Online gambling ads — a risk worth taking?

Gamblers no longer have to travel all the way to Las Vegas or Atlantic City to enjoy the thrill of a blackjack game or the spin of a roulette wheel. Nowadays, potential bettors have hundreds of online gambling sites right at their fingertips — sites that for a small price offer chances at just about every game under the sun.1 With the number of Internet gambling sites skyrocketing uncontrollably — the U.S. General Accounting Office estimated in 2002 that at least 1,800 such sites are fully operational, compared to a couple of dozen sites just a few years before — the future of the industry depends on its ability to attract more customers. The solution? Advertising. Calls to the Student Press Law Center indicate that Internet gambling firms have begun to tap into the profitable college market by advertising through student media. No federal law yet expressly prohibits online gambling or its advertising, but with the Unlawful Internet Gambling Funding Prohibition Act in the congressional pipeline and a number of state laws already on the books, a student newspaper that carries ads for Internet gambling firms could be engaging in risky business.

A brief history

Since the mid-1970s, the Supreme Court has recognized that commercial speech, including advertising, generally falls within the scope of some First Amendment protection.2 However, the Court's 1980 decision in Central Hudson Gas & Electric Corp. v. Public Service Commission of New York affirmed that commercial advertising promoting an unlawful activity does not receive constitutional protection and can be legally censored.3 Therefore, before a student publication decides to run an Internet gambling advertisement, editors and advertising representatives must consider two questions: first, whether Internet gambling itself is considered illegal by the state in which the publication is distributed, and second, whether the legal consequences of running such ads are merely censorship by school or government officials, or whether the repercussions could extend to criminal and civil liability (i.e., jail time and fines for student editors and advertising representatives).

Is internet gambling illegal?

Although federal law has not specifically declared Internet casino-style gambling unlawful, some courts are stretching the 1961 Federal Interstate Wire Act's prohibition of "betting or wagering knowingly [using] a wire communication" to include Internet gambling.4 For example, a state court in New York justified its declaration of Internet gambling as unlawful by virtue of the Wire Act's prohibition of betting and wagering over the wires.5 A recent congressional attempt to block the growth of online gambling was the Internet Gambling Enforcement Act (IGEA), a bill co-sponsored by Reps. Jim Leach (R-Iowa) and John DeFalce (D-NY) that would have prohibited "unlawful" Internet gambling businesses from accepting credit, checks, drafts, or electronic funds transfers from U.S. gamblers and would have punished financial institutions that knowingly allowed such instruments to be used for gambling.6 Interestingly, the bill did not propose making Internet gambling itself illegal, but instead proposed attaching additional penalties to the financial transactions surrounding Internet wagers already considered "unlawful under any applicable Federal or State law in the State in which the bed or the wager is initiated, received, or otherwise made."7 The bill passed in the House and was sent to the Senate, but due to a glut of legislation, it was never put to a vote.8

This year, the failed IGEA attempt has been followed with Unlawful Internet Gambling Funding Prohibition Act, a bill which seeks to revive the prohibitions of IGEA as well as limit an Internet Service Provider's liability for Internet gambling transactions occurring over its systems.9 Notably, the House version of the bill, sponsored by Reps. Spencer Bachus (R-AL), Darlene Hooley (D-OR) and Michael G. Oxley (R-OH), does not contain criminal penalties; the Senate version, sponsored by Sens. Jon Kyl (R-AZ), Dianne Feinstein (D-CA) and Richard C. Shelby (R-AL) does contain criminal penalties.10 Further confounding the issue of Internet gambling's legal status is the fact that sites are typically operated from offshore locations.11 Offshore companies claim that because Internet gambling is lawful in the countries where the companies operate, the activities should not be subject to regulation or prohibition in the United States.12 But in the New York case discussed above, the court found that the offshore location of the companies was irrelevant. Because the companies "targeted New York residents" and conducted a "substantial amount of business" in New York with a measure of permanence and continuity, their activities were sufficient to justify the court's exercise of jurisdiction.13 In other words, conducting the transactions through New York via the Internet was deemed enough to constitute gambling activity within the state — activity that violates several state and federal laws, including the Wire Act.14

In another case, the U.S. Court of Appeals for the Eighth Circuit similarly found that states can exercise jurisdiction over Internet gambling sites operating from Native American tribal lands. 15 Although the Indian Gaming Regulatory Act preempts state regulation of tribal gaming on tribal lands, states have the power to prohibit gaming operations taking place outside of tribal lands.16 The Eighth Circuit sent the case back to the district court to determine whether the operation of the Internet lottery in question equaled "leaving" tribal lands.17 The district court said it did and sent the case to state court to determine whether the site's operators could be criminally or civilly punished; the case was settled, however, before that question could be answered.18 In March 1992, the Ninth Circuit (following a different line of cases in which AT&T had sought clarification on the legality of leasing its lines for the purposes of remote gambling) temporarily reinstated the Internet lottery.19

While the courts may be conflicted on the application of existing law to the question of Internet gambling, the Justice Department believes the matter is already settled. The Justice Department indicated in a letter to the Nevada Gaming Control Board the Department's opinion that current federal law prohibits online gambling. 20 In a later letter to Rep. John Conyers, Jr. (D-MI), an assistant attorney general in the department wrote, "[t]he Department of Justice believes that current federal law ... prohibits all types of gambling over the Internet."21

An additional wildcard thrown into the legal mix is the proliferation of state laws, proposed state legislation and attorney general opinions concerning the legality of Internet gambling. 22 As Internet gambling becomes increasingly popular and profitable, the trend toward regulation undoubtedly will continue. As a result, a comprehensive state-by-state analysis of state and local laws related to Internet gambling is beyond the scope of this article.

Nevertheless, a brief survey conducted by the SPLC revealed that at least five states — Illinois 23, Louisiana24, Michigan25, South Dakota26 and Nevada27 — have passed legislation specifically relating to Internet gambling. While the scope and intent of the laws vary, the Illinois statute is particularly noteworthy because it not only prohibits Internet gambling but specifically declares it unlawful to advertise any gambling activity not sanctioned by the state.28 Meanwhile, the Louisiana law exempts Internet gambling advertisements published online by those not in the gaming business, although no mention is made of print-based ads.29 Neither the Michigan, Nevada nor South Dakota laws make any direct reference to Internet gambling advertising, but both expressly outlaw Internet gambling activities (including the "solicitation" of gambling, in the case of Michigan30) not sanctioned by their respective states.31 Other states, including New York and Montana, have all-encompassing laws that make all gambling illegal unless authorized by the state.32 In addition, at least four other states — Maine, Pennsylvania, Texas and Tennessee — have legislation currently pending that would prohibit or somehow limit Internet gambling.33 

Some state attorneys general have even used their offices' influence to persuade the public against Internet gambling activities.34 In Indiana, for example, the attorney general particularly complained about the high rate of Internet gambling among young people and issued a warning that online wagering, including its "promotion," is illegal under current state law.35 In New York, the attorney general threatened to prosecute financial institutions Citibank and PayPal for accepting transactions related to online gambling under a state law that prohibits companies from profiting from illegal activities.36 Both companies settled with the state via cash payments and promises not to accept online gambling transactions in the future.37

If sorting out the legal limbo of Internet gambling seems like a daunting task, student publications should just keep in mind this most important concept: Any state could conceivably declare Internet gambling illegal at any time, and many have — whether through the interpretation of the federal Wire Act or state laws. Therefore, assuming Internet gambling is potentially illegal in any jurisdiction, the more pressing question for student media is whether the industry's advertising is subject to censorship and/or criminal and civil sanctions.

Is publishing advertising for internet gambling illegal?

The implication of Internet gambling's amorphous illegality is that its advertisements could be subject to censorship by government officials. In other words, a government official may be able to force a student newspaper to pull an ad promoting online betting upon a determination that Internet gambling is illegal. But the government's authority generally ends at censorship. Under the Wire Act, a person or publication running such an ad cannot be held criminally or civilly liable unless the publication is "engaged in the business of betting or wagering." 38 Likewise, the proposed Internet Gambling Enforcement Act includes language that restricts its criminal and civil application to "unlawful" gambling businesses and financial institutions.39 Because the legislation has yet to be enacted, there are no court decisions, and to date, legislative history on the relevant provisions provides virtually no guidance. But a reasonable reading of the law suggests that publications advertising Internet gambling would not be subject to criminal or civil penalties such as fines or jail time.

However, there is a possibility that individual state laws, such as the Illinois statute discussed above, provide criminal and civil liability for publications running Internet gambling advertisements. Under the Illinois statute discussed above, a person can be charged with a misdemeanor for publishing Internet gambling advertisements, and therefore, student journalists in Illinois would be well-advised not to run them. In Georgia, a statute prohibits the advertising of all gambling, presumably including online gambling. 40 But such statutes are the exception rather than the rule. Moreover, the constitutionality of such regulation is very much open to debate.41

Even when no laws directly applicable to the practice of advertising for Internet gambling are present, a state's attorney general may frown on the practice. In Florida during 1998 and 1999, the attorney general sent cease and desist letters to at least ten media organizations who were advertising Internet casinos. 42 The bottom line is that student journalists should be on the lookout for legislation in their states that could prescribe criminal or civil liability for advertising online gambling. In most cases, the legal risks associated with publishing Internet gambling advertisements appear to be relatively low. But so, too, are the constitutional protections available to student media should officials challenge their decision to publish.

Endnotes

  1. http://cybersportsbook.com (viewed Nov. 20, 2000).
  2. See Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748 (1976) (concluding that commercial speech, including advertising, is not wholly outside the protection of the First Amendment).
  3. SPLC's Student Media Guide to Advertising Law.
  4. 18 U.S.C. §1084 (1961).
  5. New York v. World Interactive Gaming Corp., 1999 WL 591995; No. 404428/98 (Sup. Ct. N.Y., N.Y. County July 22, 1999) (unreported).
  6. H.R. 556, 107th Cong. §3 (2002). 
  7. Id. at 3(b)(7).
  8. http://www.law.duke.edu/journals/dltr/articles/2003dltr0016.html.
  9. See S. 627, 108th Cong. (2003) and H.R. 2143, 108th Cong. (2003).
  10. Id.
  11. http://www.gigalaw.com (viewed Nov. 20, 2000).
  12. www.washingtonpost.com/wp-srv/national/longterm/int.gambling/overview.htm, (viewed Nov. 20, 2000.)
  13. See New York v. World Interactive Gaming Corp., 1999 WL 591995; No. 404428/98 (Sup. Ct. N.Y., N.Y. County July 22, 1999)(unreported).
  14. Id.
  15. Nixon v. Coeur D'Alene Tribe, 164 F.3d 1102, 1108 (8th Cir.), cert. denied, 119 S.Ct. 2400, 2401 (1988).
  16. Indian Gaming Regulatory Act, §§ 2, 11(d)(1), 25 U.S.C. § 2710(d)(1). 
  17. Nixon v. Coeur D'Alene Tribe, 164 F. 3d at 1109.
  18. www.givenslaw.com/FSL5CS/Custom/TOCKeyCases.asp (viewed Sept. 4, 2003).
  19. AT&T Corp. v. Coeur D'Alene Tribe, No. 9935088p (9th Cir. Mar. 19, 2002).
  20. www.reviewjournal.com/lvrj_home/2002/Sep-04-Wed-2002/business/19556668.html (viewed Sept. 4, 2003).
  21. Letter from William E. Moschella, Assistant Attorney General, Department of Justice Office of Legislative Affairs, to Rep. John Conyers, Jr. 2 (July 14, 2003) available at www.igamingnews.com/articles/files/DOJ_letter-031714.pdf.
  22. The Indiana state attorney general in 1998, responding to a reported high rate of Internet gambling among young people, issued a warning to online gaming sites that its activities, including "promotion" of online gaming, was illegal in Indiana. Among other sources, the opinion cites congressional testimony regarding the "proliferation of Internet gambling, especially in young people," as well as a Harvard Medical School study finding that "adolescents and college students have higher rates of severe gambling problems than adults in the general population." Indiana AG Opinion 98-8 (July 8, 1998).
  23. 720 ILCS 5/28-1.
  24. La. Rev. Stat. Ann. 14:90.3 (2000).
  25. Mich. Comp. Laws §750.145(d) (1999).
  26. 2000 S.D. Laws 106.
  27. Nev. Rev. Stat. Ann. §§465.091-.094 (2000).
  28. 702 ILCS 5/28-1(a)(10).
  29. La. Rev. Stat. Ann. 14:90.3 (2000).
  30. Mich. Comp. Laws §750.145d(1)(b) (1999). The term "solicit" is not defined.
  31. Id.; Nev. Rev. Stat. Ann. §§465.091-.094 (2000) 
  32. www.igamingnews.com/articles/usstates/uslaw.cfm (members only page) (viewed Dec. 16, 2000).
  33. Id. In California, an attempt to limit Internet gambling was defeated in committee. See I. Nelson Rose, Gambling and the Law: Satus of Gambling Laws, August 3, 2003, at www.gamblingandthelaw.com/status.html (visited Sept. 4, 2003). 
  34. Id. According to the Interactive Gaming Council, these states include: Indiana, Kansas, Louisiana, Minnesota and Texas.
  35. Indiana AG Opinion 98-8 (July 8, 1998).
  36. Linda Punch, Are All Bets Off for Online Gambling?, 15 Credit Card Mgmt., Merchant Acquiring, No. 6, at 14 available at www.winner.com/Online-Casino-Guide/Articles/-USA-Are-All-Bets-Off-for-Online-Gambling-698002.asp (visited Sept. 4, 2003). See also The Pending Determination of the Legality of Internet Gambling in the United States, supra note 10, at n.6 and accompanying text. 
  37. Id.
  38. 18 U.S.C. §1084 (1961).
  39. See supra note 8.
  40. www.legis.state.ga.us/cgi-bin/gl_codes_detail.pl?code=16-12-26.
  41. The Court has increasingly blocked attempts to regulate advertising of legal products and services. See Greater New Orleans Broadcasting Ass'n, Inc. v. U.S., 119 S. Ct. 1923 (1999) (striking down federal law banning lottery and casino ads from states where such activity was legal); see also 44 Liquormart, Inc. v. Rhode Island, 116 S. Ct. 1495 (1996) (rejecting argument that state's power to prohibit advertising about activity was as broad as power to prohibit activity itself); but see U.S. v. Edge Broadcasting Co., 113 S. Ct. 2696 (1993) (upholding federal law banning broadcast of lottery and casino ads from state where such activity was illegal).
  42. Lawrence G. Walters, Advertising Online Casinos - An Analysis of the Legal Rights and Risks (2002), available at http://law-host.com/articles/lawrence_walters/adv_online_casino.htm (visited Sept. 4, 2003).