Skill Gaming in the United States1
By: Dennis M. P. Ehling, Blank Rome LLP
June, 2013
Introduction
The purpose of document is to explore the legalities of cash-based online gaming in the
U.S., focusing on skill tournaments for online and mobile games, then subsequently addressing
the ways in which CashPlay.Co is operating their services outside of gambling legislation in the
United States.
Background
Gambling laws in the United States have a long history of development from minimal
proscriptions in the 1800’s, to near total prohibitions in the early 1900’s, to the current era of
modern licensed gambling businesses which today offer casino gambling (either full table and
slot, slot only, or video lottery terminal) in approximately 35 states. In addition, state-sponsored
lotteries are currently run by 46 jurisdictions: 43 states plus the District of Columbia, Puerto
Rico, and the U.S. Virgin Islands. Despite the proliferation of legal gambling in the United
States, the general legal attitude towards gambling in the U.S. is one of prohibition: i.e. all
gambling of any kind is presumptively prohibited (and subject to criminal prosecution) unless
specifically authorized by state law.
In addition, in the online world away from the bricks-and-mortar gambling hall, only
three states currently authorize gambling within their borders over the Internet or other network
systems: Delaware, Nevada, and New Jersey.2 Of these, only Nevada currently allows persons
within its borders to gamble online (limited to online poker only); Delaware, which will be a
project of the state lottery, has promised to launch online poker later this year; New Jersey is
expected to become the first state to legalize full casino-style gambling online in the Fall of
2013. In Delaware, only the state lottery is authorized to offer any form of online gambling to
persons present in the state. In both Nevada and New Jersey, online gambling can only be
offered to persons present in each state by an existing, licensed bricks-and-mortar casino
operator who has obtained an additional permit to offer online gambling.
Against this backdrop, skill gaming online is developing as a way for operators to offer,
and customers to play, games online for a chance to win a prize without violating state gambling
laws. Where permitted, and when properly organized and operated, such games can avoid the
stigma and legal prohibition of “gambling” under applicable laws. Although there are certain
Federal laws directed toward prohibiting certain forms of gambling across the nation (e.g.
1
This summary is prepared exclusively for the information and purposes of Sugarhill Limited doing business
as “CashPlay.Co.” No other person or entity may rely on the statements or opinions set forth herein without the
express written agreement and consent of Blank Rome LLP.
2
Other states, including Illinois and New York, sell traditional state-sponsored lottery tickets online but do
not currently permit any other form of gambling online.
lotteries not sponsored by the states, sports wagering outside of Nevada and limited other
jurisdictions, and sports wagering online), the Federal government historically has left the
regulation of gambling are to the individual States. This White Paper explores the legal
foundations for skill gaming under relevant Federal and State laws.
Federal Laws
As noted, gambling in the United States has not historically been extensively regulated by
Federal law. In the realm of online gaming, however, there are three Federal laws which do
come into play: the Wire Act (18 USC § 1084), the Illegal Gambling Businesses Act (18 USC §
1955), and the Unlawful Internet Gambling Enforcement Act (“UIGEA”, 31 USC §§ 53615366).
A.
The Wire Act (18 USC § 1084)
For most of the Internet age, the Wire Act was viewed as the primary law in the United
States prohibiting wagering conducted over the Internet. The Wire Act provides, in relevant
part: “Whoever being engaged in the business of betting or wagering knowingly uses a wire
communication facility for the transmission in interstate or foreign commerce of bets or wagers
or information assists in the placing of bets or wagers on any sporting event or contest … shall
be fined under this title or imprisoned not more than two years or both.” 18 USC 1084(a). It has
long been the view of the United States Department of Justice (“DOJ”) that the Internet is, by
definition, a wire communication facility transmitting information in interstate and/or
international commerce.
What constitutes a bet or wager, however, has not been well defined. Several courts have
addressed the question, but it has not been addressed by the United States Supreme Court. In a
different context, the US Supreme Court held in 1954 that gambling involved three necessary
elements: a prize, awarded by chance, for which players pay some consideration for the chance
to win the prize. See F.C.C. v. American Broadcasting Company, 347 U.S. 284, 290 (1954). As
will be discussed further below, this “prize, chance, and consideration” standard is well
engrained in United States law and has been long been widely adopted in a variety of state laws
and decisions dating back to the 1800’s defining what constitutes “gambling” or an illegal
lottery.
One of the earliest federal courts to address the question of what constituted “bets or
wagers” followed a similar reasoning and held that, were the element of “chance” had been
eliminated from determining whether or not the players won the prize, the activity did not
involve gambling. U. S. v. Bergland, 209 F.Supp. 547 (E.D.Wis.1962), reversed on other
grounds 318 F.2d 159, certiorari denied 84 S.Ct. 129, 375 U.S. 861, 11 L.Ed.2d 88. There, the
court examined a scheme where the defendants took “wagers” on horse races only after knowing
the results of the races, and found that since chance was missing by the time the players paid
their money, the players were not actually making “wagers.” The Court of Appeal ultimately
reversed that holding, however, finding that for purposes of the Wire Act, the meaning of “bets
or wagers” is not tied to the element of chance. 318 F.2d 159 (7th Cir. 1963).
More recently, at least a few courts that have applied a three part test to determine
whether consideration paid to play a game constitutes a “bet or wager”:
(i)
Does the game involve the payment of an unconditional entry fee (that
does not make up the purse)?
(ii)
Are prizes guaranteed to be awarded (the size of which is not subject to
the number of entrants)? and
(iii)
Is the game operator unable to compete for the prizes?
See, e.g., Humphrey v. Viacom, Docket No. 2:06-2768 (DMC) (D.N.J. June 20, 2007); State v.
Am. Holiday Ass’n, Inc., 151 Ariz. 312 (Ariz. 1986). If the answer to each of these three
questions is “yes” then, under these holdings, the games are not considered gambling and no
“bets or wagers” are involved. See also Wilson v. Conlin, 3 Ill. App. 517, 519 (Ill. App. Ct. 1878)
(no bet or wager where ―[t]he prize money was to be paid to the successful party, but the amount
was certain, and did not depend at all on the number of entrances. Therefore the entrance fee had no
direct connection with the payment of the prize money.); Las Vegas Hacienda v. Gibson, 77 Nev. 25,
359 P.2d 85 (1961) (offering prize to winner of competition does not constitute wagering contract if
the offeror does not participate in the competition and has no chance of winning the prize).
B.
Illegal Gambling Business Act (18 USC § 1955)
The Illegal Gambling Business Act (“IGBA”) establishes as a Federal felony, the
conduct, financing, management, supervision, or ownership of all or part of an “illegal gambling
business.” An “illegal gambling business” under IGBA is defined as a business which: (i) is in
violation of the law of the State or political subdivision in which the business is conducted;
(ii) involves five or more persons in the financing, management or ownership of the business;
and (iii) remains in business for more than 30 days or has a gross revenue of $2,000 in any single
day.3
IGBA does not define any particular gambling conduct which is, per se, illegal. Rather, it
merely “borrows” State gambling laws, turning what might otherwise be a misdemeanor under a
given State’s laws into a Federal felony. Unless the gaming at issue constitutes gambling in
violation of the laws of the State in which the business is conducted, however, IGBA is not
relevant. Thus, if a business involves skill-based gaming that does not violate the laws of the
States in which people are playing, the business should not be subject to enforcement under
IGBA.
C.
Unlawful Internet Gambling Enforcement Act of 2006 (31 USC §§ 5361-5366)
UIGEA, prohibits any person engaged in the business of betting or wagering (as defined
in UIGEA) from knowingly accepting payments in connection with the participation of another
person in unlawful Internet gambling. Unlawful Internet gambling is defined by UIGEA as on3
IGBA does “not apply to any bingo game, lottery, or similar game of chance conducted by” certain
charitable organizations.
line contests which are illegal under any Federal or State law (termed “restricted transactions” in
the Act).
UIGEA also requires Treasury and the Federal Reserve Board to promulgate regulations
requiring certain participants in payment systems that could be used for unlawful Internet
gambling to have policies and procedures reasonably designed to identify and block or otherwise
prevent or prohibit the processing of restricted transactions.4 The Dep’t. of Treasury and the
Federal Reserve Board have issued a joint final rule, Regulation GG, to implement UIGEA, in
which they define “unlawful Internet gambling” to mean: to “place, receive or otherwise
knowingly transmit a bet or wager by any means which involves the use, at least in part, of the
internet where such bet or wager is unlawful under any applicable Federal or State law in the
State or Tribal land in which the bet or wager is initiated, received or otherwise made.”
Significantly, UIGEA does not declare any gaming illegal which was previously legal;
nor, however, does it declare legal anything that would otherwise be illegal under another
Federal or State law. See 31 USC § 5361(b). Similar to IGBA in this respect, UIGEA merely
“borrows” State gambling laws and declares the movement of funds associated with violations of
those State gambling laws to be illegal under Federal law. Thus, if the gaming at issue is not a
violation of the gambling laws of the State in which it is played, and does not otherwise violate
the Wire Act, UIGEA’s prohibitions do not apply.
Skill-Based Gaming
State statutes, like federal statutes, often fail to make clear what constitutes or does not
constitute, “gambling” that is prohibited by those laws. However, many states’ courts have
adopted, or follow the framework set forth above, defining gambling as a contest that involves:
(i) a prize for the winner; (ii) chance determines the outcome; and (iii) consideration paid by the
participants. See e.g. Morrow v. State, 511 P.2d 127, 128 (Alaska 1973) (“Where the term
‘lottery’ is not defined by statute, courts generally adopt a definition including three essential
elements: consideration, chance, and prize”). If one of those elements is missing, the States
generally do not treat the transaction as gambling. See e.g. Cross v. People, 32 P. 821, 822
(Colo. 1893) (“The gratuitous distribution of property by lot or chance, if not resorted to as a
device to evade the law, and no consideration is derived, directly or indirectly, from the party
receiving the chance, does not constitute the offense. In such case the party receiving the chance
is not induced to hazard money with the hope of obtaining a larger value, or to part with his
money at all; and the spirit of gambling is in no way cultivated or stimulated, which is the
essential evil of lotteries, and which our statute is enacted to prevent.”).
4
The provisions and requirements of UIGEA apply specifically to participants in payment systems (e.g.
banks, other financial institutions, card networks, informal payment networks, and the like), and to those involved in
the business of betting or wagering who utilize such payment systems to conduct illegal Internet gambling. See 31
USC §§ 5363 (prohibiting the use of payment systems by those involved in the business or betting or wagering),
5364 (requiring participants in payment systems to block financial transactions associated with illegal Internet
gambling). UIGEA does not impose any additional requirements on Internet services providers, geo-location
vendors, or other vendors providing services to an Internet business unrelated specifically to the movement of funds
associated with illegal Internet gambling.
As noted at the outset, approximately 35 States currently have some form of legal casinostyle gambling (i.e. gambling against a “house”) within their borders, and 43 of the 50 States,
plus the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, all allow some form of
State-sponsored lotteries within their borders. In each of these instances, however, legalized
gambling is limited to being conducted either (i) by the State itself; (ii) by a limited number of
licensed bricks-and-mortar casino properties; or (iii) by tribal governments under a compact with
the State in which they are located. All other gambling businesses are explicitly made illegal in
those States. Moreover, only three states, Nevada, Delaware, and New Jersey have legalized any
form of casino-style gambling over the Internet, and that is limited to the properties authorized to
conduct casino gambling in each State (private entities in Nevada and New Jersey, and the State
lottery in Delaware).
Given the broad prohibition under State laws generally for unlicensed gambling,
limitations on anything considered “gambling” over the Internet, and the impact of IGBA and
UIGEA turning State gambling violations into Federal felonies, numerous parties have made
efforts to design Internet-based games involving prizes which do not run afoul of State antigambling laws. These efforts generally fall into two categories: “free play” games and/or
sweepstakes that aim to eliminate the element of “consideration” from the prize, chance,
consideration equation; and “skill” games (sometimes called “contests” because they involve a
defined challenge between two or more players) that aim to eliminate the element of “chance”
from that equation.5
Across the United States, online skill gaming has developed into several popular market
segments, including (i) poker; (ii) fantasy sports; (iii) simulated pool tournaments; (iv)
tournaments based on variations of classic board games and versions of casino games enhanced
with elements of skill; (v) multi-user tournaments based on popular console and PC games; and
(vi) puzzle, trivia, and word contests and other contests and tournaments. Poker and fantasy
sports tend to dominate the commercial market in the United States today, but their legality is far
from clear. The remaining four market segments generally have far less legal risk because the
element of chance is so greatly reduced as a factor in determining the outcome of the game.
Poker
Online poker is, today, no doubt the single largest form of online gambling taking place
in the United States. Outside of Nevada (which has expressly legalized it), the offering of online
poker remains at best a legal grey area in the United States.
There have been a select few legal opinions which have concluded that poker is a game
of “skill” which is not prohibited under local anti-gambling laws (see e.g. U.S. v. Dicristina, 886
F.Supp.2d 164 (E.D.N.Y. 2012); Gallatin County v. D & R Music Vending, 208 Mont. 138, 141
(1984); Feb. 19, 2009 Slip Op. in Town of Mount Pleasant v. Chimento et al., Case Nos.
98045DB et al. (Mt. Pleasant S.C. Munic. Ct.) at 3 ("This Court, based on the above stated facts,
finds that Texas Hold-em is a game of skill. The evidence and studies are overwhelming that
this is so."); Jan. 14, 2009 Slip Op. in Commonwealth v. Dent et al., Dkt. Nos. 733 and 746 of
5
The parameters of “free play” or sweepstakes games are beyond the scope of this White Paper.
2008 (Columbia Co. Pa. C.C.P.) at 14 (concluding that "Texas Hold’em poker is a game where
skill predominates over chance"). These decisions have given proponents of poker hope that the
“game of skill” theory could allow poker to be played widely over the Internet.
Other courts, however, have reached a different conclusion. See e.g. Joker Club L.L.C. v.
Hardin, 643 S.E.2d 626, 630-31 (N.C. Ct. App. 2007) (concluding that because chance
predominates over skill in the game of poker, poker is a game of chance); U.S. v. Hsieh ___
F.Supp.2d ___, 2013 WL 1499520 *7-8 (D. Guam April 12, 2013) (rejecting Dicristina and
finding that poker is gambling under IGBA). In addition, some States (e.g. Ohio) have expressly
defined poker as a game of chance. Moreover, the DOJ has taken aggressive action against
numerous entities involved in online poker, including the now famous “Black Friday” siege of
the Internet domains of Full Tilt Poker, PokerStars, and Absolute Poker on April 15, 2011, based
on indictments brought under IGBA, UIGEA, and various New York state law theories. These
actions have cast very substantial doubt over whether the “skill” element of poker would be
sufficient to exempt Internet poker offerings from the general prohibitions on Internet gambling.
“Fantasy Sports”
A.
The Wire Act Applies Only to “Sports Betting”
The Wire Act is not clear, on its face, as to what constitutes a “contest.” For many years,
the DOJ argued that a “contest” could include any game of any kind on which bets or wagers
might be placed. However, on December 23, 2011, the DOJ released a letter opinion stating its
conclusion that the Wire Act “is limited only to sports betting.” See “Whether Proposals By
Illinois And New York To Use The Internet And Out-Of-State Transaction Processors To Sell
Lottery Tickets To In-State Adults Violate The Wire Act,” Memorandum Opinion, United States
Department of Justice, Office of Legal Counsel, released December 23, 2011 (“December 23rd
Opinion”).
B.
Fantasy Sports
Despite the substantial narrowing of its position on the scope of the Wire Act in the
December 23rd Opinion, the DOJ has not quite signaled an “all clear” for Internet games other
than wagering on actual live sporting events. In particular, the DOJ has not made clear its
position on whether or not the Wire Act would apply to fantasy sports.
Although it has not been addressed by the DOJ, the argument that fantasy sports are
games of skill, not chance, which would not constitute gambling prohibited by the Wire Act,
finds some support in at least one United States District Court case in which the court explained,
in dicta, that fantasy sports involve skill. See Humphrey v. Viacom, No. 06-2768 (DMC), 2007
WL 1797648, at *3 (D.N.J. June 20, 2007). That decision remains a largely isolated one to date,
however, and there is no certainty that any other court would follow the same reasoning.
C.
Fantasy Sports Under IGBA
As discussed above, IGBA criminalizes under Federal law and gaming which constitutes
illegal gambling under State law. Thus, to the extent that “fantasy sports” may violate the laws
of any given State, there is a substantial risk that offering fantasy sports games over the Internet
to customers in that State could trigger the application of IGBA.
As noted, at least one court addressing the question has held that fantasy sports leagues
hosted on the Internet do not violate local gambling laws. See Humphrey v. Viacom, Inc., 2007
WL 1797648, at*l. Likewise, at least one State has expressly authorized fantasy sports as an
exception under its gambling laws. See e.g., Mont. Code Ann. § 23-5-802 (2010) (permitting
under gambling law certain fantasy sports games). Other decisions and published opinions of
State Attorneys General (particularly in Florida and Louisiana) take a more cautious approach.
See e.g. Fla. Op. Att'y Gen. 91-3 1991, available at 1991 WL 528146; La. Op. Att'y Gen. 91-14
(1991), available at 1991 WL 575105. Similar broad statements of illegality have been
published by the Arizona and Kansas gaming regulators. Thus, although fantasy sports leagues
have become popular in many segments of the country, there can be no guarantee that these
leagues will not suffer legal setbacks in the future. At least one plaintiff is currently challenging
the legality of popular fantasy sports leagues under Illinois and Federal law. It is not clear when
or how those cases will be determined.
D.
Fantasy Sports under the UIGEA6
UIGEA specifically exempts from its definition of “bet or wager”: “any fantasy or
simulation sports game or educational game or contest in which (if the game or contest involves
a team or teams) no fantasy or simulation sports team is based on the current membership of an
actual team that is a member of an amateur or professional sports organization,” which meet
certain conditions. 31 USC § 5362(1)(E)(ix). Those conditions combine three-part test for
whether game play involves a “bet or wager” in Humphrey v. Viacom, supra, and State v. Am.
Holiday Ass’n, Inc., supra, with the concept of “skill gaming”:
6
(i)
All prizes and awards offered to winning participants are established and
made known to the participants in advance of the game or contest and
their value is not determined by the number of participants or the amount
of any fees paid by those participants.
(ii)
All winning outcomes reflect the relative knowledge and skill of the
participants and are determined predominantly by accumulated statistical
results of the performance of individuals (athletes in the case of sports
events) in multiple real-world sporting or other events.
(iii)
No winning outcome is based (a) on the score, point-spread, or any
performance or performances of any single real-world team or any
combination of such teams; or (b) solely on any single performance of an
individual athlete in any single real-world sporting or other event.
As discussed above, UIGEA does not make legal any conduct that is otherwise illegal under any federal or
state law. Although UIGEA includes a fantasy sport carve-out, it does not make legal gambling on fantasy sports if
such contests are otherwise deemed illegal under the Wire Act, the IGBA, or any other state or federal law.
31 USC § 5362(1)(E)(ix). Games which meet this definition will be exempt from enforcement
under UIGEA.
E.
Betting virtual currency
UIGEA also exempts from its definition of “bet or wager” participation in any game or
contest in which participants do not stake or risk anything of value other than “(I) personal
efforts of the participants in playing the game or contest or obtaining access to the Internet; or
(II) points or credits that the sponsor of the game or contest provides to participants free of
charge and that can be used or redeemed only for participation in games or contests offered by
the sponsor.” 31 USC § 5362(1)(E)(viii). Thus, games involving play with virtual currency
granted free of charge should also be exempt from enforcement under UIGEA.7
State Law Overview on Broader Skill Gaming
A number of State’s courts have also addressed whether the fact that skill affects the
outcome of the contest removes that contest from regulation under that state’s anti-gambling
laws. In evaluating whether the degree of skill involved in affecting the outcome of a contest is
sufficient to avoid violation of a state’s gambling laws state courts typically use three
approaches: (i) whether skill or chance is the dominant factor in the outcome (“Dominant Factor
Test”); (ii) whether chance is a material element in the outcome (“Material Element Test”); or
(iii) whether any chance at all is involved (“Any Chance Test”).
The Dominant Factor test generally inquires whether the outcome of the game is
determined more by the participants’ relative skill (i.e. which of the participants is better skilled
at performing the tasks required to win the game?) than by chance (i.e. random events (e.g.
which particular card in a deck of cards turns up, or other events determined by a random
number generator) have relatively little impact on the outcome of the game). The operative
question is whether chance or skill is the dominant or controlling factor in determining the
outcome of the game. See e.g. National Football League v. Governor of Delaware, 435 F. Supp.
1372 (D. Del. 1977) (lottery encompasses not only games of pure chance but games where
chance is the dominant determining factor); see also Joker Club L.L.C. v. Hardin, supra, 643
S.E.2d at 629 (noting that the length of a game is also an important issue in poker, as in the short
term the game is primarily one of chance, whereas in the long term skill does seem to
predominate).
The Material Element test looks to understand whether chance plays any significant role
in determining the outcome of the game. It is not relevant under those States’ laws whether skill
plays a significant, or even dominant, role in determining the outcome. If chance plays a
meaningful role, the game play is considered gambling. See e.g. Alaska’s definition of “game of
chance” which means “a contest, game, gaming scheme, or gaming device in which the outcome
depends in a material degree upon an element of chance, not withstanding that the skill of the
7
As noted above, the UIGEA does not make any conduct legal which is otherwise illegal. Thus, if betting
with virtual currency is illegal under any other state or federal law, the UIGEA exemption for play involving virtual
currency would not override such other laws and render such play legal.
contestants may also be a factor. “ Alaska Statutes § 11.66.280(1). Similar statutes have been
enacted in Hawaii, Iowa, Missouri, New York, Oregon and Washington.
The Any Chance test simply looks to see if chance plays any role whatsoever in
determining the outcome of the game. See e.g. State v. Torres, 831 S.W.2d 903,905 (Ark. 1992);
Maine Rev.Stat. tit. 17-A, § 952(3), tit. 17, § 330(2) (“Game of chance means any game, contest,
scheme or device in which: A. A person stakes or risks something of value for the opportunity to
win something of value; B. The rules of operation or play require an event the result of which is
determined by chance, outside the control of the contestant or participant; and C. Chance enters
as an element that influences the outcome in manner that cannot be eliminated through the
application of skill.”)
Without walking through in detail the specific laws and decisional authority in each State,
it appears that States that follow the Dominant Factor Test include: Alabama, Alaska,
California, Connecticut, Delaware, Indiana8, Massachusetts, Michigan, Mississippi, Montana,
New Jersey, New Mexico9, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania,
Rhode Island, South Dakota, Utah, West Virginia, Wyoming. It appears that states that follow
the Material Element Test include: Hawaii, Iowa10, Minnesota, Missouri, New York, Oregon,
and Washington. It appears that states that follow the Any Chance Test include: Arkansas,
Colorado, Florida, Georgia, Idaho11, Louisiana12, Maine, Nebraska13, New Hampshire14, South
Carolina, Tennessee, Vermont, Virginia, Texas15, and Wisconsin. There is no decisional
authority addressing which test, if any, would apply in the following states or territories: District
of Columbia, Kansas, Kentucky, and Maryland. Gambling is explicitly prohibited, regardless of
8
Indiana’s general gambling prohibition excludes from the definition of gambling a “bona fide contest of
skill,”
9
New Mexico’s anti-gambling law discusses whether the outcome of an event is determined by “chance,
even though accompanied by some skill.”
10
The Iowa the statute defining “lottery” identifies any process where a prize is awarded by chance or any
process involving a “substantial element of chance” as a lottery subject to the State’s general anti-gambling
prohibitions.
11
Idaho statutes defined “Gambling” as “risking any money credit, deposit or other thing of value for gain
contingent in whole or in part upon lot, chance, the operation of a gambling device or the happening or outcome of
an event, including a sporting event, …” Idaho Statutes § 18-3801.
12
Louisiana’s anti-gambling statute broadly criminalizes contests that involve “risk[] the loss of anything of
value in order to realize a profit.”
13
“Gambling” is defined under Nebraska law as a contest in which the “outcome is determined by an element
of chance.”
14
“Lotteries” are defined under New Hampshire Law as inducing participation, ‘in whole or in part” by the
hope of gain by luck or chance.
15
Under Texas law, a game is gambling if chance affects the winning outcome, even if skill predominates, so
long as skill does not eliminate the impact of chance. See State of Texas v. G,mbling Device, 859 SW2d 519, 523-24
(Tx. App. 1993).
any element of skill, in the following States (the “Absolute Prohibition” States): Arizona
(definition of gambling includes that it involves “a game or contest of chance or skill”) and
Illinois (gambling defined as a playing a “game of chance or skill for money”).
In states that follow the Dominant Factor Test and the Material Element Test, prizes
given for games involving an entry fee should be permissible on contests in which the outcome is
determined overwhelmingly by the skill of the participants. States invoking the Any Chance
Test and the Absolute Prohibition States would not appear amenable to most games of skill in
which an entry fee is paid and prizes are awarded.
In addition to the foregoing, there are certain states that put a special limit on the payment
of entry fees for skill-based contests. Of particular significance, Connecticut does not allow the
promotion of a game of skill involving a cash entry fee where the prize to be awarded is greater
than $200, and Vermont prohibits the offering of any game of skill where there is any form of
entry fee, service charge, purchase, or similar consideration required in order to enter or remain
eligible. While not including such explicit restrictions, North Dakota and Maryland arguably
could be said to prohibit the offering of games where persons compete for, or are eligible for,
prizes if the persons are required to pay an entry fee or other consideration for the right to
participate.
CashPlay.Co Skill Games
With this substantial background, it becomes apparent that CashPlay.Co’s games of skill
fill a unique position in the legal landscape. This position places CashPlay.Co in a strong legal
position in the majority of jurisdictions in the United States.
As an initial matter, as they have been outlined to us, CashPlay.Co’s games of skill
satisfy all three elements of the Humphrey test outlining when game play does not involve the
placement of a “bet or wager.” Under the platform requirements for games to be hosted on the
CashPlay.Co platform: (1) to the extent any game involves the payment of any fee (or
“consideration”) by any contestant, the game must involve the payment of an unconditional
“entry fee” (that does not make up the purse) from all contestants for the opportunity to compete
in the contest; (2) to the extent that any game involved the potential for any contestants to win a
prize through their play, the prizes are guaranteed to be awarded to at least one of the contestants
of each game (and the size of the prize is predetermined and not subject to the number of
participants in the game); and (3) if a prize is offered, the game operator is unable to compete for
the prizes (i.e., e.g. contestants play against each other alone, not a “house”; contestants need not
achieve some pre-determined score to win the prize; and the operator cannot participate and/or
“win” the prize by besting the other contestant(s) without contributing the same unconditional
entry fee).
Likewise, although CashPlay.Co’s games of skill are designed to occupy a different
segment of the marketplace than traditional “fantasy sports” games, the games meeting the
requirements to be hosted on CashPlay.Co’s platform that have been shared with us would also
generally satisfy all of the requirements to be termed a “fantasy sports” game under UIGEA: (1)
the games may involve simulated sports play (sometimes defined as electronic sports or e-sports
gaming); (2) the prizes and awards, if any, offered to winning participants are established and
published in advance, and the size of the prize is not determined by the number of participants or
amount of any fees paid by those participants; (3) all winning outcomes are determined by the
relative knowledge and skill of the participants; and (4) no winning outcome is based on the
score, etc. of any real athletic event nor the performance of any one athlete in such a real athletic
event. In fact, the requirements of CashPlay.Co’s platform go very far to ensure, as broadly as
possible, that the winning outcome of a given contest is determined not by chance, but
overwhelmingly by the skill of each contestant:
(i)
CashPlay.Co requires each game designer and operator to ensure that
games are played to completion (either completion of the contest
challenge or withdrawal of other player(s)) before any prize can be
awarded;
(ii)
CashPlay.Co requires each game designer and operator confirm an even
playing field from the outset and throughout the game for all users who
join the game (i.e. no in-game upgrades can be allowed; no in-game
advertisements can me included; all game play is continuous from start to
completion); and
(iii)
CashPlay.Co requires that there be no randomization of the challenges
faced each participant within a given game; each participant must face the
same challenges presented by the game.
These requirements substantially eliminate the possibility that the winner of a given game would
be determined by chance. If a game is designed to include cards, for example, each contestant
must see the same cards in the game or the differences in cards shown have no impact on the
outcome of the game (e.g. in a memory game, although each participant may see different cards,
the total number of matching cards and the frequency with which they match will be constant
among difference participants).
As a result of these unique and stringent game requirements, games on the CashPlay.Co
platform should qualify as “pure” skill games and should be generally legal even in the “Any
Chance” States. Nonetheless, CashPlay.Co has elected to limit participation on its platform of
persons located in Arizona, Illinois, Vermont and, until the status of the laws is clearer, the
District of Columbia, Kansas, Kentucky, North Dakota, Florida and Maryland.16 CashPlay.Co
has also elected to limit the prizes available in games open to Connecticut residents to $200.00.
Thus, games on the CashPlay.Co platform should be exempt from any enforcement under
the Wire Act or IGBA. Likewise, games that satisfy CashPlay.Co’s firm criteria should not be
considered “Internet gambling” for purposes of UIGEA and, therefore, financial institutions and
16
We understand that CashPlay.Co employs state of the art procedures for verifying customers’ identity and
location, including (i) geo location technologies (e.g. IP logging and verification) employed repeatedly at regular
intervals during continuous play, (ii) verification of device location upon log-in of every user session, and an
automated check that user ID and address information coincides with global databases immediately upon registering
a cash account, followed by check of residence through requiring new customers to submit copies of their passport
or other government issued photo ID along with a utility bill or other address confirmation once initial threshold of
$100 in deposits is surpassed, or in the case any withdrawal request is made by the client.
payment providers should not face exposure for moving money or assisting in the movement of
money in connection with any of CashPlay.Co’s games.
Conclusion
CashPlay.Co’s unique “pure skill” environment and strict requirements for games
operating on its platform takes it largely outside the realm of most U.S. anti-gambling laws.