Published: Wed, 28 Sep 2016 00:00:00 -0400
Last Build Date: Wed, 28 Sep 2016 11:25:25 -0400
Mon, 20 Jun 2016 16:25:00 -0400
(image) Fantasy sports leagues like DraftKings and FanDuel are set to return to the state of New York if the governor signs new legislation passed over the weekend. It's going to cost the private companies millions of dollars, of course.
The companies stopped operations in New York earlier in the year as Attorney General Eric Schneiderman went after them, challenging the legality of their businesses and trying to force the companies to pay back New Yorkers who lost money while voluntarily playing in the fantasy leagues.
It may now becoming back under new legislation that authorizes fantasy sports leagues under a very expensive regulation scheme that has pages of requirements, allegedly to "protect consumers" but also, obviously, to make sure New York profits from these online competitions. From The New York Times:
Under the deal agreed to by lawmakers, highly skilled and high-volume players will have to be clearly identified on the sites, a provision intended to protect casual players from being targeted and taken advantage of by more sophisticated players, something that some class-action lawsuits have alleged takes place and that law enforcement has investigated.
Companies will pay the state the equivalent of 15.5 percent of their revenue to operate, an amount that supporters have estimated to be nearly $6 million a year. Funds collected by the state will be directed to an education fund run by the state lottery.
The Times notes that these state government-level attacks on fantasy sports have done major damage to the companies' bottom lines, so much so that these two once-massive rivals are talking about merging in order to survive. What that means is, despite this claim that they're protecting consumers from fraud, all this regulatory action is driving businesses to either merge or shut their doors, reducing consumer choice. Competition is the surest way to keep consumers from being abused. And note that Schneiderman is going to continue his lawsuit even if the bill becomes law. He wants his share of the money, too.
Read more from Reason on the push from state governments to regulate (and really—cash in on) fantasy sports leagues here. And watch ReasonTV below pointing out how fantasy sports competes with the states' lottery monopolies and other approved forms of gambling:
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Thu, 12 May 2016 00:01:00 -0400
(image) Some members of Congress want the Department of Justice to know that they are unhappy. The source of their consternation is the correct DOJ's finding in 2011 that the 1961 federal Wire Act—long believed to prohibit all forms of interstate gambling—is in fact "limited only to sports betting." To show their displeasure, language was recently inserted into a Senate appropriations bill, which made the obvious point that the Wire Act didn't change in 2011, and that it is up to state courts to interpret criminal laws.
The explanation for why this statement was slipped into a bill four years later is yet another cautionary tale of the corrosive effects of government-granted privilege to special interests, also known as cronyism.
Prior to 2011, the Wire Act—passed long before the emergence of the internet—was interpreted to prohibit all manners of internet gambling, from lottery sales to online poker. This never made sense, as the statute expressly addresses "bets or wagers on any sporting event or contest," among which lotteries and card games are not logically included.
This interpretation of the Wire Act was understood at the time it was passed as well. When asked during Senate hearings on the bill whether it would apply to other forms of gambling, Assistant Attorney General Herbert J. Miller replied, "This bill, of course, would not cover that because it is limited to sporting events or contests."
The DOJ's reversal of its earlier expansive interpretation was a move toward more faithful enforcement of the law, which ought to please Congress. Contrary to the language in the Senate's recent admonition, however, simply encouraging prosecutors to enforce law—rather than make it—is not the objective of the powerful interests bankrolling this fight.
The Senate language, which is now being pushed in the House, comes after years of failed attempts to enact the Restoration of America's Wire Act, a bill championed by billionaire casino owner Sheldon Adelson. Adelson has no moral objection to gambling, he just doesn't like it when people gamble somewhere other than one of his casinos.
The legalization of online poker in New Jersey, Delaware and Nevada—and the likelihood that others will soon follow suit—poses a direct threat to Adelson's brick-and-mortar casinos. In response, he has spent a lot of money courting politicians to help protect his interests at the expense of consumers.
The irony of both RAWA and the Senate's recent complaint is that even if the previous interpretation of the Wire Act (as including not just sports betting, but also other forms of gambling), the current efforts by states to legalize online gambling only for citizens within their borders still ought not to be prohibited. This is because the Wire Act is an interstate prohibition, not an intrastate one. That's why RAWA would go one step further and prohibit states from setting their own policies.
A House hearing last year on RAWA did not go well for its backers. Too many legislators saw it for what it is: a government handout and a blatant attack on federalism. But rather than fold, its backers have decided to double down, and are clearly looking for any opportunity to sneak through protections for the businesses of a favored donor. So far, their efforts have failed to gain steam through the open legislative process. For them to fail in the future requires that lawmakers be extremely vigilant in recognizing cronyism, even when camouflaged as concerns for regulatory overreach.
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Mon, 21 Mar 2016 14:50:00 -0400
(image) Thousands—perhaps tens of thousands—of New Yorkers have been saved from the terrible possibility of enjoyment and/or failure (and winning or losing money) playing daily fantasy league sports. DraftKings and FanDuel have agreed today to immediately stop allowing New Yorkers to join their paid fantasy sports league contests.
The "exchange" for agreeing to stop while New York Attorney General Eric Schneiderman goes after the legality of their businesses is that Schneiderman will wait until after the two companies appeal before trying to force them to pay back the money New Yorkers lost participating in the programs.
According to ESPN, it's not just about letting the two fantasy sports juggernauts fight the legal threat. There is a possibility of a legislative remedy:
No specific date for the September hearing has been announced, and it may not take place if the state legalizes daily fantasy sports during this legislative session. Several daily fantasy bills have been introduced in the New York legislature, which runs until the middle of June.
Nevertheless, pulling out of New York, even temporarily, is likely going to be a huge financial hit for the two companies. New York is the second-highest source of revenue for the daily fantasy sports companies, behind California. There are fights right now in Texas and Illinois (both states with obvious high revenue potentials) over the legality of fantasy sports.
Jim Pagels explored the legal fight over whether consumers have the right to participate in these fantasy leagues and the huge amounts of money involved in Reason's January issue. And watch ReasonTV below for more about the conflicts involved:
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Sun, 13 Mar 2016 17:00:00 -0400
The NCAA college basketball championship—known as March Madness—officially kicks off today with Selection Sunday where college officials unveil the 68 teams selected to make the tournament. Not only is the sporting event a popular television ratings get, but it’s also big time business for sports gaming.
Marc Edelman, a sports law professor at Baruch College, notes that in 2015 the American Gaming Association estimated that nearly 40 million Americans would bet $9 billion on the NCAA tournament. Most of this wagering is done underground because sports gambling is illegal in most parts of the country.
While many fans of college basketball will be filling out their brackets and putting money down in office pools, a growing segment of fans are turning to daily fantasy sports sites to cash in on the action. But if you live in states like New York— where lawmakers are claiming daily fantasy sports are illegal games of chance— you may not be able to take in part in all the fun.
Reason TV recently looked at the daily fantasy sports issue and asked why state-sponsored forms of gaming were okay, while other forms of gaming were deemed to be too harmful for the public.
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Sun, 28 Feb 2016 09:30:00 -0500
The Virginia legislature has approved a set of rules for daily fantasy sports leagues, declaring that those contests which follow the guidelines are not illegal gambling. SB 646 requires clear explanation of prizes to be awarded, prohibits athletes involved from participation, and requires operators of fantasy contests to register annually with the Department of Agriculture and Consumer Services.
Virginia is the first state to pass such a bill, but it still needs a signature from Governor Terry McAuliffe.
For more on the fight over Daily Fantasy Sports, watch Is Playing Daily Fantasy Sports Any Different From Playing Powerball?
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Fri, 05 Feb 2016 11:15:00 -0500"When you just think back to the enormous Powerball fervor that gripped the entire country—that’s okay," says daily fantasy player Brian Greenwood. "But for me to develop a lineup and enjoy the aspect of becoming a general manager for a team for a day and essentially risking something by putting in an entry fee—that's not okay. That doesn’t really hold water for me." Greenwood is a professor, husband, and father. He also represents the typical fantasy sports player. Last year, over 56 million Americans participated in fantasy sports play. And since the first sites went online in 2007, daily fantasy has grown to a multi-billion dollar business with DraftKings and FanDuel leading the industry. Unlike traditional fantasy leagues that span over the course of an entire season, daily fantasy contest typically last a single day. While sports betting is mostly illegal in the United States, fantasy sports has a special exemption under the Unlawful Internet Gambling Enforcement Act of 2006. But even with the federal carveout, the shortened span of daily fantasy contests combined with each state’s ability to define gambling in their jurisdiction has left daily fantasy in a legally murky area. "A contest is considered to be illegal gambling if three elements are met: consideration—which is an entry fee, prize, and chance. While that standard is the same in all 50 states, what differs state-by-state is the definition of chance," states Marc Edelman, a professor at Baruch College—part of The City University of New York (CUNY) system—and contributor to Forbes magazine. Edelman is a law and sports business expert who has covered daily fantasy since its emergence in the early 2000s. "If one wants to be honest, daily fantasy sports represent a gray area under the law." Despite questions of its legality, fantasy sports sites set up shop and operated mostly under the radar until late 2015, when a DraftKings employee was reported to have used insider information to win a $350,000 cash prize on rival company FanDuel’s platform. News of potential wrongdoing drew the attention of New York’s attorney general, Eric Schneiderman, who promptly launched an investigation to determine if DraftKings and FanDuel constituted illegal gambling. In comments made to CBS this Morning in November, Schneiderman stated that daily fantasy sports "is not some new version of fantasy sports, it’s really just a new version of online gambling." In a cease and desist letter issued to both FanDuel and DraftKings on November 10, 2015, Schneiderman demanded that the companies stop accepting illegal wages in the state of New York and claimed that FanDuel and DraftKings engaged in illegal activity as they "promote daily fantasy sports like a lottery, representing the game to New Yorkers as a path to easy riches that anyone can win." And though Schneiderman sees daily fantasy as a "massive, illegal gambling operation" and describes it as a lottery, in New York the lottery is legal—as are other forms of state-sponsored gambling including horse racing and Indian casinos. And these state-run gambling institutions are often prone to the same corruption that occurs in private sector operations. So why are those forms of gaming okay, but not daily fantasy sports? "I think to an extent recent state actions are about protecting innocent victims and ensuring player protection, but another big piece of that has to be protecting their monopoly to regulate and offer gambling services within their state," explains David G. Schwartz, director of the gaming research center at the University of Nevada, Las Vegas. He says that America has a complicated history with gambling that have led to cycles of legalization and recriminalization. "Since the early days there’s been two different competing feelings in America. One is that people like to gamble so let them do it," Schwartz says. "The other one[...]
Wed, 28 Oct 2015 23:55:00 -0400In the midst of the massive train wreck that was this evening's CNBC-"moderated" Republican presidential candidate debate, the scattershot bouncing between topics landed oh-so-briefly on fantasy sports regulation. The question was first directed to former Florida Gov. Jeb Bush, who seems to be fading further and further behind the pack in this race. Tonight's performance is not likely to provide a boost. Bush was asked whether he thought fantasy sports should be considered gambling and regulated by the federal government. Bush responded: I think this has become something that needs to be looked at in terms of regulation. Effectively it is day trading without any regulation at all. And when you have insider information, which apparently has been the case, where people use that information and use big data to try to take advantage of it, there has to be some regulation. If they can't regulate themselves, then the NFL needs to look at just, you know, moving away from them a little bit. And there should be some regulation. I have no clue whether the federal government is the proper place, my instinct is to say, hell no, just about everything about the federal government. Note how he instinctively seems to go straight for regulation, but then kind of backs off a bit and wonders if the federal government is the right choice to regulate. New Jersey Gov. Chris Christie thought even bringing up fantasy football regulation at this debate was just absurd and he didn't wait to be called upon (an ongoing theme this evening) to cut in: Are we really talking about getting government involved in fantasy football? We have — wait a second, we have $19 trillion in debt. We have people out of work. We have ISIS and al Qaeda attacking us. And we're talking about fantasy football? Can we stop? How about this? How about we get the government to do what they're supposed to be doing, secure our borders, protect our people, and support American values and American families. Enough on fantasy football. Let people play, who cares? [Transcripts courtesy of Washington Post] Christie garnered both laughter and applause from a crowd that may or may not have agreed with him, but was definitely very annoyed by the kinds of questions being asked and definitely perceived the moderators as hostile to the candidates. When you're getting pantsed on regulations by Christie of all people, a big government Republican who loves government surveillance, hates marijuana legalization, and openly derides any sort of libertarian streak within the party, you have truly lost your way. Anyway, the major fantasy sports leagues have agreed to create a self-regulating body to ensure ethical behavior by the companies, though no doubt it's not going to be enough for some who want to regulate (and get their cut of the money, obviously). Jim Pagels delved into the subject for Reason and details how government meddling will no doubt end up hurting fantasy sports' consumers. [...]
Mon, 26 Oct 2015 10:00:00 -0400If you've spent any part of the last few months within earshot of a television, it's likely you've seen a DraftKings or FanDuel commercial parading a series of mid-20s and 30s men bragging about all the money they've won playing daily fantasy sports (DFS). Buzz around the sites has escalated dramatically since the NFL season started in September, but the hype hit a speed bump earlier this month when The New York Times reported that a DraftKings employee accidentally leaked proprietary lineup usage data from his company and allegedly used it to garner an advantage that helped him win $350,000 on the competitor website FanDuel. Many reports have described the incident as "insider trading." but that's not quite right. Insider trading requires the trading of stocks, bonds, or other securities of a company by individuals with nonpublic access to information about that same company, but this incident did not involve stocks and was used to gain a profit via a separate firm. In addition, reports have tended to downplay the fact that the DraftKings employee is reported to have received the information only after his FanDuel roster had been locked, which means that he would not have even been able to use this leaked information to affect his entry. Yet that hasn't kept the story provoking a strong response from public officials. In the last two weeks alone, daily fantasy companies have already been hit with a request for a U.S. congressional hearing, nearly a dozen class-action lawsuits in five states demanding $5 billion in compensation, a probe by the New York attorney general, a review from the Massachusetts attorney general, an investigation by the U.S. attorney's office in Tampa, an investigation by the FBI and U.S. Justice Department, and dozens of states proposing laws to regulate or license DFS operators. By the time this article is published the list is almost certain to be even longer. Sports attorney Daniel Wallach, one of the cohort of go-to sports law experts, in an appearance on C-SPAN last week declared that DFS "will be regulated," predicting it would be in place by this time next year. Wallach, who offered few solid regulatory answers other than evoking buzzwords of "transparency," "oversight," and "accountability," said, "We're going to see regulation, and the transparency that you're looking for, the safeguards, the accountability, that apparatus will ultimately be in place, and operators will be accountable through uniform regulation, there's going to be licensing, there's going to be monitoring. This industry will thrive and survive, but it can't do so in a completely self-regulated environment." However, it's unlikely regulation, as opposed to market-driven forces, would work as advocates claim or bring meaningful real reform. Instead, it would serve mainly as a narrow benefit to state officials and gambling industry competitors. It seems a future DraftKings commercial should read, "I entered a contest on DraftKings and won $350,000 plus a multi-billion dollar regulatory bureaucracy." An activity enjoyed by millions of fantasy players is now in serious turmoil. So, in a country where sports gambling is widely prohibited, how did we get to this point? The first major American gambling legislation came with the signing of the Federal Wire Act in 1961, which prohibited the transmission of wagers on sporting events, ushered in after a series of high-profile mob-related fixings of college basketball games the previous decade. This law remained relatively unedited for 30 years until the major American professional sports leagues and NCAA pushed through Congress the Professional and Amateur Sports Protection Act (PASPA) in 1992, which confined legal sports betting to Nevada as well as three other states. In 2006, with rising concerns about Internet gambling, Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA)[...]
Mon, 26 Oct 2015 06:30:00 -0400
(image) If American customers of Pinnacle Sports are finding that the gambling website's pages take longer to load than usual, they can probably thank The New York Times. The paper's investigation of how Pinnacle communicates with sports bettors in the United States seems to have caused a sudden, inefficient shift in the website's traffic from American to European servers.
Officially, Pinnacle has no American customers, since online sports betting is illegal in the United States—unlike in Curacao, the Caribbean island where Pinnacle is based, or in the various European countries that the company openly serves. But as a Times reporter discovered after consulting with Bet-IBC, an agent of Pinnacle Sports, Americans can get around Pinnacle's policy against accepting bets from people in the U.S. by using a VPN service to disguise their locations and wiring money to a jurisdiction where sports betting is legal:
After The Times informed Pinnacle that it was able to make bets on the website from the United States — despite Pinnacle's insistence that this was not possible—the agent sent an irate message. "We have closed your account and confiscated the funds," the message said.
"We are also obliged to report your fraudulent activities to the relevant authorities," it said.
Pinnacle's anti-American policy seems somewhat inconsistent with its efforts to improve its website's speed within the United States, which according to the Times included hiring contractors with servers in "New York, Miami, Chicago, Dallas and elsewhere." Knowingly facilitating online sports betting is a federal felony, which may help explain why Pinnacle's traffic was suddenly rerouted after the Times started asking questions.
The Times story, which is part of a series produced in collaboration with the PBS documentary series Frontline, is presented as an exposé. But exactly what it exposes is open to argument: Pinnacle's subterfuge or the stupid laws that make it necessary? The Times highlights the futility of trying to stop people from betting on stuff in the privacy of their homes and offices:
For years, offshore sports books like Pinnacle have used technology and other means to keep prosecutors at bay. In the United States, field agents are arrested, money is forfeited and the illegal gambling rings are seemingly dismantled. Yet they rise again, with different street soldiers and a new arsenal of deception. The one constant is the Internet, which allows for the electronic brain of these sports books to evolve, beyond the reach of American prosecutors.
This pattern raises a persistent question: Are the successes of law enforcement tantamount to cutting off a lizard’s tail only to see it grow again, and if so, is the battle even worth fighting? Is the better way—with gambling increasingly woven into the fabric of American sports—to simply legalize it so it can be regulated?
Fri, 16 Oct 2015 10:25:00 -0400
(image) For the first half of the year, Nevada logged more than $5.5 billion in taxable revenue from gaming and related entertainment. That worked out to about $500 million in taxes collected up until the end of June. Nevada saw nearly $4 billion in sports betting in 2014 and the numbers have been increasing for years.
So it should probably not comes a surprise that as daily fantasy sports leagues start getting more and more attention, Nevada would notice that those top national leagues are promising billions in winnings (it's impossible to ignore, given the ad blitz). And what happened next is extremely predictable: Nevada both wants to protect its powerful gambling industry and probably also get some of that revenue. The state has declared that fantasy sports leagues count as gambling. If those national leagues want to allow Nevadans to participate, they'll have to get gaming licenses. From ESPN:
FanDuel, one of the two most prominent daily fantasy operators, said in a statement released Thursday night that it is "terribly disappointed that the Nevada Gaming Control Board has decided that only incumbent Nevada casinos may offer fantasy sports."
"This decision stymies innovation and ignores the fact that fantasy sports is a skill-based entertainment product loved and played by millions of sports fans," Justin Sacco, director of communications for FanDuel, said in the release. "This decision deprives these fans of a product that has been embraced broadly by the sports community, including professional sports teams, leagues and media partners.
"We are examining all options and will exhaust all efforts to bring the fun, challenge and excitement of fantasy sports back to our Nevada fans. In the interim, because we are committed to ensuring we are compliant in all jurisdictions, regrettably, we are forced to cease operations in Nevada."
Draft Kings made a similar statement. The argument that winning fantasy sports leagues involves skill, not chance, does not matter in Nevada, and the chairman of the Nevada Gaming Control Board was very blunt about it. The government decides what is and isn't gambling, not logic, he said.
Nevada will then join Arizona, Iowa, Louisiana, Montana and Washington as states that don't allow fantasy sports leagues. Now whether players in those states find ways to participate in these games anyway and therefore keep their winnings (in the event they actually have any) secret from the tax collectors entirely, well, I'm sure that's not happening at all.
Fri, 09 Oct 2015 11:35:00 -0400
(image) It was probably destined to happen. The news that employees at major fantasy sports league companies also continued to compete for winnings at other sites (and the possibility of access to inside information) has prompted a class action lawsuit.
ESPN is reporting that DraftKings and FanDuel (if you don’t know who they are, turn on your television to any sports network for about five minutes) are being accused of negligence, fraud, and false advertising by a player with a $100 account at DraftKings:
The suit claims that daily fantasy games put forth by the two companies are misrepresented as fair. That case is made mainly through the recently revealed policies of the two companies that allowed employees to enter contests on the other's site for cash prizes, along with the rest of the population.
"DraftKings performs analytics to determine winning strategies, return on investment of certain strategies and even how lineups on FanDuel would do if they were entered into DraftKings contests," the suit alleges.
With these strategies potentially available to some employees, those employees could have a potential advantage by playing on a competitor's site.
A spokesperson for FanDuel said that employees from DraftKings had won .3 percent of FanDuel’s cash prizes. That percentage appears small, but adds up to $6 million given the huge prize pools these companies are boasting.
The sites have said they’re both going to permanently ban their employees from competing in other fantasy sports leagues, and they’ve hired third-party employees to investigate and evaluate their own practices.
Actual fraud problem or just the growing pains of a young industry that blew up so fast it hadn’t previously had to really examine these sorts of practices? I guess it’s a court matter now.
There are some (actually, more than "some") who have argued that the problem is that the fantasy sports league business is not regulated by the federal government. A couple of days ago I explained how that claim is simply not true. The Federal Trade Commission has the authority to intervene in any sort of fraudulent behavior or anti-competitive business practices by these companies.
Wed, 07 Oct 2015 17:10:00 -0400The New York Times simply cannot wait to point out how "unregulated" the recreational (and for some, extremely lucrative) activities of fantasy sports leagues are. The paper's story this week about what is being called a scandal involving two massively growing online fantasy sports companies prompted the Times to describe fantasy sports as "unregulated" in both the headline and in the lede paragraph. They're not alone. A recent Sports Illustrated explainer on the scandal calls the activity "largely unregulated." Deadspin describes an "absence of any sort of official regulatory oversight" on these companies when talking about the scandal. Nearly every story about fantasy sports references a lack of regulation. The reality is a lot more complicated. The federal government may not be treating fantasy sports leagues the same as online gambling, but that doesn't mean these companies can just do whatever they please. But let's take a step back and explain the scandal, first of all. Fantasy sports leagues, like video games, are an example of a wildly popular activity that is treated like an odd, little, mistifying subculture, even though everybody knows somebody (or is somebody) who participates in it. Participants play pretend owners and build teams from actual playing athletes. The "owners" are competing against each other to build the best team, and the winner is determined based on how these actual athletes perform in real-world games. Anybody watching sports or television (but especially those watching televised sports) has discovered that fantasy sports have blown up big time. Two major companies, Draft Kings and FanDuel are offering daily fantasy sports competitions and huge prize pools. Draft Kings boasts "More than $1 billion guaranteed in 2015." FanDuel claims they're expecting to pay out $2 billion. There are generally fees involved in participating in fantasy sports leagues in order to win the big bucks. The winnings have to come from somewhere, right? So fantasy sports has the whiff of gambling to it. Yes, there's skill involved in building teams, but of course, there's no small amount of luck. Julian Edelman could unexpectedly blow out his knee in the middle of a game, and there go millions of fantasy sports players' chances of winning. Setting the luck aside, what also helps determine success is being able to evaluate huge amounts of information about players and make some rather technical team makeup decisions. That's where the supposed scandal comes in. An employee of DraftKings had access to information about which athletes players within his company were selecting. Though DraftKings says he didn't get the information until it was too late to use it, he subsequently participated in competing FanDuel's leagues and won $350,000. The behavior has been compared to insider trading. Though the employee obviously had no idea how these athletes would perform on the field, he could have known the choices other players were making (and more importantly, not making) to maximize his odds of winning. The employee's behavior, though, isn't exactly insider trading, and it's not clear that anything illegal happened. A lot of folks clearly don't like the outcome that an employee of one company is winning the contests offered by another company, and so now the calls for more regulation are coming. The two companies themselves came forward and disclosed what had happened and announced they would stop their employees from participating in other sites' fantasy sports programs while they developed a more formal policy. New York's attorney general has announced a probe into the two companies. It's ridiculous to say that fantasy sports companies are completely unregulated. What people really mean when they say this is tha[...]
Tue, 11 Aug 2015 12:36:00 -0400An online gambling platform could do to the neighborhood bookie what electric refrigerators did to the ice delivery man. Coming this fall, Augur will allow participants to wager money on any future event of their choosing. Software will set the odds, collect the bets, and disperse the winnings. The price alone should give Nevada sportsbook operators pause; an estimated one percent of every pot will go to keep the system running. The average vig today is about 10 times that. Augur isn't a full-fledged casino. You can't play roulette or poker, and running lotto on the platform would be tricky. But it'll be great for sports betting. Here’s what’s truly novel about Augur: It won’t be controlled by any person or entity, nor will it operate off of any one computer network. All the money in the system will be in Bitcoin, or other types of peer-to-peer cryptocurrency, so no credit card companies or banks need to be involved. If the system runs afoul of regulators—and if it’s successful, it most certainly will—they'll find that there's no company to sue, no computer hardware to pull out of the wall, and no CEO to lockup in a cage. This is new legal territory. If Augur catches on as a tool for betting on everything from basketball games to stock prices, is there anything the government can do to stop it? Augur is a decentralized peer-to-peer marketplace, a new kind of entity made possible by recent breakthroughs in computer science. The purpose of these platforms is to facilitate the exchange of goods and services among perfect strangers on a platform that nobody administers or controls. Augur’s software will run on what’s known as a “blockchain"—a concept introduced in 2008 with the invention of Bitcoin—that's essentially a shared database for executing trades that's powered and maintained by its users. Bitcoin’s blockchain was designed as a banking ledger of sorts—kind of like a distributed Microsoft Excel file—but Augur will utilize a groundbreaking new project called Ethereum that expands on this concept. Ethereum allows Augur's entire system to live on the blockchain. That means the software and processing power that makes Augur function will be distributed among hundreds or thousands of computers. Destroying Augur would involve unplugging the computers of everyone in the world participating in the Ethereum blockchain. If Augur is destined to become the cypherpunks answer to gambling prohibition—the betting man’s version of the online drug market Silk Road if you will—you'd never know it from talking with its developers. They work for a San Francisco-based nonprofit, attend conferences, have legal representation, and talk openly about what they’re up to with reporters. Augur even commissioned one of those cheesy motion graphics promotional videos favored by new tech startups. About half of the roughly $600,000 raised by Augur's development team comes from Joe Costello, the successful tech entrepreneur who was once Steve Jobs' top pick to become the CEO of Apple. Joey Krug, a twenty-year-old Pomona college dropout and Augur's lead developer, never uses the world “gambling" to describe his venture. He and his team of five employees call Augur a “prediction market,” a term that emphasizes the information generated when a bunch of people have a financial incentive to feed their expertise into a sophisticated algorithm. With Augur, as bettors move money in and out of the pot, the odds adjust. This yields publicly available statistics that should carry weight because they're derived from the opinions of a crowd of people with a stake in the results. InTrade, for example, the best-known prediction market until federal regulators forced it to stop serving U.S. customers[...]
Thu, 09 Apr 2015 15:25:00 -0400
(image) Back in 2013 Florida saw a massive scandal over a nonprofit organization using gaming cafes across the state to allegedly raise millions of dollars for veterans. The problem was that only a small amount of that money actually went where it was supposed to go. Also, there was gambling. Some people didn't like that.
The state responded by cracking down and cracking down hard on gambling venues within the state. The target of their ban with a new law was supposed to be Internet gambling and video slot machines. Apparently that's not how the legislation ended up working out. The legislation was so broadly written that it could possibly apply to any sort of game that awards any sort of prize worth more than 75 cents. Initially the state was just using the law to crack down on Internet cafes and "senior arcades" that were hosting gambling. But then attorneys for these establishments went, "Hey, wait a minute? Why are we being targeted but not places like Dave and Buster's and kids' arcades?" Why is skee-ball different? Why are claw machines different?
That is a good question and explains why in January, Walt Disney World in Orlando (a company, it's worth pointing out, that has been fighting the legalization of gambling in the Sunshine State) yanked claw machines and redemption games out of all of its parks there. It removed so many that the company that fills and maintains the games for the parks said it would have to reduce its staff as a result.
Now Florida is scrambling for a legislative fix to save Chuck E Cheese and others. Unfortunately, Vending Times notes, this new law, SB 268, won't return things to the way it does before. Instead it turns the whole affair into a permission-based structure with all sorts of rules and regulations about how they work:
Under the proposed law, operators can offer a maximum redemption value of coupons or points a player receives for a single play of a skill-based game from 75¢ to $5.25, with a maximum value of 100 times that amount, or $525, for an item of merchandise obtained onsite using accumulated coupons or points. The maximum wholesale value of merchandise that may be dispensed directly to a player through the machine is limited to 10 times that amount, or $52.50.
The law even determines what types of businesses will be able to operate certain types of machines. Claw machines will be permitted in "a timeshare facility, arcade amusement center, bowling center, a retail premise, public lodging establishment, licensed public foodservice establishment, truck stop or veterans' service organization." What, no strip clubs? What about laundromats? At least pizza parlors are covered, so Disney's Toy Story plot is still safe.
Wed, 25 Mar 2015 18:41:00 -0400Today a House subcommittee held a hearing on the Restoration of America's Wire Act, which would ban online gambling throughout the country, even in states that choose to allow it. The witnesses included Andrew Moylan, executive director of the R Street Institute, who explained why that policy would violate the federalist principles reflected in the 10th Amendment. The bill, introduced last month by Rep. Jason Chaffetz (R-Utah), prohibits "any bet or wager" communicated by "any transmission over the Internet carried interstate or in foreign commerce, incidentally or otherwise." Those last three words "carry a tremendous amount of weight," Moylan noted, because they make the ban applicable to wholly intrastate betting that happens to be routed through equipment located in another state. "To treat all use of the Internet, no matter its nature, no matter the individuals or entities it might connect, as 'per se interstate' and thus subject to Commerce Clause regulation," he argued, "would constitute an enormous shove down the slippery slope toward federal power without meaningful limits." Ron Paul agreed. Nonsense, said Les Bernal, national director of Stop Predatory Gambling, who told the subcommittee that, far from exercising the powers reserved to them by the Constitution, states that choose to allow "extreme forms of gambling" are violating the 14th Amendment's Equal Protection Clause. "One important job of the federal government is to ensure that every state gives every citizen equal protections under the law," he noted. How is that relevant here? Bernal never got around to explaining that, so you'll have to take his word for it. In addition to redefining an unconstitutional bill as constitutionally required, Bernal redefines voluntary transactions as predatory crimes (as you might guess from the name of his group). Hence a state that allows online betting is "forc[ing] casino gambling and lottery games into every bedroom, dorm room and smart phone in their communities." Although people should be free to gamble if they want, Bernal says, no one should be free to help them at a profit: People are, and should remain, free to wager money and to play games of chance for money. While citizens have every right to engage in a financially damaging activity, the government has no business encouraging them. Government, in this case, is not merely permitting private, consensual behavior. It is granting monopolies and awarding regulatory advantages to favored firms. There is plenty of room to criticize special legal privileges that states grant particular businesses, whether in this industry or others. But Bernal seems to view any commercial gambling permitted by the government as a form of state-sponsored gambling. Bernal clearly is offended by state lotteries. I am too. But unlike Bernal, I do not think that refraining from arresting someone for helping people play poker online is morally equivalent to a state-sponsored poker monopoly. And none of this has anything to do with the federal government's constitutional authority to override state policy choices regarding gambling. Most of the arguments raised by Bernal and other supporters of Chaffetz's bill apply with equal force to offline gambling. Yet the most influential private citizen pushing this ban is casino magnate Sheldon Adelson, a major Republican donor who is keen to suppress his online competition and whose lobbyist helped write the bill. That looks like precisely the sort of rent-seeking behavior that supposedly offends Bernal. "Today's hearing was about one thing: checking the box to advance Mr. Adelson's bill," says John Pappas, executive director of the Poker Players Alliance, [...]