thejurisdiction in which the operator is establishedand also in each market in which it trades. Giventhat each EU member state will have some latitudeas to how it implements 4MLD, UK-based opera-tors with a presence in other EU markets will needto take legal advice in each relevant market to ensurethat they are compliant with local standards.

UK-based operators with a presence in mar-kets outside the EU will not only have to abide bylocal laws, but 4MLD dictates that they will haveto meet the EU risk-based standard if those locallaws are not as stringent. If the non-EU country’slegislation does not permit the operator to imple-ment the higher EU risk-based standard, then theoperator will need to take “additional measures” tomanage the risk of money laundering. If the“additional measures” are not sufficient to meetthe EU risk-based standard, then the operator’shome country must take supervisory action, whichmay include requesting the operator to close downthose overseas operations where appropriate.

Regulating at the Point of ConsumptionThe Gambling (Licensing and Advertising) Act2014 came into force on 1 November 2014, herald-ing a shift in the UK from a “point of supply” to a“point of consumption” regulatory regime. Thisinvolves looking not at where the supplier islocated, but at where the consumers are located.

Previously the Gambling Act 2005 requireda UK licence to be held only if the operator hadsome of its key equipment located in Great Britain.This meant that operators holding gamblinglicences issued in jurisdictions such as Gibraltarand Alderney could have customers in the UK andadvertise in the UK - without needing to hold aUK gambling licence - as long as none of their key

servers were located in Great Britain.Under the new 2014 legislation, the provision

of facilities for gambling is prohibited if the facil-ities are used in Great Britain unless the operatorholds a licence issued by the UKGC. The 2014 Actalso changed the position on advertising: onlygambling services licensed by the UKGC can beadvertised in Great Britain. However, given theinternational appeal of English soccer, there is adebate about whether unlicensed gambling canlegitimately be advertised at televised soccer gamesin circumstances where the advert is primarilyintended to be seen by a foreign audience, and UKconsumers are geo-blocked from accessing theadvertised services.

Taxing at the Point of ConsumptionAt virtually the same time as it changed its regu-latory regime to the point of consumption model,the UK amended its tax laws so that online gam-bling operators – including those based overseas -would be required to pay tax in the UK on a pointof consumption basis. The basic position is thatonline operators must pay tax assessed at 15% ofthose gross gambling profits which are attributa-ble to UK consumers.

Impact of the new Point of ConsumptionchangesSeparate legal challenges were brought in the UKcourts by the Gibraltar Betting and Gaming Asso-ciation (GBGA) against the new regulatory and taxregimes. The GBGA claimed that the new regimeswere incompatible with EU law, on the basis thatthey created discriminatory barriers to the freemovement of services within the EU, and that suchdiscrimination could not lawfully be justified.

The UK High Court rejected the challenge tothe new regulatory regime, but in July 2015decided that the challenge to the new tax regimeraised difficult questions of EU law which shouldbe referred to the Court of Justice of the EuropeanUnion, so that the European court could clarifyhow EU law applies in this situation.

In the meantime, operators are faced withpressure on their margins and increased regula-tory burdens. These factors, together with the de-sire to ‘scale up’, have prompted many operators,both small and large, to consider their merger andacquisition options, as they assess whether bulk-ing-up their businesses may help them to weatherthe ongoing market and legislative changes. �


Susan Breen, Partner at Mishconde Reya, is a corporate lawyer andleads Mishcon de Reya’s highlyregarded Betting and Gaminggroup. She has been involved inmany of the landmark transac-tions which have transformed theonline gambling sector over thelast 15 years. Susan has recentlyadvised H.M. Government ofGibraltar as an interested party inrelation to the judicial review pro-ceedings brought by the GBGAchallenging the UK’s new pointof consumption licensing regimeand separately its point of consumption tax regime. Susan is ranked as one of the best UKlawyers for gaming andgambling by Chambers Global.She is also a member of the IMGL. Susan can be contactedat [email protected]

Stuart McMaster, Partner atMishcon de Reya, is a corporatelawyer with extensive experiencein the betting and gaming sector.He recently advised the IntertainGroup Limited on its acquisitionof the Jackpotjoy brands for aninitial payment of £425.8m and its partnership with GamesysLimited. He also adviseson a wide range of regulatory issues within the online gamblingsector and clients include opera-tors, financial institutions andother industry participants. Stuart can be contacted [email protected]

Susan Breen

Stuart McMaster


>>NEW DEVELOPMENTS IN JURISDICTIONS: EU

Overview of the regulatory frameworkBefore turning to look at developmentsacross the EU, it is worth looking at thecurrent legal framework for regulatingonline gambling. At present, each EUMember State is free to regulate gambling

in the manner it considers appropriate sub-ject to the condition that the applicable leg-islation complies with European law,specifically the Treaty on the Functioningof the European Union (“TFEU”). TheTFEU encapsulates the overall principlethat, within the EU, each Member State can

freely trade with others; therefore, unjusti-fied restrictions on the supply and move-ment of goods, services, people and capitalare not permitted.

However, Member States retain amargin of discretion to introduce ruleswhich limit operators’ rights to provideservices to citizens within their nationalterritory if objectively justified (e.g. thereis a legitimate aim to protect consumers orprevent fraud). Such public interest exemp-tions cannot be arbitrary and must adhereto the principles of non- discrimination,suitability and proportionality. So, forexample, Member States cannot restrictcitizens’ access to gambling services if, atthe same time, they encourage participationin state-owned lotteries or other gamblingservices.

Over recent years the European Com-mission has investigated potential breachesof EU law affecting the gambling sector ina number of Member States. As a result of

New Developmentsin the European UnionBy Dervla Broderick

While the European online gambling market continues to expand, itremains one of the few economic sectors which lacks coherent cross-border regulation. Even with the new EU Commission’s extensive plans

to break down barriers to online trade between Member States, online gamblingis still viewed as too contentious politically for harmonised regulation to beaccepted by the twenty-eight EU Member States. Consequently, operatorsoffering their services in the EU face high compliance costs and uncertainty overthe legality of their operations in certain territories. For consumers accustomedto having unfettered access to goods and services on the Internet, the lackof coherence is confusing. This article looks at how the online gambling sectorcurrently fits within the broader EU agenda and examines developments in reg-ulation in a number of key EU Member States.


these investigations there has been some progresstoward liberalisation of the gambling sector.Nevertheless, some Member States have appliedand continue to apply discretionary powers tomaintain state monopolies and to restrict the abil-ity of operators licensed within other MemberStates from offering or advertising gamblingservices to their national citizens or residents.

A new EU CommissionThe new EU Commission commenced its fiveyear term on 1 November 2014 and in setting theagenda for his tenure as European CommissionPresident, Jean-Claude Juncker put the digitaleconomy centre stage. He is promoting a fully-connected digital single market as the means ofgenerating up to €250 billion of additionalgrowth in Europe, and thereby creating “hundredsof thousands of new jobs and a vibrant knowledge-based society.” The Commission subsequently pub-lished its Digital Single Market strategydocument in May 2015, outlining a wide rangeof measures designed to remove barriers tocross-border service provision and create a“connected continent.”

However, even with the spotlight currentlyon the promotion of cross-border e-commerce,the online gambling sector seems unlikely to reapany rewards. The regulatory landscape is stillhighly fragmented with each member state freeto legislate for online gambling in the manner itconsiders appropriate (subject to ensuring com-pliance with European law). While the DigitalSingle Market strategy includes provisions tomodernise copyright laws to facilitate cross-border portability of content and to overhaul

telecoms rules on spectrum regulation and broad-band investment, there has been no indication ofany impetus to review the position of onlinegambling.

The former EU Commissioner responsiblefor gambling services, Michel Barnier, was a par-ticularly active proponent of greater harmonisa-tion in the sector. His role included the task ofmonitoring the compliance of Member States’gambling legislation and in a bold move towardsthe end of his term he succeeded in bringing in-fringement proceedings against several MemberStates whose laws were considered to contraveneEU law. However, Mr. Barnier was replaced byCommissioner Elzbieta Bienkowska who has yetto give any indication of how she intends to dealwith these cases or the gambling sector moregenerally. Given the current focus of the EUagenda, it may actually be an ideal opportunity tomake meaningful progress towards free move-ment of gambling services within the EU. How-ever, there is also a danger that this goal has fallendown the priority list as a result of it being “toopolitically difficult.”

Information sharingAlthough a very long way from regulatoryharmonisation, some steps have been taken toencourage cooperation between national regula-tors of online gambling. Another legacy of Mr.Barnier’s term, the results of a study into the roleof regulators for online gambling were publishedin October 2014. The report encourages MemberStates to engage in the sharing of informationand best practice to promote greater consistencyacross EU Member States. In particular the studyrecommended the introduction of “certificates ofgood standing” which could be issued to enablean operator licensed in one territory to by-passcertain of the regulatory requirements in place inanother Member State, thereby streamlining thelicensing process somewhat.

Other recommendations included sharinginformation regarding technical standards andtheir implementation as well as regarding play-ers and problem operators. These recommenda-tions are not binding in any way and requirebuy-in from national regulatory authorities forthem to achieve their aims.

Dervla Broderick is a seniorlawyer in Olswang LLP’s Gambling Group. As an antitrustand regulatory specialist, Dervlafrequently advises gambling sectorclients on regulation and EU law issues. She also oversees theOlswang Interactive Guide to Online Gambling Regulation inEurope. She can be reached [email protected]: http://www.olswang.com/industry-sector-insight/gambling-regulations/

Dervla Broderick

The regulatory landscape is still highlyfragmented with eachmember state free to legislate for online

gambling in the manner it considers appropriate(subject to ensuring compliance with European law). ”

“


.


>>NEW DEVELOPMENTS IN JURISDICTIONS: EU

Significant Member State developmentsWhile indications of the new Commis-sioner’s agenda for online gambling areeagerly awaited, regulatory changes atMember State-level continue to causeuncertainty for operators. By way of exam-ple, we discuss recent developments inGermany, Sweden and the UK.

GermanyThe regulatory landscape for online gam-bling in Germany remains unclear. Underthe current regime operating in all Germanstates, there are twenty online sports bet-ting licences available. The three-stageprocess for issuing these licences was for-mally completed in September 2014. How-ever, no actual licences have been issued tosuccessful applicants yet, as the Adminis-trative Court of Wiesbaden in April 2015ruled that the tender process was unfairand ordered that a rejected application bereconsidered. Recently, a player was prose-cuted for gambling with an online opera-tor located outside of Germany, but it isnot yet known whether this marks the startof a trend in this direction.

In addition, the state of Schleswig-Holstein had until recently its own Gam-bling Act allowing online sports bettingand gambling. It issued twenty-one onlinegambling licences under this Act and theseremain valid until their stipulated expiry

date in June 2019. However, Schleswig-Holstein has subsequently repealed itsGambling Act and no further licences willbe made available.

SwedenIn 2013 when the Commission initiatedinfringement proceedings against a num-ber of EU Member States, it also escalatedits ongoing proceedings against Swedenrequesting that Sweden’s laws on onlinesports betting and online poker beamended to fully comply with EU law.Then on 16 October 2014 the Commissionannounced its decision to refer Sweden tothe Court of Justice of the EuropeanUnion. The referral followed an unsatis-factory reaction by Sweden to the Com-mission’s November 2013 compliancerequest. This is the first such referral of aMember State on account of gambling-related regulation.

The Commission’s case against Swedenis two-pronged with the first concerninginconsistencies in the online sports bettingmonopoly held by state-owned SvenskaSpel. The Commission considers that theway in which Svenska Spel’s monopolyright is run is inconsistent with the aim ofachieving the public policy objectives ofpreventing problem gambling and crimi-nal activities and lacks necessary statecontrol.

The Commission’s second line ofattack is based on restrictions on the pro-vision and promotion of online poker

games. The Commission’s view is thatSvenska Spel’s monopoly in this area is notsubject to adequate control by the Swedishauthorities and that Sweden’s policy isinconsistent because the unauthorisedpoker game sites are in fact tolerated.

Great BritainA new licensing regime was introducedunder the Gambling (Licensing and Adver-tising) Act 2014 under which all operators(wherever located) offering services to con-sumers in Great Britain must hold a licencefrom the British Gambling Commission.

In addition, the Finance Act 2014changed the taxation of gambling onlineso that operators outside the UK would beliable to pay tax on all bets placed withthem by UK consumers, regardless of thetax they pay in their own jurisdiction. Thislegislation is subject to ongoing judicialreview proceedings brought by the Gibral-tar Betting and Gaming Association (the“GBGA”), represented by Olswang LLP.The GBGA claimed that the new taxregime was discriminatory and thereforeunlawful under EU law. In a judgmenthanded down on 14 July 2015, the BritishHigh Court found that there should be areference to the Court of Justice of theEuropean Union on important issuesconcerning the legality of a tax imposedon overseas gambling operators. If the taxregime is found to be in breach of Euro-pean law, the British government could beordered to repay all of the tax it hasreceived.

ConclusionA harmonised regulatory framework foronline gambling in the EU would providemuch needed certainty for operators andconsumers alike. However, a majority ofMember States remain committed to acertain level of protection, often linked toa desire to retain revenue from state-ownedgambling monopolies. Absent any politicalwill to move towards greater cooperationin this area, it is clear that operators willcontinue to face conflict in a large part ofthe EU for the foreseeable future. �



For the last few years, the entire gam-ing business community has been patientlywatching the developments in the Maha-lakshmi Case1 before the Supreme Court ofIndia (“SC”). The matter was essentially achallenge before the SC by MahalakshmiCultural Association (“Association”) to orderof the Madras High Court (“ImpugnedOrder”) 2 in relation to the game of Rummybeing played in brick and mortar clubs.Since the online Rummy portals feel aslight brunt of this order, they had alsoapproached the SC for clarity on the posi-tion of law vis-à-vis online gaming. In adramatic turn of events in August 2015,the SC has delivered two orders, whichgives the operators organising skill-basedgames some respite.

While on 13 August 2015, the SCobserved that the Impugned Order has notdealt with online Rummy and therefore anyobservations made in the Impugned Ordermay not necessarily relate to onlineRummy, on 19 August 2015, there was aunique twist in the tale where the Associa-tion withdrew the matter, thereby making

the original Impugned Order infructuous. This article gives a detailed account of

how matters unfolded in the Mahalakshmicase and what this recent order means tothe business community.

The background to the Mahalakshmi CaseThe gambling laws in India are Statespecific. In most State enactments, gamesof skill are excluded from the applicationof gambling laws. In the case of State ofAndhra Pradesh v. Satyanarayana3 (“Satya-narayana Case”), the SC had held thatRummy (the 13 card game) was a game ofskill.

The Mahalakshmi Case was essentially

an appeal filed against the Impugned Orderof the Madras High Court before theSupreme Court by the Association. To givea brief background, the Inspector ofPolice, Chennai raided the premises of theAssociation on the grounds that the prem-ise of the Association was being used forgambling and that the members were play-ing Rummy with stakes. A case was accord-ingly registered against the Association.

Aggrieved, the Association filed aWrit petition before a single judge for seek-ing directions to forbear the policefrom inter alia interfering with the activi-ties of the Association in any manner,including playing 13 cards game of

NEW DEVELOPMENTS IN JURISDICTIONS: INDIA

The ‘Mahalakshmi’ Saga UnfoldsAn update on the Supreme Court’s stand on the case of the Online Rummy Operators By Ranjana Adhikari & Gowree Gokhale

While India is featured on thebusiness maps of a numberof International operators, the

anxiety around the case of the onlineoperators before the Supreme Courtseeking clarity on the applicability of thestate gambling laws to their businessmodels had stopped many fromexecuting their plans.


The SupremeCourt of India


>>NEW DEVELOPMENTS IN JURISDICTIONS: INDIA

Rummy with or without stakes. The saidwrit petition was disposed of by the courtin favor of the Association, on thegrounds that Rummy is a skill based gameand hence is not illegal. Certain directionswere also issued to the police in this case.

It was this order of the single judgethat had been challenged by the Appel-lants (Police) in the writ appeal before thedivision bench of the Madras High Court,where the court had interpreted the Satya-narayana Case slightly differently and heldthat in the event the club / association al-lows its members or guests to playRummy with stakes or make any profit orgain out of such play, the police have theauthority to invoke the provision of Chen-nai City Police Act.

The Impugned Order has unsettleda rather settled position of law. Variouscourts had previously held that games ofskill fall outside the purview of the gam-bling laws and therefore stakes or profitcan be made from such games. Differentinterpretations by different high courtsgave rise to ambiguities on the position oflaw on collection of stakes from the gameof Rummy.

During the course of the proceed-ings before the SC an application for in-tervention was filed by Games 24*7 andPlay Games (“Rummy Websites”) to beimpleaded in this matter since their oper-ations were being affected by the refusalof banks to process payments of the play-ers on these sites. There was also the ap-prehension of criminal prosecution, sincephysical rummy providers were beingprosecuted. Further, many states had ex-emptions for games of skill in theirstatutes but certain states like Orissa hadno such exemption.

It was expected that the SupremeCourt would lay down guidelines on whatbusiness models (including online) wouldconstitute gambling as restricted / pro-hibited under the gambling legislations ofvarious states (even when skilled gameswere played for a fee / stake).

Extensive submissions were made by

the counsels for the Rummy Websitesover the course of hearings conducted in2014-15. There have been many argu-ments and debates before the SC on thedifferent kinds of business modelsadopted – for example, in the context ofonline gambling, if a fee is collected forthe services provided by the hosts of thewebsite, as opposed to a buy-in for a par-ticular game, would the same be consid-ered ‘stakes’?

Some of the online operators whohad made representations before the SC inthis case, had been asked to submit de-tailed affidavits, explaining the structureof the games offered, the fees charged forsuch games to be played, and the flow ofprofits in relation to the same.

It was contended that previously4

the SC had held that horse racing was agame of skill and playing for stakes in agame of skill was not illegal. It was urgedthat the logic followed in the LakshmananCase should be applied in case of Rummygiven that the Satyanarayana Case hadheld that Rummy was a game of skill.

It was further contended thatRummy being a game of skill, even whenplayed for money would not amount togambling as the sole motivation was notmoney but the display of skill. The skillrequired to engage in the activity wouldnot be eliminated by the addition of themonetary factor.

There is a clear distinction made incommon law between games of skill andgames of chance. Further, the jurispru-dence reflects that there is a legal, judicialand executive policy to put games of skillin a different genus and specie from gamesof chance.

The Verdict The SC on 13 August 2015 disposed of

the petitions of the Rummy Websitesstating that it found that the ImpugnedOrder did not deal with online Rummyand that it applied specifically to Rummyplayed in the brick and mortar formatonly. Further, the judges noted that theStates had not taken any decision onwhether the provision of online Rummywould constitute gambling under theChennai City Police Act. Therefore, theSC was of the opinion that it was not nec-essary to entertain this petition. The SCalso mentioned that the observations inthe Impugned order may not necessarilyrelate to online rummy. The SC at thisjuncture was yet to deliver its verdict onthe issue of taking stakes from Rummy inthe offline context.

The 19th August 2015 saw anothertwist in the tale. The counsel for the As-sociation stated that the trial court hadpassed an order on 11th October 2014 byway of which the Association had been ac-quitted. Interestingly, the issue before thetrial court brought by the prosecution wasnot based on the case of Rummy (or anyother 13 card game) but for members in-dulging in a game colloquially and locallycalled Mangatha “ulle, velliye” by bettingmoney for profit. The counsel for the As-sociation sought permission to withdrawthe original writ filed before the MadrasHigh Court and such permission wasgranted by the SC with an observationthat since the writ petition is dismissed aswithdrawn, the observations made by theMadras High Court in the ImpugnedOrder or the matter before the SC do notsurvive as the writ is infructuous.


1 Mahalakshmi Cultural Association v. The Director, Inspector General of Police & Ors2 Special Leave to Appeal (C)

No(s).15371/2012 (Arising out of impugned final judgment and order dated 22/03/2012 in WA No.

2287/2011 passed by the High Court of Madras)3 The Director General of Police vs Mahalakshmi Cultural Association (2012) 3 Mad LJ 5614 AIR 1968 SC 825 5 K. R. Lakshmanan v. State of Tamil Nadu, 1996 AIR 1153 (“Lakshmanan Case”)6 M/s Gaussian Networks Pvt Ltd. v. Monica Lakhanpal and State of NCT, Suit No 32/2012, Delhi District Court

Reason to rejoice but matters remain grey The law continues to remain grey in terms ofwhether the state gambling enactments coveronline gaming sites as well. The MahalakshmiCase could have been the turning point where itwas expected that the SC would lay down thelaw stating whether the state gaming enact-ments cover online models as well.

This also means that the position of law ontaking stakes from games of skill reverts to theoriginal position fortified by many court judg-ments- games of skill fall outside the purviewof the gambling laws of the relevant States andtherefore stakes or profit may be made from suchgames.

One would also need to keep in mind thecase of Gaussian Networks5 where the questionof whether games of skill can be offered formoney on virtual platforms was considered. Thepetitioners had filed a petition under Order 36of the Code and Civil Procedure Code (“CPC”)

for seeking the opinion of the Honorable courton inter alia the question of whether therewas any restriction on taking stakes from gamesof skill on websites making profit. The Courthad opined that when skill based games areplayed for money in virtual space, the samewould be illegal and observed that the degreeof skill in games played in a physical formcannot be equated with those played online. It isimportant to note that this particular judgmentis only binding on the parties to the matter andthat it has already been challenged before theDelhi High Court.

Attorneys and others would need to nowobserve how the arguments would develop inthis matter. However, on a close perusal of theorder, the concerns raised by the court can beaddressed by building adequate fraud controlchecks in the systems. This is a standard practiceglobally and also helps address anti-money laun-dering issues that plague these websites. �

The authors, Ms. Ranjana Adhikari (Senior Associate) & Ms. GowreeGokhale (Partner & Head of the Gam-ing Law Practice Group) work with themulti-skilled international law firm,Nishith Desai Associates. They are bothbased in Mumbai, and can be reached [email protected]@nishithdesai.com

Ranjana Adhikari

Gowree Gokhale

In that case, the Supreme Courtcreated two exceptions to the general rulethat Indian tribes cannot exercise civiljurisdiction over nonmembers.2 The firstMontana exception — known as the con-sensual relationship exception — pro-vides that “[a] tribe may regulate,through taxation, licensing, or other means,the activities of nonmembers who enterconsensual relationships with the tribe orits members, through commercial dealing,contracts, leases, or other arrangements.”3

Despite its pronouncement in Mon-tana, twenty years later the SupremeCourt acknowledged that it has “neverheld that a tribal court had jurisdictionover a nonmember defendant” in any con-text, leaving the question of whethertribal courts may ever exercise civil juris-diction over nonmembers unanswered.4

The Supreme Court now appearsready to answer that question, havinggranted a petition for a writ of certiorarito Dolgencorp and its parent company,Dollar General Corporation (collectively,“Dolgencorp”), to decide whether Mon-tana’s first exception grants Indian tribal

courts jurisdiction to adjudicate civil tortclaims against nonmembers, including asa means of regulating the conduct ofnonmembers who enter into consensualrelationships with a tribe or its members.5

Dolgencorp operates a Dollar Gen-eral store located on land held in trust bythe United States for the Mississippi Bandof Choctaw Indians.6 The store operatespursuant to a lease agreement with thetribe and a business license issued by thetribe. John Doe, a young tribe member,sued both the store’s manager and Dol-gencorp in tribal court, alleging varioustheories of negligence and vicariousliability on the grounds that he was sex-ually molested while working at the storeas part of a youth job training programoperated by the tribe.

Dolgencorp and the manager chal-lenged the tribal court’s subject-matterjurisdiction. After the Choctaw SupremeCourt held that subject-matter jurisdic-tion existed as to both Dolgencorp andthe manager under Montana’s first excep-tion, they filed suit in the U.S. District forthe Southern District of Mississippi

against various tribal entities, as well asDoe and his parents, to enjoin the tribalcourt action.

The crux of the dispute is over themeaning and import of Plains CommerceBank v. Long Family Land & Cattle Co.7 —the last foray in the Supreme Court overthe limits of tribal jurisdiction. Althoughthe Supreme Court granted certiorari inPlains Commerce to decide precisely thequestion at issue — whether Montana’sundefined “other means” include adjudi-cating civil tort claims in tribal court —the Court resolved the case on othergrounds.

In Plains Commerce, a divided Courtvoted 5-4 in favor of finding a non-Indianbank did not have to answer a lawsuit filedin a tribal court despite the bank havingentered into a consensual agreement withthe plaintiffs. The Court did not apply oranalyze the limits of Montana’s first ex-ception, instead holding the tribes lack theinherent authority to regulate the sale ofnon-Indian land, regardless of the formof regulation.

Dolgencorp contends Plains Com-merce narrowed Montana’s first exception,such that only those consensual relation-ships that are evaluated and determinedto have an impact on tribal self-govern-ment or internal relations trigger tribaljurisdiction. According to Dolgencorp,because the consensual relationship atissue does not implicate those interests,Montana’s first exception does not apply.

By Heidi McNeil Staudenmaier and Anthony J. Carucci

Tribal Interests Face Stacked Deck in Latest Skirmish Over Limits of Tribal Jurisdiction in the Supreme Court

The United States Supreme Court is now poised to hear its first case ad-

dressing the limits of tribal jurisdiction in seven years, having granted

certiorari in Dollar Gen. Corp. v. Mississippi Band of Choctaw Indians.1

The case will be heard almost 35 years after the Supreme Court first

recognized that there are circumstances in which an Indian tribe can exercise

civil jurisdiction over nonmembers.

>>NEW DEVELOPMENTS IN NATIVE AMERICAN GAMING



By contrast, the tribal defendants maintainthat Plains Commerce left the basic Montanaframework intact, and that “no showing isrequired to be made beyond the existence of theconsensual relationship which supports a findingof consent to tribal jurisdiction, and the nexusbetween the consensual relationship and exertionof tribal authority.”8

The District Court agreed with the tribaldefendants’ argument and granted summary judg-

ment in their favor. The Court found that a con-sensual relationship existed and that none of thepost-Plains Commerce jurisprudence establishes anadditional showing is a prerequisite to the applica-tion of Montana’s first exception.

Dolgencorp appealed, challenging the DistrictCourt’s legal determination that the Montana con-sensual relationship exception was satisfied.

Applying Montana’s framework and post-Montana jurisprudence, the Fifth Circuit Court ofAppeals affirmed the District Court’s decision,holding Doe was essentially an unpaid intern.9 In

Heidi McNeil Staudenmaier is thePartner Coordinator of the NativeAmerican Affairs & Gaming LawPractice Group for Snell & Wilmer,L.L.P., where she is based in the firm’sPhoenix, Arizona, office. She is listedin Best Lawyers in America for Native American Law, Gaming Lawand Commercial Litigation and wasnamed Best Lawyers “Phoenix Gaming Lawyer of the Year for2011” and “Phoenix Native American Law Lawyer of the Yearfor 2015.” She was named to “TopTen Great Women of Gaming for2006,” Chambers USA for Amer-ica’s Leading Lawyers for Businessand Chambers Global for TheWorld’s Leading Lawyers for Business, and Southwest SuperLawyers. Heidi is a Founding Member and Past President of theInternational Masters of GamingLaw. She serves as Executive Editorof the “Gaming Law Review.” Sheis a 1985 graduate of the Universityof Iowa College of Law. She can be reached at [email protected] or602.382.6366.

Anthony J. Carucci is an attorney inthe Orange County, California, officeof Snell & Wilmer, L.L.P. He is a2014 graduate of Notre Dame LawSchool. He can be reached [email protected] or714.427.7513.

Heidi McNeil Staudenmaier

Anthony J. Carucci


1 135 S. Ct. 2833 (2015). 2 Montana v. United States, 450 U.S. 544, 565–66 (1981). 3 Id. at 565 (emphasis added). 4 Nevada v. Hicks, 533 U.S. 353, 358 n.2 (2001). 5 Petition for Writ of Certiorari, Dollar General Corp. v. The Mississippi Band of Choctaw Indians, 2014 WL 2704006, at ii (U.S.). 6 Dolgencorp Inc. v. Mississippi Band of Choctaw Indians, 846 F. Supp. 2d 646, 648 (S.D. Miss. 2011). 7 554 U.S. 316 (2008). 8 846 F. Supp. 2d at 653.9 Dolgencorp, Inc. v. Mississippi Band of Choctaw Indians, 746 F.3d 167, 171 (5th Cir. 2014).

The Mississippi Band of Choctaw Indians has twocasinos in Philadelphia, MS, the Golden Moon (top)and the Silver Star (left)


turn, the Court found that this unques-tionably created a relationship of a com-mercial nature,10 with a nexus betweenDoe’s participation in the youth programand his tort claims, which challengesDolgencorp’s placement of the manager inthe store.

The Court found an “obvious nexus”between Dolgencorp’s participation in theyouth program and the tribe’s interest inprotecting its own children on its own landby regulating the safety of the child’sworkplace, and found it irrelevant that theregulation takes the form of a tort duty.

The Court rejected Dolgencorp’sargument that Plains Commerce narrowedMontana’s consensual relationship excep-tion by requiring an additional showingthat the specific relationship implicatestribal governance and internal relations.Instead, the Court found it permissible tofocus at a higher level of generality todetermine an activity’s impact.

Fifth Circuit Judge Smith’s scathingdissent emphasized two arguments. First,in Judge Smith’s view, Montana’s narrow

exception only applies when the conductat issue falls within a tribe’s authority to“protect tribal self-government or to con-trol internal relations.”11

Second, the dissent emphasized thateven if that threshold inquiry had been sat-isfied, an insufficient nexus exists betweenDolgencorp’s participation in the youthprogram and the full body of Indian tortlaw. Judge Smith opined that “[b]ecauseDolgencorp could not have anticipated

that its consensual relationship with Doewould subject it to any and all tort claimsactionable under tribal law, there is aninsufficient nexus to satisfy Montana’s firstexception.”12 Judge Smith maintained thatMontana’s first exception “envisages dis-crete regulations consented to ex ante,”rather than the majority’s “unprece-dented after-the-fact imposition of anentire body of tort law based on Dolgen-corp’s participation in a brief, unpaidinternship program.”13

Unsurprisingly, much is at stake forboth big business and tribal interests in thislatest skirmish over the limits of tribaljurisdiction in the Supreme Court. AsDolgencorp’s petition for a writ ofcertiorari recognized, the implications ofthe Fifth Circuit’s opinion affect “tens ofthousands of nonmember corporationsand individuals who do business on tribalreservations.”14

Uncertainty with respect to the limitsof tribal jurisdiction may have adverseimplications for both tribes and their busi-ness partners. Businesses facing potentialliability may simply withdraw from doing

Continued from previous pageThe current Supreme Court has been deemed the most pro-business

since at least World War II. Further, as the SupremeCourt itself acknowledged

in 2001, it has neverfound that a tribal court had jurisdiction over anonmember defendant,

regardless of the context.

The U.S. Supreme Courtis now poised to hear its first case addressing thelimits of tribal jurisdiction

in seven years.

“

”

>>NEW DEVELOPMENTS IN NATIVE AMERICAN GAMING


business with tribes in “communities in which unemploymentis already high and access to commercial services (like low-costmerchandise stores) is low.”15

The tribe goes to the Supreme Court with the deck stackedagainst it. Since 2005, when John G. Roberts became the ChiefJustice of the United States Supreme Court, tribal interestshave won just two cases, compared to nine defeats.16 The cur-rent Supreme Court has been deemed the most pro-businesssince at least World War II.17 Further, as the Supreme Courtitself acknowledged in 2001, it has never found that a tribalcourt had jurisdiction over a nonmember defendant, regardlessof the context.

While the Supreme Court has never held that a tribalcourt has jurisdiction over a nonmember defendant, in the FifthCircuit’s view, every circuit court to consider the question haseither held or assumed that tribal courts may exercise jurisdic-tion over tort claims against nonmembers under Montana’s firstexception.18

The Department of Justice (“DOJ”) also weighed in, filingan amicus brief taking the tribe’s side. In contending that theFifth Circuit correctly decided the issue, the DOJ asserted thatthe tribe has jurisdiction over Doe’s claims because the tribehas jurisdiction to regulate conduct occurring on tribal trustland irrespective of Montana’s general rule or its exceptions.19

Given the current political climate of the Court, the caseis ripe for resolving the confusion Montana’s consensual rela-tionship exception has caused. Notwithstanding the DOJ’sfirm stance behind the tribe, the Supreme Court may reversethe Fifth Circuit’s decision. Depending on the breadth anddepth of the Court’s holding, such a ruling could certainlyimpact those doing business in Indian country.

With the Court’s decision expected in the spring of 2016,both tribes and their business partners will surely have theirsights set on the Court’s next term. �

10 The Fifth Circuit explicitly declined to find that the “other arrangements”category of Montana’s first exception requires a commercial relationship togive rise to tribal jurisdiction, but nevertheless found that a commercial re-lationship exists based upon Doe working essentially as an unpaid intern.Id. at 173.

11 Id. at 178–79 (quoting Montana, 450 U.S. at 564) (Smith, J., dissenting). 12 Id. at 181. 13 Id. at 182.14 Petition for Writ, 2014 WL 2704006, at 12. 15 Id. at 17.16 Supreme Court agrees to hear first tribal jurisdiction case in years, INDIANz.COM

(June 15, 2015),http://www.indianz.com/News/2015/017845.asp?print=1.

17 See e.g., Adam Liptak, Corporations Find a Friend in the Supreme Court, THE

NEW YORK TIMES (May 4, 2013),http://www.nytimes.com/2013/05/05/business/pro-business-decisions-are-defining-this-supreme-court.html?_r=0.

18 Dolgencorp, Inc., 746 F.3d at 173 n.3. 19 Brief for the United States as Amicus Curiae, Dollar General Corp. v.

Mississippi Band of Choctaw Indians, 2015 WL 2228553, at 9–10 (U.S.).

MEMBERS IN THE NEWS

Fox Rothschild builds upon their existing experiencein gaming, corporate, litigation, and real estate practices, while also bringing on a well-respectedregulated cannabis practice to the firm in Chicago.

Fox’s newest partners are:

William BogotHe represents clients beforegovernment agencies in highlyregulated industries. As a former legal adviser to the Illinois Gaming Board (IGB),he authored portions of Illinois’gaming regulations and advised the IGB and the governor’s office on all aspectsof gaming law and regulation. He draws upon thisexperience to counsel clients in both the gaming andmedical cannabis industries, and other industriesthat have similar regulatory oversight. Bill also regularly litigates in administrative hearings, trialcourts and appellate courts. His litigation experi-ence includes acting as lead counsel in state andnationwide class actions.

Donna B. MoreShe provides compliance,regulatory, corporate andtransaction services to clientsin highly regulated industries.Drawing upon her experienceas General Counsel to theIllinois Gaming Board (IGB)and her tenure as an Assis-tant U.S. Attorney for theNorthern District of Illinois and Cook County State’sAttorney, she advises clients on all licensing andregulatory issues and in hearings before administra-tive agencies. She also represents these clients incommercial and regulatory disputes involving competitors.

More also maintains a robust medical cannabispractice, helping clients to comply with Illinois’Compassionate Use of Medical Cannabis Pilot Program Act. This includes working to secure cultivation licenses from the Illinois Department ofAgriculture and dispensary licenses from the IllinoisDepartment of Professional Regulation.

FOX ROTHSCHILD ADDS NEW PARTNERS


Are You Rolling the Dice With Roll Playing Games?Some video games may actually be an unlawful form of gamingBy Ron Segev, Eric Stein and David McHugh

NEW DEVELOPMENTSIN ONLINE GAMING

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Traditionally, video game developersand publishers have kept their spheres ofoperation outside the world of real-moneyonline gaming. While that separation hasbeen decreasing, we have seen that ournon-gambling video game clients are stillelecting to stay away from real-moneyonline gaming. These clients explaintheir decision as being based on twoassumptions:

1. MMORPGs and FTP (Free toPlay) games offer a different entertainment experience, one not necessarily based on gambling mechanics.

2. MMORPGs and FTP games are not exposed to the risk andregulation affecting the iGaming world.

What if these assumptions are notcorrect?

A game by any other name…Sometimes what appears to be an innocu-ous video game may actually turn out tobe something else. Without a developereven knowing it, their game could containgambling elements, and, depending on thejurisdiction, that could be enough to landthem in hot water.

It’s not always easy to know whenyou’ve crossed the line into unlawfulonline gaming.

With some minor jurisdiction-depen-dent adjustments, the common law testused to determine if your video game isjust that, a video game, or a form of gam-bling and (i.e. a presumptively illegalgame) is made of up three elements:consideration, chance, and prize3:

1. Is there consideration? Did someone pay to play the game?

2. Is there an element of chance? Is there a systemic element ofchance in the game, such as theroll of dice or the dealing ofcards, which outweighs any element of skill in the game?

3. Is there a prize or reward? Doesthe game offer the player an opportunity to win a prize thathas a real world value?

Applying this common law test, onecan see how an online casino is clearly aform of gambling: the player places a bet(consideration), pushes a button to executea random spin of the reels hoping to landon a winning series of images (chance),and if lucky wins cash (prize).

Consideration, chance, and a prize.That’s all it takes for a “game” to becomea “gamble,” and therefore possibly unlaw-ful. Importantly, with respect to theelement of chance, the authorities are ingeneral agreement that if such element ispresent and predominates the determina-tion of a winner, the fact that playersmay exercise varying terms of skill isimmaterial.4

When the common law definitionof gambling arises in the video-game contextMany MMORPGs use a subscriptionmodel, which means players pay a monthlyor annual fee for access to the game. Typ-ically, the player will also have to pay aone-time fee to purchase a licence to installand play the game on their PC or console.Both of these payments can be viewed asconsideration.

Subscription-based, massively multiplayer online role-playing games(MMORPGs) have made successful game developers and publishersmassive amounts of money.

According to Superdata Research, World of Warcraft, the king ofMMORPGs, brought in over one billion dollars in revenue in 2013 for developerBlizzard Entertainment.1 The exceedingly popular free-to-play game League ofLegends earned revenue of $946 million over the first nine months of 2014 fordeveloper and publisher Riot Games.2

1 http://www.gamesindustry.biz/articles/2014-07-18-the-old-republic-earned-usd165-million-last-year-report, citing report by SuperData Research, Inc. (www.superdataresearch.com).

2 http://venturebeat.com/2014/10/23/the-10-highest-grossing-online-pc-games-in-2014-hearthstone-dota-2-cant-compete-with-league-of-legends/.

3 See Johnson v. Phinney, 218 F.2d 303, 306 (5th Cir. 1955). See also Morrow v. State of Alaska, 511 P.2d 127 (Alaska, 1973)(…“courts generally adopt a definition including three essential elements: consideration, chance, and prize.”).

4 Id. See also Federal Communications Commission v. American Broadcasting Co., 347 U.S. 284, 74 S.Ct. 593 (1954); State v. Wiley, 232 Iowa 443, 3 N.W.2d 620 (1942); State v. Coats, 158 Or. 122, 74 P.2d 1102 (1938); State ex rel. Dussault v. Kilburn, 111 Mont. 400, 109 P.2d 1113 (1941); State ex rel. Green v. One 5¢ Fifth Inning Base Ball Machine, 241 Ala. 455, 3 So.2d 27 (1941); Stanley v. State, 194 Ark. 483, 107 S.W.2d 532 (1937); State v. Langford,Tex.Civ.App., 144 S.W.2d 448 (1940); In re Allen, 27 Cal.Rptr. 168 at 169, 59 Cal.2d 5 at 6 (Cal., 1962)


MMORPGs also provide players withprizes in the form of virtual-items or loot.In fact, collecting these virtual items is oneof the main reasons players playMMORPGs. But are virtual, or in-game,items a prize for the purposes of determin-ing if a video game is in fact an illegal gam-bling-game?

As far as we know, no court hasdecided whether a virtual-item is a prize,but the reality is that virtual-items can beworth a lot of money. For example, theWorld of Warcraft virtual-item “Reins ofthe swift spectral tiger” currently sells for$431.12 USD on the website sse-games.com.5

World of Warcraft’s terms of use prohibitthe sale of “in-game items or currency for‘real’ money”6 but such efforts have been tono avail. Grey-markets abound for virtual-items and entire businesses are dedicated toobtaining virtual-items and then sellingthem for a handsome profit.

The question to ask then is whether acourt could find that the real world value ofvirtual-items – and the fact they are sold insecondary markets evidencing such value –makes them prizes. While at least one courtfound the existence of a secondary marketdid not elevate a virtual item to satisfythe element of “prize”, most U.S. caselaw appears to presume the element ofprize has been met by a cursory review.

Statutory law, however, is a differentmatter, where element of “prize” has beenconsistently defined as “something ofvalue”, meaning any “money or property,any token, object or article exchangeable formoney or property, or any form of credit orpromise directly or indirectly contemplat-ing transfer of money or property or of anyinterest therein, or involving extension of aservice, entertainment or a privilege ofplaying at a game or scheme withoutcharge.”7 Under this definition, we canclearly see how a MMORPG virtual item,which might be “exchangeable for money”would be seen as a “prize.” Also, it is imma-terial whether the ultimate prize is worthmore than the consideration paid for thechance to win it8. In essence, the prize mustbe “some advantage or inequality in amountor value”9 received by some of the playersof the game.

Of course, not all MMORPGs havetheir virtual-items sold on grey or black

markets, but for those that do, theirvirtual-items have a real world mone-

tary value, technically fitting thedefinition of “something ofvalue.” As a result, virtual-

items gained in a MMORPGthat can be sold for real money

can be considered a “prize”, satis-fying that element of the common

law test used to determine when avideo game could be deemed a gam-

ble. While no cases directly on pointhave been found, even though an

MMORPG may have terms and conditionsprohibiting the sale or trading or virtualitems, it does not appear that a MMORPGoperator has a legal obligation to pursueefforts to stop such actions. Though not a

direct corollary, it is worth noting that anaction filed against Craigslist regarding itsresponsibility for allegedly illegal contentwas dismissed.10 So the onus may not nec-essarily lie with a developer or publisher topolice and attempt to shut down third partyvirtual-goods markets. However there isalmost no judicial review on this exact pointand gaming professionals would be remissnot to keep an eye on this area.

The final question is whether the sub-ject MMORPG contains an element ofchance, and, if so, whether it outweighs theelement of a player’s skill in determiningthe outcome of the game.11 If this part ofthe common law test is met – and the othertwo elements of consideration and prize arepresent – the game is in fact a gamble.

Some subscription based MMORPGsuse a dice rolling system for the “dropping”and allocation of virtual-items. The processworks like this - Suppose you have acharacter in an MMORPG and you plan todefeat a monster. You plan to defeat thismonster because doing so could cause it todrop a valuable and rare virtual-item thatyou wish to acquire. However, there is noguarantee that the monster will drop thevirtual-item you desire. Rather, there is onlya probability that the monster will drop thedesired virtual-item. Unfortunately, there isa much greater probability that the monsterwill drop a less rare and less valuablevirtual-item instead. As a result, even if youdefeat the monster, there is only a chance thatyou will obtain the rare and valuablevirtual-item. To make matters worse,defeating this monster alone will be quitedifficult, if not impossible. You’ll need thehelp of other players, all also vying toobtain that rare and valuable item. So, yougather a team of other players, together youdefeat the monster, and lo and behold themonster dropped the desired virtual-item.But who gets it?

Every player wants the virtual-item,and every player contributed to the mon-ster’s defeat, but it only dropped one virtual-item and it can’t be shared. To deal with thisproblem, some MMORPGs roll a dice foreach player who contributed to the mon-ster’s defeat. Whoever gets the highest roll


Continued from previous page As far as we know,no court has decidedwhether a virtual-item is a prize, but the reality is that virtual-items can be worth a lot of money.

“

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is awarded the virtual-item. This dice roll for thevirtual-item, and whether the monster drops thevirtual item in the first place, unquestionably con-stitutes chance.

In the U.S., the legal status of subscriptionbased MMORPGs that use dice-rolling for theallocation and dropping of virtual items – andalso have grey or black markets for those virtual-items – is less clear. Does the chance element inthe video game outweigh the skill of the playeror players? This answer will vary based on thedesign of the game and the trier-of-fact assess-ing it. But the answer is important, as it maydetermine the legality of the video game.

Subscription based MMORPGs are illegal forms of gambling? Possibly.As far as we can tell, no game developer has everbeen convicted for developing and operating asubscription based MMORPG. Whether thismeans such video games are actually legal, or sim-ply that subscription based MMORPGs are lowon the radar of law enforcement, is not clear.

To mitigate the risk a video game is found toconstitute gambling, one of the three commonlaw gambling definition elements must be elimi-nated from the game’s overall scheme. Specifi-cally, this means removing items or scenarios,which can be viewed as either consideration,chance, or the prize. For example, a developermay be wise to develop free-to-play games as they(in theory) have no consideration. The problemis, if a game is truly free it can be hard to mone-tize, which is why most free-to-play games areactually “freemium” games. Freemium games arefree to play, but players often have to purchase up-grades for their characters to remain competitiveor to defeat more challenging characters andother obstacles.

Beware the in-game purchase optionThe in-game purchase option could be problem-atic. When a player purchases a more powerfulweapon with real money, and that weapon

increases their odds of overcoming an obstacle toobtain a valuable virtual-item the element of con-sideration is now present in what was a “free”game.

There is a solution to the problem faced byfreemium games. A game can actually still haveconsideration and award virtual items without thegame being a gambling game. To do so, the de-veloper needs to ensure the virtual item does notbecome a “prize.” Remember, a virtual item isprobably a prize if it becomes “something ofvalue.” Generally, a game’s virtual-item can onlyhave real world value if it there is a market atwhich it can be traded or sold. If it is impossiblefor players to sell or purchase virtual items fromother players, then the virtual-item would likelynot be deemed something of value, no longermeeting the definitions of a prize. Therefore, toprevent a virtual item from becoming a prize,developers need to find effective measures to pre-vent players from selling them. If this can beaccomplished the game will not be awarding any“prizes,” and would not be a gambling game.

Developers have used various strategies toachieve this result. Some games have a character’sinventory reset following the completion of agameplay session. This means that the characterretains none of the virtual items that it picked upduring the gameplay session. Since the characterretains none of the virtual items, there is noth-ing to sell, meaning that the virtual items have noreal world value and therefore are not prizes.Another strategy used is locking items to a player.When a player defeats an enemy and obtains anew virtual item, that item becomes locked to theparticular player who earned it, and cannot betraded to or used by other players. Here, since thevirtual item cannot be traded – or sold – it has noreal world value and again is probably not a prize.This strategy may be attractive for the players, asthey get to develop their character over manygameplay sessions, and simultaneously keeps thedeveloper on the right side of the common lawgambling definition’s prize element.

5 https://www.sse-games.com/wow-items6 S.8 World of Warcraft Terms of Use <http://us.blizzard.com/en-us/company/legal/wow_tou.html>7 NJ Rev Stat § 2C:37-1(d) (2014); See also Ala. Code § 13A-12-20(11) (2014).8 See Charles Pickett, “Contests and the Lottery Laws” (1932) 45 Harvard Law Review 1196 at 1207, cited in Carnival Games: Walking the Line

Between Illegal Gambling and Amusement, J. Royce Fitchner, Drake Law Review, Vol. 60, 2011.9 See Carl Co. v. Lennon, 148 N.Y.S. 375, 376 (Sup. Ct. 1914).

Ron Segev is a Partner of SegevLLP, a business and technology firmwith a focus on gaming law. The firmassists an international roster ofgaming and non-gaming clients withregulatory, compliance, commercial,IP, corporate, finance and other legalneeds. Ron is a technology and business lawyer specializing in gaming law. Ron is also a GeneralMember of the International Masters of Gaming Law.

Eric Stein is Special Counsel with Segev LLP. Eric is a licensedattorney in Colorado and Illinois andis admitted to the Arizona FederalBar and the U.S. Supreme Court andsoon to be licensed to practice law inBritish Columbia, Canada. Eric is abusiness lawyer with experience assisting gaming clients. Eric waspreviously General Counsel for theUte Mountain Ute Tribe in South-west Colorado for seven years, andwas heavily involved in all aspects of the Tribe’s successful Class IIIgaming operation.

David McHugh is a Law Clerk withSegev LLP and expects to be licensedto practice law in British Columbia in2016. In his spare time, which he willsoon have less of, David is an avidvideo gamer.



Ron Segev


We should restate our earlier viewthat, currently, it is unlikely that a pub-lisher or developer would be requiredto police and attempt to shut downthird-party virtual-goods markets;therefore it is currently unlikely thatvideo game companies would be foundresponsible for activities on thosemarkets.

The rest of the worldOf course, offering your games onlinemeans offering them to the world, sodevelopers and publishers must also besensitive to jurisdictions outside the U.S.

In Canada for example, “prize” hasbeen defined as being money or money’sworth.12 Money’s-worth can be propertythat has monetary value. For example, inthe United Kingdom case Secretan v Hart,money’s worth is defined as:

“a way of expressing the price orconsideration given for propertywhere property is acquired in returnfor something other than money,such as services or other property,where the price or considerationwhich the acquirer gives for theproperty has got to be turned intomoney before it can be expressed interms of money.”13

In Canada and the UK, any chance atall is enough to make the game a gamble ifthe other two elements are also present.So, in Canada and the UK, subscriptionbased MMORPGs that use dice-rolling forthe allocation and dropping of virtualitems and that also have grey or blackmarkets for those virtual items mayactually be gambling-games. All threeelements of a gamble are present: the sub-scription is consideration, the dice rollingfor allocation of virtual-items is chance,and the monetary value attached to thevirtual-item by virtue of grey or blackmarkets may make the virtual-item a prize.

Jurisdictional adjustment is neces-

sary when evaluating the element ofchance in a game when offering yourgames to other jurisdictions. Comparedwith the U.S., Canada and the UK take a

simpler, albeit more restrictiveapproach to the chance element. Inboth these jurisdictions, no weighingof chance and skill is necessary.Instead, the courts and law enforce-ment need only ask if there is anyelement of systemic chance in thegame, however small. If there is, the

game will be a game of chance.The Supreme Court of Canadamade this clear when it heldthat “Parliament intended to

avoid the uncertainties involved indetermining what is the dominant ele-ment and deliberately chose to include inthe definition of ‘game’ all mixed games[of skill and chance] as well as games of[pure] chance.”14 In the UK, theGambling Act 2005 defines games ofchance (i.e., illegal gambling-games) asincluding “a game that involves both anelement of chance and an element ofskill” and also “a game that involves anelement of chance that can be eliminatedby superlative skill.”15

A subscription based MMORPGpublisher should have a closer look at thegames from a legal perspective. Some de-sign choices with regard to pricing modelsand game mechanics – and how law en-forcement or the courts in jurisdictionsaround the world might view them –should be evaluated prior to taking thegames live. Failing to properly evaluate thesubscription-based MMORPG games forpotential iGaming legal issues could be thebiggest gamble of all. �

10 See Thomas Dart, Sheriff of Cook County v. Craigslist Inc., 665 F. Supp. 2d 961 (N.D. Ill. 2009).11 See In re Allen, 27 Cal.Rptr. 168 at 169, 59 Cal.2d 5 at 6 (Cal., 1962) (“The term ‘game of chance’ has an accepted

meaning established by numerous adjudications. Although different language is used in some of the cases indefining the term, the definitions are substantially the same. It is the character of the game rather than a particu-lar player’s skill or lack of it that determines whether the game is one of chance or skill. The test is not whetherthe game contains an element of chance or an element of skill but which of them is the dominating factor in determining the result of the game.” (Emphasis supplied.).

12 R. v. Dwyer, 1999 at para 1, 121 O.A.C. 298 (Ont. CA).13 Secretan v Hart, [1969] 3 All ER 1196 at 1199.14 Ross, Banks and Dyson v R., [1968] SCR 786 at 792.15 ss. 6(2)(a)(i)-(ii), UK Gambling Act 2005, c 19.


A subscription based MMORPG publishershould have a closer lookat the games from a legalperspective. Some designchoices with regard to

pricing models and gamemechanics–and how law enforcement or thecourts in jurisdictionsaround the world might view them–should be

evaluated prior to taking the games live.

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Misprinted Tickets Almost AlwaysResult in Non-PaymentSuch a circumstance has played out inmany lottery jurisdictions around thecountry in recent years. Lottery opera-tors in Connecticut,1 Florida,2 Georgia,3

Massachusetts,4 New Mexico,5 NewJersey,6 New York,7 Rhode Island,8 andWisconsin,9 just to name a few, have allhad to address this issue. Lottery oper-ators in these states have dealt withlitigation, media coverage, or both, insituations where players have arrived attheir door with what they believed to betickets valued up to $5 million and ineach of these states the player was senthome without a dime.

The word “misprint” pretty clearlydescribes the situation in which these un-lucky players find themselves. The ticketappears to indicate that they have won asignificant sum of money when in fact,in Florida most recently, their number“1” was actually a literal unlucky “13.”

In that case, Mr. Curcio of CentralFlorida purchased a $20 “Gold Rush”scratch-off lottery ticket in May of 2007.Consistent with the vast majority ofscratch-off style lottery games, the ticketindicated that he must “Match any ofYOUR NUMBERS to any of the WIN-NING NUMBERS” to win the prizeshown for that number. One of the“YOUR NUMBERS” was a “1 – ONE,”

and it is critical to keep in mind that boththe numeral itself and the spelling, orabbreviated spelling, of each number isplaced below both “YOUR NUMBERS”and “WINNING NUMBERS” on everyticket. One of the “WINNING NUM-BERS” on the ticket also appeared to bea “1-ONE,” with a value of $500,000, butthe caption under the number includedthe letters “TH” and a partial “N,” Thiswould indicate that the number thatappeared to be a “1-ONE” was actually a“13-THRTN,” which was not one of thenumbers included in “YOUR NUM-BERS” on Mr. Curcio’s ticket. Mr. Curcio

Most people who play the lot-tery dream of one day hit-ting it big, making the call to

their boss that they won’t be in to-morrow (or ever again), or buyingthat fancy car they’ve always hadtheir eye on. For most players, thatdream never turns into a reality, andthe lucky ticket never ends up in theirhand. Imagine for a moment that youactually had the dream cometrue…only to later find out that it wasall a misunderstanding, or a “mis-print” as the lottery industry hascome to describe the situation.

“Misprinted” Lottery Ticketsand the Disappointment of a Non-Winning Ticket

By Dan Russell


NEW DEVELOPMENTSIN LOTTERIES

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and his family genuinely believed that theyhad finally hit it big.

As such, Mr. Curcio visited the retailerfrom whom he had purchased the ticket tovalidate that his ticket was a winner. Con-fusingly, he was told that he had not wonanything. He then went to the Lottery’sheadquarters in Tallahassee in an attemptto claim his $500,000 prize. Upon arrival,the Lottery refused to pay the prize be-cause it was not able to validate the ticketas a winner in its system.

Three years later, still not havingbeen paid a prize, Mr. Curcio sued theLottery, raising legal theories includingbreach of contract, equitable estoppel, un-fair and deceptive trade practices, mislead-ing advertising, and promissory estoppel.All such claims were anchored in theLottery’s refusal to pay the $500,000 prizedespite what appeared to be matchingnumbers on the ticket. The relevantFlorida Statutes and Administrative Reg-ulations provide the following:

“No prize may be paid arising fromclaimed tickets that are…producedor issued in error, unreadable…lacking in captions that confirm andagree with the lottery play symbolsas appropriate to the lottery gameinvolved…” Section 24.115(1)(c),Florida Statutes.

“The validation number of an appar-ent winning ticket must validate onthe Lottery’s gaming system andmust not have been previously paid.”Rule 53ER06-4(11)(g), FloridaAdministrative Code.

“The ticket must pass any additionalconfidential validation tests deter-mined necessary by the Florida Lot-tery.” Rule 53ER06-4(11)(i), FloridaAdministrative Code.

“Any ticket not meeting the criteriaset forth in paragraphs (11)(a)through (i) above is ineligible for anyprize and shall not be paid as a win-

ning ticket. In the event a defectiveticket is purchased, the only respon-sibility or liability of the FloridaLottery shall be the replacement ofthe defective ticket with an unplayedticket or tickets of equivalent salesprice from a current Florida Lotterygame, or refund the retail salesprice.” Rule 53ER06-4(11)(j),Florida Administrative Code.

The trial court granted judgment onthe pleadings in favor of the Lottery on theequitable estoppel claim and granted sum-mary judgment in favor of the Lottery onall of the other claims. In affirming thetrial court’s position, the First Districtstated that “…on the merits, the trialcourt correctly noted that because ‘thenumbers didn’t match…[and the Lottery]did not fail to deliver on that promise [topay a prize] as a matter of law.’”

A Rare Exception to the Non-Payment RuleIn January of 2009 a lottery player inCanada looked to meet a similar, unpaid,fate as Mr. Curcio from Florida. ThomasNoftall purchased several “Fruit Smash”scratch-off tickets from a retailer in

Ontario and believed that he had won atotal of $135,000 from four apparentwinning tickets. Upon his arrival at theOntario Lottery and Gaming Corporation(“OLG”), however, Mr. Noftall was noti-fied that his tickets were actually non-winners and that there were in fact asmany as 1,100 misprinted “Fruit Smash”tickets that were part of a recall. Within afew days, more than a dozen people hadcome forward with misprinted “FruitSmash” tickets claiming to be winners,none of them were paid either.

Mr. Noftall’s story differs from thatof Mr. Curcio and the other players inOntario in that, before arriving at the OLGhe called in and asked if there would be apayment made if there was an error on thetickets, he was clearly and told there wouldbe. OLG acknowledged in a release to themedia that this “was an erroneous state-ment.”10 That phone call, and the “erro-neous statement” made during the courseof it, when combined with being told thathe would not be paid by the OLG once hearrived at its headquarters, led Mr. Noftallto immediately hire an attorney and takehis story to every media outlet he couldfind.

Ontario’s rules relating to paymentof misprinted tickets is essentially thesame as all other lottery jurisdictions:

The Corporation will not award aprize for tickets which are voidunless the Corporation, in its discre-tion, deems it appropriate to do so.Tickets are void if lost, stolen, unis-sued, illegible, mutilated, damaged,altered, counterfeited or forged,miscut, misregistered, defective,misprinted, cancelled, produced inerror and not recorded in the on-linesystem, incomplete, not paid for,destroyed or issued, acquired orpresented, in, or upon, violation ofthe Act, the Regulations, these Rules,or the Game Conditions. Void tick-ets are the property of the Corpora-tion. Section 5.16, Rules RespectingLottery Games, Ontario Lottery andGaming Corporation.

Continued from previous page Billions of scratch-off lottery tickets are printedevery year and, even

with the most elaboratesystems available,

errors will occasionallyoccur. It is critical for thelottery industry, includinggovernment operators,vendors and retailers, to continue to work diligently to minimizesuch issues and also

to quickly address thesesituations when they inevitably arise.

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NEW DEVELOPMENTSIN LOTTERIES

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Based upon the clear reading on thislanguage, the tickets presented were “void” as theyqualified as both “misprinted” and “produced inerror.” Clearly, the OLG was not required to payMr. Noftall his prize.

However, citing the “direct miscommunica-tion” by its staff, and Mr. Noftall’s apparent abil-ity to activate the media and public support in hisfavor, the OLG actually settled with Mr. Noftalland “made him a payment in acknowledgment ofthat pain and suffering.” The amount of the set-tlement was not made public and given theopportunity to discuss it, Mr. Noftall’s attorneysimply stated “[h]e’s accepted the gracious apolo-gies by OLG and is sufficiently happy with theresult and he will continue to play OLG lotto tick-ets.” He certainly wasn’t paid the full value of thetickets, but the lottery acted quickly to quiet anangry player who had made the media well awareof his situation.

Advice for Lotteries and Caution to LawyersBillions of scratch-off lottery tickets are printedevery year and, even with the most elaboratesystems available, errors will occasionally occur.It is critical for the lottery industry, including gov-ernment operators, vendors and retailers, to con-tinue to work diligently to minimize such issuesand also to quickly address these situations whenthey inevitably arise. Lottery players seem willingto accept the one-in-a-billion nature of ticket mis-prints and have continued to purchase tickets at agrowing rate. However, if misprints begin to

occur at a more regular rate, the integrity of thescratch-off lottery ticket could be jeopardized.

For lawyers representing clients with mis-printed tickets, the first thing to realize is thatthe likelihood of a client being paid full valuefor his or her “winning” ticket hovers at oraround zero percent. Lawyers in this situationhave multiple issues working against theirclient, including the fact that trial and appellatecourts have consistently rejected breach of con-tract claims by players over misprinted lotterytickets. In addition, lotteries have language forall of their games that deem misprinted orerroneous tickets as void, entitling a client onlyto a refund of the price paid for the ticket or theissuance of a new ticket. It may be a best-prac-tice to follow Mr. Noftall’s lead and work withthe media in the hope of settling the matterwithout resorting to litigation. �

Dan Russell

Dan Russell is special counsel inJones Walker LLP and his practice focuses on civil and administrative litigation, gaming,and governmental law. He mostrecently served as General Counselof the Florida Lottery where hemanaged the legal affairs of the Lottery’s $5.5 billion operations.In addition to handling procure-ments, bid protests, state and federal litigation, and other legal matters for the Lottery, Mr. Russell spearheaded the creation of Florida’s Lottery Retailer Integrity Program.

Lottery players seem willing to accept the one-in-a-billion nature

of ticket misprints and have continued to purchase tickets at a growing rate. However, if misprints begin to occur at a more regular rate, the integrity of the

scratch-off lottery ticket could be jeopardized.

1Plourde v. Conn. Lottery Corp., 2000 WL 1918014 (Conn. Super. Ct. Dec. 18, 2000) (granting summary judgment in favor ofstate lottery agency on breach of contract claim because state law prohibited payment on tickets printed in error and the ticketat issue contained game symbols 6 and 9 that resembled the winning number 8 but the captions below such symbols read “six”or “nine”).

2 Curcio v. Dep’t of the Lottery, Case No. 1D14-2324 (Fla. 1st DCA 2015), Opinion filed May 27, 2015.3 Ga. Lottery Corp. v. Sumner, 529 S.E.2d 925 (Ga. Ct. App. 2000) (holding that state lottery agency did not breach contract in

determining that scratch-off ticket was not a winner because the mark on the ticket that resembled the winning symbol re-sulted from a printing error).

4 Ruggiero v. State Lottery Comm’n, 489 N.E. 2d 1022 (Mass Ct. App. 1986) (reversing decision in favor of plaintiff who claimedto have won a $100,000 prize on scratch-off lottery ticket because evidence showed that the ticket had been misprinted andcould not be validated as a winner as required by applicable statutes and rules).

5“Roswell man told $500k winning lottery ticket a ‘misprint.’” KOB Eyewitness News, January 2, 2015.6“A ‘C’ or an ‘O?’ Lottery Ticket Dispute Costs Woman $50,000.” NBC News – Philadelphia, February 5, 2015.7Consola v. New York, 84 A.D. 3d 1557 (N.Y. App. Div. 2011) (affirming summary judgment in favor of state lottery agency thatrefused to pay a $5 million prize because the disputed ticket contained an illegible play symbol caption resulting from a mis-print that made it appear that one of the numbers was a 6 when it was actually a 26).

8Valente v. Rhode Island Lottery Comm’n, 544 A.2d 586 (R.I. 1988).9 “Man Fights Wisconsin Lottery over misprinted tickets.” Tribune Wire Reports, July 29, 2014.10“OLG worker’s mistake leads to payout to man with misprinted lottery tickets.” CBC News – Toronto, January 7, 2009.

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Each year, International Masters of Gaming

Law (IMGL) recognizes outstanding reg-

ulators based on stringent standards,

including preeminence in the regulatory

field and their noteworthy contributions to the over-

all body of regulatory work.

The regulators are selected from various

jurisdictions internationally based on a rigorous

nomination and review process with a possibility of

a regulator being chosen from each jurisdiction.

The categories are Europe, North America, South

and Central America, Australasia, Indian Country,

and Evolving Jurisdictions. A regulator is not nec-

essarily chosen from each category in each year.

They are selected only if they receive the required

nomination and meet the demands of the review

procedure.

The specific criteria for the selection process

include that the overall body of work as a regulator

be exceptional and that the regulator make contri-

butions to the gaming industry as a whole while

demonstrating noteworthy achievements in the

regulation of the industry. The nominee must also

provide a stable regulatory environment in the juris-

diction, be identified as a person of high integrity,

and demonstrate service to the community.

Through this annual selection process, IMGL

continues its mission of “advancing gaming law

through education” by selecting regulators who

reflect a similar mission in their management style

while serving as role models in the regulatory envi-

ronment. This year’s recipients of the award for

IMGL Regulator of the Year certainly reflect these

characteristics in their professional approach to the

task of regulating a diverse gaming market. They

are Mark Ostrowski, Regulator of the Year, North

America; Jenny Williams, Regulator of the Year,

Europe; and Manuel San Roman Benavente,

Regulator of the Year, South and Central America.


REGULATORS OF THE YEAR

By Sue McNabb

2015


Mark Ostrowski has spent the past fourteen years with theIllinois Gaming Board (IGB), first as the Chief LegalCounsel of the IGB from 2001 to 2005. In 2005, he

became the Administrator/Executive Director of the IGB,responsible for the day-to-day operation of regulatory and crim-inal law enforcement oversight for the Illinois casino and videogaming industries. Prior to joining the IGB, he worked in privatelaw practice with the Chicago law firm of Clausen Miller, PC,from 1999 to 2001. Mr. Ostrowski started his legal career as aprosecutor with the Cook County State’s Attorney’s Office from1990 to 1999. He worked a majority of his career within the felonytrial division. Mr. Ostrowski has spent twenty-six years as a trialattorney and regulator. He is a graduate of Creighton University,Omaha, Nebraska, receiving a Bachelor of Science degree in busi-ness administration in 1986 and a Juris Doctorate in 1989.

In a recent interview, Mr. Ostrowski stated that the high-lights of his regulatory career thus far include bringing the Emer-ald litigation to an acceptable conclusion after over ten years oflegal battles, thus allowing the tenth Illinois Riverboat license tobe activated. Another accomplishment of which he is proud isgetting video gaming in Illinois implemented and activated withinthree years of introduction of the 2009 legislation. In these threeyears, the IGB had “no funding, no resources, no staffing, no in-frastructure.” By 2012, under his directive, Illinois went from novideo gaming to transforming a former amusement industry intothe present video industry operating approximately twenty-onethousand machines in over five thousand locations, becoming oneof the largest video gaming jurisdictions in the world. He andhis team accomplished this feat by developing a comprehensiveset of rules, putting a central system in place, and providinga regulatory perspective to the former “grey games” of theamusement industry. A fellow regulator, recognizing the difficultmarket in which Mr. Ostrowski regulates, stated, “Mark and histeam recognized the legislation’s shortcomings and workedclosely with communities, local retail establishments and theindustry to maximize the legislative intent as much as possi-ble.” Another associate stated, “with the implementation of videogaming, Mark successfully introduced an entirely new gam-ing industry to Illinois, all while maintaining effective regulationof the ten riverboat casinos in the state.”

Other accomplishments include transforming three river-boats into “land-based like casinos” and rebuilding two riverboats

after the devastation of fire and flood. According to one fellowregulator, another accomplishment is “ensuring effective regula-tory programming on the issue and the promotion of problemgambling treatment for those in need.” Further, Mr. Ostrowski’srecognition of this critical issue “speaks to his judgment in gam-ing regulation and in maintaining the best interests of the public.”He is also responsible for administering one of the country’s mostsuccessful self-exclusion programs. Established during his tenurein 2002, over twelve thousand people are getting help with theirgambling problem through use of the voluntary exclusion pro-gram. An associate stated, “Mark leads the effort to coordi-nate with the Illinois Department of Human Services toensure that the latest research is reflected in all IGB programs forresponsible gaming. Additionally, Mark assisted in executingan important new law in Illinois to intercept delinquent childsupport payments from the winnings of casino patrons.”

Addressing the challenges he has faced, Mr. Ostrowski statedthat one challenge as a regulator is working with the videoindustry to teach and educate about the value of a compliance-based industry. Other challenges and accomplishments includehis “developing working relationships with professionals in theindustry, having them understand that regulatory and criminallaw enforcement oversight is not personal; it is about developinga sense of fairness in the industry. If a licensee does somethingwell, we give them credit for it; if they make mistakes or engagein poor conduct, we hold them accountable and responsible.”His style is to regulate firmly but to be flexible to adapt to uniquesituations. He believes that communication between the regula-tors and the regulated is key to positive results. At the end ofthe day, he is hopeful that the industry he regulates will say that“Mark Ostrowski is fair.” �

Regulator of the Year 2015NORTH AMERICA

Mark OstrowskiAdministrator/Executive Director,

Illinois Gaming Board


Mr. Manuel San Roman Benavente began his careeras a regulator in 1995, regulating the telecommu-nications services in Peru where he held the

position of President of the Court of Users of Tele- com-munications Services for fifteen years. From there, he wasinvited to lead Management of Gambling and Slot Machi-nes, the regulatory branch of the Ministry of Foreign Tradeand Tourism, where he began his laudable career as agaming regulator. Other importantpositions held by Mr. San Romaninclude acting as a Manager of Inter-bank in Peru and Plant Manager ofEntel in Peru. He received a degree inelectronics engineering from the Uni-versity Ricardo Palma de Lima, Peru,with study at the University of NewYork, specializing in telecommunica-tions, and studying as well managementand arbitration which have served himwell in his endeavors as a regulator.

According to Mr. San Roman,when asked to join the gaming indus-try, he had difficult moments of doubtbecause of the lack of structure andprevalent illegality in the industry atthe time. He stated, “Definitely thecatalyst to enter the gaming industry as a regulator was thechallenge to direct— and perhaps an excessive level of con-fidence that if things were done properly, the agency couldbecome an example for other activities.” He accepted thechallenge, putting order to an activity that was largely

stigmatized by the game itself and the condition of illegal-ity therein. He put together an excellent team with whom hestill works today. Those early days of illegality and dangerare now just memories of a past that has been overcome andwhich nobody wants to see return.

Regarding his achievements in theindustry, Mr. San Roman stated thatwhen he began to regulate slot machineactivity, less than 5% of the slot machineactivity was legal. In December 2010,the legalization and licensing of the ac-tivity was completed, a task that hadseemed daunting until then. After thisearly stage of formalizing relevant legis-lation such as the system to preventmoney laundering, interconnection of allthe slots with the regulating agency, andincorporation of other rules, the frame-work is now respected by the operatorsand business executives alike. Mr. SanRoman attributes the success of the pro-gram to the principles of transparency,

legality, and equal treatment. A colleague said of his accomplishments, that Peru is

the first country in Latin America to establish a server-based slot machine system, the first to establish strong andspecific regulations regarding compulsive gambling, and the

Regulator of the Year 2015South and Central America

Manuel San Roman BenaventeGeneral Director of Casino Games and Slot Machines,

Ministry of Foreign Trade and Tourismof the Republic of Peru

Definitely the catalyst to enter thegaming industry as a regulator was the challenge to direct—

and perhaps an excessivelevel of confidence thatif things were done properly, the agencycould become an example for other

activities.

“

”


first to regulate an online control system for slot machineson a national level. He said, “All slot machines in Peruare required to have an online control system linked with acentral computer of the PeruvianGaming Authority and Tax Author-ity. There is no other economic activ-ity in Peru with this kind of strongcontrol.”

Mr. San Roman stated that thereare two aspects of regulating thathave made a difference in gaming ac-tivity and his own achievements:structuring and formalizing casinogames and slot machines and the con-nectivity of all slot machines to hisagency, which ensures proper controland surveillance. During this processand with proper regulation, he sawthe real income from gaming grow by500%. Today, many of the recognizedgiants in slot manufacturing arelicensed in Peru, including Konami,Bally, IGT, Merkur, Austrian GamingIndustries, JVL Gaming, and Spielo, among others. Mr. SanRoman has gradually gotten to know people in the industry,whose respect he has earned by his principles of trans-parency, legality, and equal treatment.

As a regulator, he applies clear, consistent standards,which he intends to serve as an example of regulated activ-ity for his country and thereby to strengthen regulationoverall. He says that treating all operators without anydifferentiation instills confidence in the regulator. This con-fidence extends even to commercial areas, where his expert-ise is sought to act as a conciliator to mediate and fulfillagreements. Another colleague stated that under Mr. SanRoman’s leadership, confidence of investors in Peru hasgrown. He emphasized that “you can trust the gamingauthority.”

Asked what he considered the greatest challenge to reg-ulators in general, Mr. San Roman stated that it is the broadspectrum of the industry incorporating computing skills,electronics, and telecommunications, all of which are aspectsthat change with technological innovation. To him, regula-tion should adapt to technological innovation and new prod-

ucts, provided they are certified and approved. Another im-portant challenge is to maintain the legality of the gamblingfacilities. Any sign of illegal activity should immediately

be stopped to instill confidence ininvestors operating under the protec-tion of the laws and to instill trust inthe regulator. The best advice he cangive to regulators is to rely on thelaws and not to lose confidence,remaining aware that gaming is anactivity that is often stigmatized bysociety. Also, a regulator must have anopen-door policy with citizens sincethey know the industry from the con-sumer perspective.

When asked to share a meaning-ful event, he stated:

In Peru there is an associationcalled All Citizens Day, composedof prominent citizens. Everyyear this association rewards suc-cessful experiences of govern-

ment entities. In 2010 the General Management ofCasino Games and Slot Machines of the Ministryof Foreign Trade and Tourism was awarded in thecategory of Inspection and Law Enforcement,recognizing the agency’s work as an example wor-thy of emulation. This recognition provided agreat incentive for not only my staff but also for thelicensees who recognized the importance of theaward.

Mr. San Roman shared with IMGL members andindustry executives and operators a bit of his well-earnedwisdom, stating, “The regulation of games covers differentlegal specialties such as corporate, administrative, criminallaw, and others. Perhaps the best advice to give gamingattorneys is to continue to provide legal advice that allowsregulators to keep modern legal frameworks in line withtechnological advances, always defending the principles oftransparency, reliability, predictability, honesty, and protec-tion of vulnerable groups.” �

Perhaps the best advice to give gaming attorneys is to continue

to provide legal advice thatallows regulators to keepmodern legal frameworks in line with technological

advances, always defendingthe principles of

transparency, reliability, predictability, honesty, and protection of vulnerable groups.

“

”


Commissioner Jenny Williams’ outstanding careerspans decades in public service and regulating. Hercareer includes posts in six government departments

including water and rail privatization, local governmentfinance, public sector housing, and business taxation, culmi-nating in being the first non-lawyer Director General andboard member at the Lord Chancellor responsible for theJudicial Group which managed judicial appointments andpersonnel issues.

In 2004, she was appointed to establish and run the UKGambling Commission to regulate all commercial gamblingother than spread betting and the national lottery. By 2006,when the Commission moved from London to Birmingham,it had expanded from sixty to the almost three hundredemployees needed to accomplish the daunting task by 2007of relicensing casino, bingo and machine suppliers andlicensing over two thousand betting and arcade operatorsfor the first time.

Under Jenny Williams’ leadership the Commissionthen made significant improvements in the prevention ofunderage gambling, reducing the supply of illegal machines,and tackling sports betting corruption. It also securedimprovements in the approach to research, education andtreatment for problem gambling and supported the govern-ment in securing the policy change to point-of-consumptionregulation of remote gambling in 2014.

After a first class honor’s degree in economics atCambridge, Mrs. Williams worked as an economic advisorto the zambian government before undertaking socialpolicy research at Nuffield College, Oxford. She was a non-

executive director of a water utility and is currently vicechair of a leading homelessness charity. Among her notablerecognitions was receiving the Lifetime Achievement Awardfrom IAGA for her exceptional contribution to the world ofgaming in 2015.

Commissioner Williams said of her early introductionto the gaming industry that when invited to interview forthe CEO position, “I had literally never been in any licensedgambling premises in my life. I spent the week before the in-terview racing round casinos, bingo halls and betting shops.”Evidently, she qualifies for the marathon in achieving herquick study of the industry.

She stated, “In 2013 we took over responsibility for reg-ulating the National Lottery, and in 2014, with the 2014revision to the 2005 act, we became responsible for licensingand regulating overseas operators operating in GreatBritain.” The commission now has about three thousandlicensees and oversees a domestic market (including thenational lottery) of well over £10 billion in gross gamblingrevenue net of prizes. Commissioner Williams has indeed“guided her country through an unprecedented period ofgrowth and modernization.”

In an interview for this profile, when asked if she hada moment of realization that she wished to join the gaming

Regulator of the Year 2015Europe

Jenny WilliamsCommissioner and Chief Executive,

Gambling Commission, Great Britain


community, her candid response was, “Not really. I had leftthe civil service and was starting to pursue a portfoliocareer when a city commercial lawyer I had come to likeand respect while working in rail privatisation, told me hehad become a gaming board commissioner, and that it wasa truly fascinating industry. Heinformed me that they would shortlybe looking for a CEO for the newgambling commission. I am not sureI would have seen the gambling in-dustry as where I wanted to be for thenext decade, but he was absolutelyright: it is a fascinating industry.”

For Jenny Williams, her greatestchallenge as a regulator has been therange and complexity of issues, span-ning a spectrum from the individualbookie to some of the world’s largestlicensed remote gambling operators,from lotteries to in-play betting,sports betting corruption and fantasyfootball, and the impact of techno-logical developments. For her, it is achallenge to try to anticipate and toprepare to deal with emerging risksto players or to the public interest.

Regulating is, to Commissioner Williams, also find-ing the right balance between getting to know and under-stand the industry subjectively and maintaining theobjectivity and degree of distance necessary to act in thepublic’s and not the industry’s interest “except to theextent they coincide.” Also related to achieving the rightbalance in regulating, she emphasizes the importance of“determining the minimum level of regulatory intrusion orburden consistent with ensuring ‘reasonable consistency’with the licensing objectives of keeping crime out of gam-bling, keeping gambling fair and open, and protecting theunder age and vulnerable.”

To regulators in general, Commissioner offered hersage advice to keep listening to each other and trying tounderstand the key commercial and regulatory pressures.Her opinion of effective regulating is that it should go withthe grain of the industry being regulated so far as possi-ble. Likewise, the industry needs to understand andgenuinely respect the political and societal context inwhich they are trying to trade. “Mutual respect and

understanding of the very different roles goes a longway to helping make regulation work for society and theindustry.”

Displaying her wit and sense of humor, Mrs.Williams told of her early days in the commission when

many bookmakers resented thenew commission and its authority.“One irate operator got in touchwith a licensing officer who hap-pened to be a woman, didn’t likethe advice he was given, demandedto speak to her manager, and thenher manager and then the Directorof Licensing, all of whom werewomen. Finally in exasperation atnot getting the answer he wanted,he demanded to speak to the CEO.He was told, ‘fine we will get herto call you back.’ ‘Not anotherbloody woman,’ he replied,slammed the phone down, andnever called the commissionagain.” She said, “I quite like theidea of ‘another bloody woman’ onmy tombstone and of handing myposition over to one, my successor

Sarah Harrison.”Concluding the interview by asking Commissioner

Williams to share advice with the readers of IMGL’s fivepublications, she promptly responded, “I don’t think theyneed advice from me.” She stated, “I have always valuedthe exchanges I have had with your members and the wayyou can very often have a sensible ‘without prejudice’discussion about current issues with the industry lawyersand advisers. You can get a much better understanding ofwhat is at stake or why people are taking the line that theyare and get honest feedback on the commission’s perform-ance. This candid dialogue is often difficult for operatorswhen they are worried about upsetting the regulator.”But of the licensees, she says she is endlessly optimistic,knowing that the companies try to do the right thingbecause of the value of the license and the company’s rep-utation. “If a company sees a risk to its license and thatthey can do things better, they will.”

For Jenny Williams, her greatest challenge as a regulator has been the range and complexity of issues, spanning a spectrum from the

individual bookie to someof the world’s largest

licensed remote gamblingoperators, from lotteriesto in-play betting, sportsbetting corruption and fantasy football, and

the impact of technologicaldevelopments.

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IMGL Masterclass at OFXGTV & Af�liaTV ConferenceNovember 29, 2015Tel Aviv, Israel

IMGL Masterclass at Malta iGaming Seminar (MiGS)November 16-19, 2015St. Julians, Malta

online gaming: are you rolling the dice with roll …dialogue between industry players, regulators...

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