Category: Gaming Law

DOJ Fighting for E-Sports Player Compensation

The Biden administration continues its campaign against wage suppression as a source of harm to workers, competitive markets, and the economy. In its latest move, the Department of Justice is supporting players in professional e-sports leagues with a suit to stop Overwatch and Call of Duty developer, Activision Blizzard, Inc., from capping player compensation. Unlike salary restrictions in traditional sports leagues, those implemented by Activision were not produced through collective bargaining and, therefore, are not exempt from antitrust scrutiny.

Complaint and Consent Decree

The DOJ filed suit to challenge Activision’s wage restrictions on April 3rd, alleging Activision and independently-owned teams in two e-sports leagues agreed to implement certain wage restrictions, including a “Competitive Balance Tax.” The tax penalizes teams in the Overwatch and Call of Duty leagues if player compensation exceeds a threshold set by Activision. According to the complaint, this agreement violates Section 1 of the Sherman Act.

The DOJ concurrently filed a consent decree to address the competition issues. If approved by the court, the consent decree would prohibit Activision from implementing any restriction that would limit player compensation directly or indirectly. It would also require Activision to, among other things, certify it has terminated competitive balance taxes and implement antitrust compliance and whistleblower policies.

Ongoing Antitrust Issues Concerning Activision-Microsoft Merger

 While Activision was negotiating the consent decree with the DOJ, its potential parent company, Microsoft, was continuing to defend its proposed $69 billion acquisition of Activision. In December 2022, the FTC sued to block the merger, claiming “the largest ever [acquisition] in the video gaming industry” would enable Microsoft to suppress competitors of Xbox and its rapidly growing subscription content and cloud-gaming business. This case remains pending.

[Read Jonathan Rubin’s Dec. 12, 2022, commentary on the FTC’s challenge, titled, “An Unstoppable Force Meets an Immovable Object: Microsoft to Fight FTC Over Activision Deal.”]

Microsoft has had more success with antitrust agencies overseas. While the European Commission initially put the deal on hold in December 2022, Reuters and Polygon.com reported the Commission’s concerns have been mollified by Microsoft’s commitment to offer licenses to rival gaming companies. Polygon has also reported that the U.K. Competition and Markets Authority has “set aside some of its main concerns” about the merger. It quotes the CMA as stating that “the cost to Microsoft of withholding Call of Duty from PlayStation would outweigh any gains from taking such action.” The deal has also been approved in Japan, Chile, Brazil, Saudi Arabia, and Serbia, Polygon reports.

Non-Statutory Exemption Inapplicable to E-Sports Salary Restrictions

Readers may be wondering why salary caps are commonplace in traditional sports leagues like the NFL, NBA and NHL but not permitted in e-sports leagues. The key distinction is that the salary caps in traditional sports leagues are negotiated and agreed to by player unions as part of the collective bargaining process. As a result, these salary caps (and the agreements containing them) fall under the “non-statutory antitrust exemption,” which was created by the Supreme Court to resolve the inherent conflict between the underlying goals of antitrust laws and labor laws.

Specifically, the non-statutory exemption relieves parties to an agreement restraining trade from antitrust liability where (1) the restraint primarily affects the parties to the agreement and no one else, (2) the agreement concerns wages, hours, or conditions of employment that are mandatory subjects of collective bargaining, and (3) the agreement is produced from bona fide, arm’s-length collective bargaining. The restraints at issue here do not satisfy either the first or third prongs because they affect the e-sports players, who were not parties to the agreement, and were not produced through collective bargaining. Therefore, unlike salary restrictions in other professional sports leagues, those agreed to by Activision and the independent teams are subject to the antitrust laws.

© MoginRubin LLP
For more Antitrust legal news, click here to visit the National Law Review

Metaverse Casinos: A Regulatory Wild West

A New World of Gaming

The metaverse is an immersive online universe on the blockchain where users interact with a multitude of digital worlds and with each other. As in the real world, the metaverse offers a wide variety of activities and entertainment options. The metaverse has become a haven for gaming. Users can explore casino “districts,” offering slots, poker, roulette, blackjack and more, go to shows and nightclubs, and even purchase real estate, including an entire casino. Some platforms within the metaverse are more developed than others, with their own parcels of land, decentralized governmental structures and native tokens. As this space continues to expand into various aspects of daily life, participants in the metaverse ecosystem, and in particular, gaming operators, should proceed with caution as the line between fantasy and reality continues to blur.

The metaverse provides an alternative virtual reality for those who visit, seemingly outside of the legal and regulatory structure of the real world. Now, due to the development of digital assets1 including cryptocurrencies and non-fungible tokens (“NFTs”), visitors can add real-world economic value to some in-game activities. Players can buy, sell, or gamble items in the metaverse for digital assets that can convert to fiat currency, further blurring the lines between a virtual game experience and reality. What seems to some like a game will increasingly have real-world economic consequences for users, and the businesses with which they engage in the metaverse, resulting in more regulatory scrutiny and legal disputes.

Metaverse Gaming vs. Traditional Online Gaming

It is helpful to distinguish metaverse gaming from traditional online gaming. Gaming in the metaverse and online gaming both allow users to play casino games with their friends and social network virtually without the burdens and restrictions of physical travel. Unlike traditional online casinos, the metaverse attempts to replicate the full casino experience, allowing users to explore a digital representation of a casino using a unique avatar and virtual reality technology. Through advancements in technology, users can control their avatar’s behavior in a similar manner to controlling their own conduct in the real world. Essentially, avatars are digital representation of users – they physically walk around and engage with other avatars, including making observations of other avatars’ tells and contributing to an authentic casino experience, all from the comfort of home.

Metaverse casinos generally do not accept traditional fiat currency. A metaverse casino requires a participant to convert their fiat into one of the crypto currencies accepted in the metaverse and deposit funds using a crypto wallet. Users exchange the NFTs and cryptocurrency that they win in the metaverse for fiat currency in the real world, however.

The use of crypto in metaverse gaming has some clear benefits. In addition to providing an immersive interaction compared to fiat-based online gambling platforms, metaverse casinos offer higher levels of security, transparency, and privacy for users. For example, the history of the entire transaction history is accessible on a blockchain. Although the transaction is visible on a blockchain, users may remain anonymous without having to disclose certain personal information, thereby protecting privacy. Deposits and withdrawals are processed virtually instantaneously because there is no third party verifying the transaction.

Regulatory Considerations for Metaverse Gaming

Casino and sports gaming is one of the most heavily regulated industries in the United States. The regulation is primarily at the state level. Some mistakenly believe the metaverse is insulated from real life legal restrictions. To the contrary, any gaming and wagering activity, which constitutes a game of chance involving the risk of something of value and a prize,2 that is being offered to U.S. citizens in the metaverse (on an unregulated basis) is likely to draw the attention of regulators.

Despite the popularity of metaverse gaming, the top U.S. operators have largely stayed on the sidelines while offshore and smaller companies dominate the space. This is unsurprising for three reasons:

  1. The fact that metaverse gaming lacks a dedicated regulatory framework and online gaming is legal in only a handful of states;

  2. As we wrote previously, the reluctance of regulated gaming companies operating in the U.S. to pursue the legal use of cryptocurrency given its volatility, lack of acceptance, and regulatory and/or legislative hurdles; and

  3. General legal uncertainty.

An operator that wishes to offer a gaming platform to U.S. citizens in the metaverse would need to do so with the express permission and under the oversight of each state’s gaming commission whose residents they serve. This may also require new legislation and regulatory schemes. For example, Wyoming, an early adopter of cryptocurrency, passed legislation in 2021 that allows sportsbooks to accept “digital, crypto and virtual currencies.”3 Generally, however, regulators and legislators are not known for their speed in adopting new and emerging technologies and the industry as a whole is still working toward more immediate and attainable goals, such as expanding legal online gaming. Currently, fewer than 10 states offer online casinos and/or poker.

There is significant regulatory and legal uncertainty surrounding metaverse casinos. For example, which oversight bodies have authority to regulate metaverse casinos? Can users face consequences in the real world for the actions of their avatar in metaverse casinos? How are players protected from unlawful conduct in metaverse casinos? Can operators be held responsible for that misconduct? State gaming regulators would have jurisdiction over gaming activity being offered to their residents in the metaverse alongside other regulators including the SEC, the U.S. Commodity Futures Trading Commission, and the Financial Crimes Enforcement Network, given the use of cryptocurrency and NFTs.4 At this early stage, there are more questions than answers. The history of the real-world gaming industry suggests it is highly probable that metaverse casinos will be subject to direct regulation.

New Legal Parameters Around Metaverse Gaming Are Expected

The competitive nature of the U.S. gaming market, the vast lobbying power of licensed gaming operators, and the substantial fees for licensure indicate that it is not a matter of if, but when regulators will intervene in metaverse gaming. While the concept of metaverse casinos is exciting and creates the opportunity for significant growth in the gaming industry, like many innovations, it brings additional challenges and risks for operators.

In fact, earlier this year securities regulators in Texas and Arizona demanded that a metaverse casino developer cease its funding for the development of its metaverse casino (and expansion of its metaverse casinos to all other relevant metaverses) through NFTs for failing to register the NFTs as securities and on the grounds that it was conducting an illegal fraudulent securities scheme.5

About a month later, securities regulators in Texas, Wisconsin, Kentucky, New Jersey, and Alabama filed an action against another metaverse casino due to its alleged ties to Russia and a fraudulent investment scheme it was running in violation of securities laws.6 The Texas State Securities Board stated its concerns about scammers being able to hide their identities (also referred to as “going dark”), as they alleged occurred here, in metaverse casinos.

In addition, just a few months ago, 28 members of Congress urged the Department of Justice to work with the industry, and other stakeholders to prosecute offshore sports betting companies operating illegally in the U.S.7 Similarly, absent a known regulatory scheme, even “successful” operation of a metaverse casino at present does not foreclose adverse action or shutdowns in the future due to increasing regulatory scrutiny.

While it is unclear how, if, and to what extent, existing regulations apply to metaverse gaming, the actions referenced above demonstrate that some state regulators are taking the position that the same rules that apply to investments in the real world also apply to investments in the metaverse. The risk is not limited to the virtual world, but also exposes investors to the potential loss of real money. The above matters also highlight the broad range of risks government authorities could be motivated to address, from international policy implications to financial fraud scams.

Pioneering the Metaverse

Although there are significant barriers to operating gaming platforms in the metaverse, forward-thinking gaming companies have wisely been preparing to enter this new world when it is safe to do so. If the metaverse becomes as integrated into daily life as it is expected to be, those pioneers will reap the rewards. We recommend gaming operators in the metaverse proceed with caution and retain highly qualified counsel to help them navigate the developing regulatory landscape.

For more internet and cybersecurity legal news, click here to visit the National Law Review

Copyright ©2022 Nelson Mullins Riley & Scarborough LLP

FOOTNOTES

  1. Regulators in the United States including the Securities and Exchange Commission (“SEC”) use the term “digital asset” to refer to “an asset that is issued and transferred using distributed ledger or blockchain technology.” Statement on Digital Asset Securities Issuance and Trading, Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets, SEC (Nov. 16, 2018), available here. As the SEC has noted, digital assets include, but are not limited to, virtual currencies, coins, and tokens. Id. A digital asset may in certain instances be deemed a security under the federal securities laws. While not defined in the securities laws, the SEC often refers to digital assets that are securities as a “digital asset securities.” Id.

  2. The issue of what is a “thing of value” within the meaning of state anti-gambling law has been the subject of recent litigation. See, e.g., Kater v. Churchill Downs, Inc., 886 F.3d 784 (9th Cir. 2018) (virtual chips in online game held to be a “thing of value” for purposes of Washington’s illegal gambling law); Coffee v. Google, LLC, No. 20-CV-03901-BLF, 2022 WL 94986, at *13 (N.D. Cal. Jan. 10, 2022) (“loot box” prizes limited to use in in-app game not “things of value” under California illegal gambling law).

  3. Pat Evans, Cryptocurrency In Legal Sports Betting: What’s Next?, (June 9, 2022), available here.

  4. We will discuss the potential role of these Federal regulators in future articles.

  5. Dorothy N. Giobbe, et. al, Texas and Alabama Securities Regulators File Enforcement Actions Against Online Casino Developer Selling NFTs to Operate Casinos in a Metaverse, (April 29, 2022), available here.

  6. Five States File Enforcement Actions to Stop Russian Scammers Perpetrating Metaverse Investment Fraud, (May 11, 2022), available here.

  7. Chris Altruda, Congressional Group Calls on DOJ to Help Fight Illegal Offshore Sportsbooks, (Jun. 30, 2022), available here.

 

Not So Fast—NCAA Issues NIL Guidance Targeting Booster Activity

Recently, the NCAA Division I Board of Directors issued guidance to schools concerning the intersection between recruiting activities and the rapidly evolving name, image, and likeness legal environment (see Bracewell’s earlier reporting here). The immediately effective guidance was in response to “NIL collectives” created by boosters to solicit potential student-athletes with lucrative name, image, and likeness deals.

In the short time since the NCAA adopted its interim NIL policy, collectives have purportedly attempted to walk the murky line between permissible NIL activity and violating the NCAA’s longstanding policy forbidding boosters from recruiting and/or providing benefits to prospective student-athletes. Already, numerous deals have been reported that implicate a number of wealthy boosters that support heavyweight Division I programs.

One booster, through two of his affiliated companies, reportedly spent $550,000 this year on deals with Miami football players.1 Another report claims that a charity started in Texas—Horns with Heart—provided at least $50,000 to every scholarship offensive lineman on the roster.2 As the competition for talent grows, the scrutiny on these blockbuster deals is intensifying.

Under the previous interim rules, the NCAA allowed athletes to pursue NIL opportunities while explicitly disallowing boosters from providing direct inducements to recruits and transfer candidates. Recently, coaches of powerhouse programs have publicly expressed their concern that the interim NIL rules have allowed boosters to offer direct inducements to athletes under the pretense of NIL collectives.3

The new NCAA guidance defines a booster as “any third-party entity that promotes an athletics program, assists with recruiting or assists with providing benefits to recruits, enrolled student-athletes or their family members.”4 This definition could now include NIL collectives created by boosters to funnel name, image and likeness deals to prospective student-athletes or enrolled student-athletes who are eligible to transfer. However, it may be difficult for the NCAA to enforce its new policy given the rapid proliferation of NIL collectives and the sometimes contradictory policies intended to govern quid pro quo NIL deals between athletes and businesses.

Carefully interpreting current NCAA guidance will be central to navigating the new legal landscape. Businesses and students alike should seek legal advice in negotiating and drafting agreements that protect the interests of both parties while carefully considering the frequently conflicting state laws and NCAA policies that govern the student’s right to publicity.

ENDNOTES

1. Jeyarajah, Shehan, NCAA Board of Directors Issues NIL Guidance to Schools Aimed at Removing Boosters from Recruiting Process, CBS Sports (May 9, 2022, 6:00 PM).

2. Dodd, Denis, Boosters, Collectives in NCAA’s Crosshairs, But Will New NIL Policy Be Able To Navigate Choppy Waters?, CBS Sports (May 10, 2022, 12:00 PM).

3. Wilson, Dave, Texas A&M Football Coach Jimbo Fisher Rips Alabama Coach Nick Saban’s NIL Accusations: ‘Some People Think They’re God,’ ESPN (May 19, 2022).

4. DI Board of Directors Issues Name, Image and Likeness Guidance to Schools, NCAA (May 9, 2022, 5:21 PM).

Article By Jonathon K. Hance, Joshua H. Gold-Quirós, and Drew Taggart of Bracewell LLP

For more entertainment, art, and sports news, click here to visit the National Law Review.

© 2022 Bracewell LLP

Hackers Go Phishing in Beeple’s Deep Pool of Twitter Followers

“Stay safe out there, anything too good to be true is a … scam.” Beeple, a popular digital artist, tweeted to his followers, addressing the phishing scam that took place on May 23, 2022, targeting his Twitter account. The attack reportedly resulted in a loss of more than US$400,000 in cryptocurrency and NFTs, stolen from the artist’s followers on the social media website.

After hacking into Beeple’s Twitter account, perpetrators tweeted links from the artist’s page, promoting a fake raffle for unique art pieces. The links would reportedly take the user to a website that would drain the user’s cryptocurrency wallet of their digital assets.

Phishing scams for digital assets, including NFTs or non-fungible tokens, have steadily increased, with funds as large as $6 million being stolen. Various jurisdictions have adopted privacy and security laws that require companies to adopt reasonable security measures and follow required cyber incident response protocols. A significant part of these measures and protocols is training for employees in how to detect phishing scams and other hacking attempts by bad actors. This incident is a reminder to consumers to exercise vigilance, watch for red flags and not click on links without verifying the source.

The remaining summaries of news headlines are separated by region for your browsing convenience. 

UNITED STATES

Relaxed Deaccessioning COVID-19 Exemptions Expire

The global COVID-19 pandemic brought many changes, including dire financial consequences of the shutdowns for museums. In April 2020, the Association of Art Museum Directors (AAMD) made a decision to ease the rules that dictate how museums may use proceeds from art sales. Until April 2022, museums were permitted to use the funds for “direct care of collections” rather than to procure new artworks for their collections.

This relaxed policy and some of the museums that followed it met with backlash on more than one occasion; others, however, advocate for its continuation, citing considerations of diversity and inclusion. Some further argue that a policy born out of financial desperation should be continued to provide museums with the means to overcome any future financial issues that may arise.

Given that “direct care” is vague and open to interpretation, opponents of the relaxed rules counter giving museums such latitude to decide on the use of the proceeds, as it can lead to abuses and bad decisions. While AAMD has returned to its pre-pandemic regulations, and museums have followed suit, it appears that the public debate around deaccessioning is far from over.

Inigo Philbrick Sentenced to a Prison Term

Former contemporary art dealer Inigo Philbrick was sentenced by a federal court in New York to serve seven years in prison for a “Ponzi-like” art fraud, said to be one of the most significant in the history of the art market, with more than an estimated US$86 million in damages. Philbrick stood accused of a number of bad acts, including forging signatures, selling shares in artworks he did not own and inventing fictitious clients.

New York Abolishes Auction House Regulations

As the U.S. government is studying whether the art market requires further regulations to increase transparency and to combat money laundering, New York City repealed its local law that required auctioneers to be licensed and required disclosures to bidders, including whether an auction house had a financial stake in the item being auctioned. While the abolition of the regulation was ostensibly to improve the business climate after the pandemic, some commentators note that the regulations were outdated and not serving their purpose in any event. As an illustration, a newcomer to an auction will likely struggle to understand the garbled pre-action announcements or their significance. Whether the old regulations are to be replaced with new, clearer rules remains to be seen.

EUROPE

Greece and UK to Discuss Rehoming of Displaced Parthenon Marbles

The Parthenon marbles, also known as the Elgin marbles, have been on display in London’s British Museum for more than 200 years. These objects comprise 15 metopes, 17 pedimental figures and an approximately 250-foot section of a frieze depicting the birthday festivities of the Greek goddess Athena. What museum goers might not know is that these ancient sculptures were taken from the Acropolis in Greece in 1801 by Lord Elgin.

Previously, the British government, seeking to retain the sculptures, relied on the argument that the objects were legally acquired during the Ottoman Empire rule of Greece. However, for the first time, the UK has initiated formal talks with Greece to discuss repatriation of the Parthenon sculptures. These discussions are expected to influence future intergovernmental repatriation negotiations.

ASIA

Singapore High Court Asserts Jurisdiction over NFTs after Ruling Them a Digital Asset

The highest court in Singapore has granted an injunction to a non-fungible token (NFT) investor, Janesh Rajkumar, who sought to stop the sale of an NFT that once belonged to him and was used as collateral for a loan. The subject NFT from the Bored Ape Yacht Club Series is a rarity, as it depicts the only avatar that wears a beanie. Rajkumar now is seeking to repay the loan and have the NFT restored to his cryptocurrency wallet. The loan agreement specified that Rajkumar would not relinquish ownership of the NFT, and should he be unable to repay the loan in a timely manner, an extension would be granted. Instead of granting Rajkumar an extension, the lender, who goes by an alias “chefpierre,” moved to sell the NFT. The significance of the Singapore court’s decision is two-fold: the court has (1) recognized jurisdiction over assets cited in the decentralized blockchain, and (2) allowed for the freezing order to be issued via social media platforms.

THE MIDDLE EAST

Illegal Trading Leads to Raiding of Antique Dealer by the Israeli Authorities

A recent raid on an unauthorized antiquities dealer in the city of Modi’in by the Israel Antiquities Authority recovered hundreds of artifacts of significant historical value, including jewelry, a bronze statue and approximately 1,800 coins. One the coins is a nearly 2,000-year-old silver shekel of great historical significance. The coin is engraved with the name Shimon, leader of the 132–136 C.E. Bar Kokhba revolt.

Investigations are ongoing to determine where the antiquities were obtained. The Antiquities Robbery Prevention Unit intends to charge the dealer and their suppliers upon obtaining this information.

Article By Jana S. Farmer and Meenka Maharaj of Wilson Elser Moskowitz Edelman & Dicker LLP

For more entertainment, art, and sports news, click here to visit the National Law Review.

© 2022 Wilson Elser

Ohio Votes to Legalize Sports Betting

Ohio lawmakers have reached an agreement that will legalize sports betting for those 21 and older. House Bill 29, which was passed by the Ohio House of Representatives and Senate on December 8 and is expected to be signed into law by Governor DeWine in the coming days, will allow licensed gaming operations to begin accepting wagers as soon as April 1, 2022.

Since the Supreme Court of the United States struck down federal law prohibiting state-sponsored sports betting in 2018, 33 states and Washington D.C. have passed legislation establishing regulated markets for wagering on sports. Ohio now becomes the 34th as it hopes to curb the flow of its residents’ entertainment and tourism dollars into neighboring Michigan, Pennsylvania, Indiana and West Virginia, all of whom have already legalized sports betting.

Oversight. The Ohio Casino Control Commission (“OCCC”) will be responsible for regulating and monitoring all sports gambling activity in the state. Once the bill is signed into law, the OCCC is required to establish a licensing process, consumer protections, advertising guidelines, and financial requirements for licensees. As an enforcement agency, it will also be given the authority to create other administrative rules it deems necessary to carry out its oversight duties.

Licenses. The OCCC will being accepting license applications on January 1, 2022 and can begin issuing a limited number of licenses on April 1, 2022. The law provides guidance as to how the OCCC will evaluate applicants, and establishes three classes of licenses: (1) Type A licenses for casinos, racinos and sportsbooks operating online and via mobile app; (2) Type B licenses for brick-and-mortar sportsbooks, which will be distributed throughout the state based on county population; and (3) Type C licenses for betting terminals to be placed in restaurants, bars and the like that possess D-1, D-2, or D-5 liquor permits.

Taxes.  A 10% tax will be placed on the new industry’s revenues. Combined with the fees and fines collected by the OCCC, most of this money will be earmarked for distribution by the Ohio General Assembly to public and nonpublic K-12 education programs and a state-sponsored Problem Sports Gaming and Addiction Fund. The bill also creates certain tax incentives for licensed operators beginning in 2027.

Be Ready. Businesses affected by legalization, whether pursuing a license, contracting with a license-holder or being indirectly impacted, need to stay vigilant as Ohio’s sports betting regulatory framework develops. From financial reporting to employment practices, failure to understand and implement processes to comply with the forthcoming regulations could result in significant fines or even criminal penalties.

©2021 Roetzel & Andress

How to Banish the Black Market and Ensure Integrity: What States Legalizing Sports Betting for the First Time Can Learn From Nevada and Legalized Cannabis States

Integrity, integrity, integrity. The integrity of the game is a top concern of regulators and the college and professional sports leagues as legalized sports wagering expands across the United States. But what steps can regulators take to ensure that the “fix” is not in on games being wagered upon?

In theory and in practice, legalization of sports wagering provides a better framework to track and trace aberrations in betting patterns that may indicate game fixing. After all, if sports wagering is illegal, there is no one monitoring the action to ensure that those placing wagers are not being ripped off by game fixing. Once wagers are placed in a legal setting, you can bet that the legal bookmakers will be watching the betting patterns closer than anyone to make sure they are not being taken for a ride. And the veteran Nevada sports book operators who are sure to be running  many of the books in newly legalized states have the experience in tracking the numbers to know when something is off.

Indeed, Nevada sports books have long assisted regulators – and the leagues – in uncovering game-fixing schemes, such as the 1999 Arizona State Sun Devils point-shaving scandal, by tracking and notifying regulators when they have spotted irregular betting patterns.

But what about the black market? In theory, the legalization and regulation of sports wagering should bring the industry into the light, allowing the wagering action to be taxed and the backroom sports books to be shut down. And that certainly is an important policy goal of regulators. But it isn’t necessarily that simple.

States drafting their sports wagering laws and regulations can learn a lot from another black-market activity that has been legalized in a number of states – cannabis – to better understand the impact that legalization has had on the black market for cannabis in those states.

The surprising result: the black market has not magically disappeared in the states where cannabis sales have been legalized. One of the key reasons why is the simple fact that legal cannabis prices are generally higher than black-market cannabis because of the additional costs of state-mandated testing, security systems, etc., and, of course, taxes. Coupled with a lack of adequate resources and funding for local law enforcement to crack down on illegal cannabis sales, this makes for a thriving black market, even in states that have legalized cannabis.

What can the regulators who are drafting sports-wagering laws and regulations take away from this? We would not advocate stepping back from drafting the laws to legalize sports wagering, as a lack of any legal market would only help the black market. Instead, regulators should just keep this issue in mind as they draft regulations and try to find a balance between meaningful regulation and over-taxing and heavy regulatory requirements that will add to the costs of legal sports wagering in a way that will either make it unprofitable for legal sports books to operate or make the costs of such wagers so high that bettors continue to seek backroom options.

 

© Copyright 2018 Dickinson Wright PLLC

Mississippi Gaming Commission’s Special Interim Commission Meeting: September 14, 2017

The Mississippi Gaming Commission held a Special Interim Meeting on Thursday, September 14, 2017, at 10:00 a.m. in the Biloxi office of the Mississippi Gaming Commission. Executive Director Allen Godfrey, Chairman Al Hopkins, and Commissioner Jerry Griffith were in attendance. The following matters were considered:

Riverboat Corporation of Mississippi d/b/a Golden Nugget Biloxi Hotel and Casino received approval of the following:

  1. Registration of Golden Nugget, Inc. as a Holding Company of Riverboat Corporation of Mississippi

  2. Registration of Landry’s Gaming, Inc. as a Holding Company of Riverboat Corporation of Mississippi

  3. Transfer of the Equity Interests or Securities of Riverboat Corporation of Mississippi

  4. Pledges of Equity Interests or Securities in Connection with the Credit Facility

  5. Imposition of Equity Restrictions Including Negative Equity Pledges in Connection with the Credit Facility

These approvals were in connection with a restructuring of the ownership of the Golden Nugget companies in order to facilitate the acquisition of the Houston Rockets NBA basketball team.

This post was written by Thomas B. Shepherd & Christopher S. Pace  of Jones Walker LLP © 2017
For more legal analysis go to The National Law Review

Mississippi and Louisiana Attorneys General Among Those Filing Amicus Brief with Supreme Court in New Jersey Sports Wagering Case

Attorney General Jim Hood of Mississippi and Attorney GenerFantasy Sports, New Jersey, Sports Wageringal Jeff Landry of Louisiana joined their counterparts from West Virginia, Arizona, and Wisconsin in filing a brief of Amici Curiae in support of the State of New Jersey’s Petition for Writ of Certiorari in its sports wagering case. In the case styled Governor Christopher J. Christie, et al. v. National Collegiate Athletic Association, et al., an en banc panel of the Third Circuit Court of Appeals interpreted the Professional and Amateur Sports Act, 28 U.S.C. § 3702, as prohibiting States from modifying their existing laws to repeal prohibitions on sports wagering.  As a result of this interpretation, the Supreme Court has been petitioned for writ of certiorari in this case to determine whether the Act commandeers the regulatory authority of the States in violation of the Tenth Amendment.

The crux of Amici States’ argument focuses on the fact that federal law does not directly prohibit sports wagering when it takes place in a State in which such wagering is legal.  Rather, the Act makes it unlawful for a State, other than those that were grandfathered in at the time the Act was enacted, to license or authorize sports wagering.  As a result, the Amici States argue that the federal regulatory approach that currently exists amounts to unconstitutional commandeering instead of lawful preemption under the Supremacy Clause.  However, the Amici States explicitly assert that they take no position on the specific sport wagering laws at issue in this case.  Instead, the Amici States are not concerned in this instance with what Congress regulates but rather the manner in which Congress regulates.

It will be interesting to follow this case through this process to see what, if anything, Congress and the Amici States will do if New Jersey prevails.  Based on the Amici States arguments, Congress could still elect to directly regulate sports wagering, although it appears that the tide has turned and that such regulation would be disfavored by the majority of Americans.  In Mississippi, Mississippi Code § 75-76-101, which requires that all gaming be entirely located and conducted on the licensed premises, would have to be addressed, at a minimum, to implement sports wagering.  Similar laws would have to be addressed to permit sports wagering in Louisiana as well.  In any event, although the arguments in this case are focused primarily on States’ rights in relation to the federal government, the outcome could have interesting consequences in gaming jurisdictions around the nation.

ARTICLE BY Blake M. Fulton of Jones Walker LLP

© 2016 Jones Walker LLP

Alabama: Indian Gaming Benefits More Than Just Tribes

While political opposition still sometimes flares up, with some form of legal gaming available in all but two states, there now is little question that gaming is widely accepted in the United States. In 2014, commercial casino gaming revenues were slightly less than $38 billion, and tribal gaming represented an additional $28.5 billion. These are significant economic contributors, and tribal gaming is especially important in helping improve conditions in many communities.

Tribal gaming is a unique economic engine. The Indian Gaming Regulatory Act (IGRA), which was enacted in 1988 to provide a statutory basis for the regulation of gaming on Indian lands, prohibits using net revenues from Indian gaming for any purpose other than funding tribal government operations or programs; providing for general welfare of the tribe and its members; promoting tribal economic development; donating to charitable organizations; or helping fund local government agencies’ operations. The dedication of tribal gaming revenues to these beneficial purposes has funneled hundreds of millions of dollars into health and welfare programs, education, housing and public safety, assisting not only tribal members, but the surrounding communities.

The Poarch Creek Indians (PCI) in Alabama illustrate this point. Since achieving federal recognition in 1984, they have grown their gaming economic development operations from a small bingo hall with 130 jobs to three major casinos and a growing number of non-gaming enterprises with a combined total of nearly 4,000 employees, most of whom are not enrolled tribal members.  The casinos are “destinations,” with first class restaurants, spas and entertainment venues, including recreation for the local communities such as movie theaters, arcades and bowling alleys. In keeping with the IGRA rules, their revenues fund health clinics, elderly housing, scholarships, and even a 15,000 acre wildlife preserve. They funded the construction and on-going full-time staffing of two fire and rescue stations that serve the entire community and have joint assistance agreements between their tribal police and two sheriff’s departments to help with local law enforcement.

PCI has generously fulfilled the IGRA provision that allows “helping fund local government agencies’ operations,” with substantial donations to schools, transportation, hospitals, public safety operations and other local government functions. They make charitable gifts to a broad range of agencies and have an endowment program to which anyone can apply for up to $5,000 to fund a community service program.

Perhaps even more remarkable is the Creek Indian Enterprises Development Authority through which PCI is expanding their business operations into a diversified group of enterprises bringing economic development to the entire state, and especially good jobs to areas where, not so long ago, share cropping was still prevalent. PCI operates a major interstate truck stop, convenience stores, hotels and restaurants not connected to gaming, one of the largest cattle farming operations in Alabama and a high-tech manufacturing facility serving the aircraft and automobile industries and supplying parts for space vehicles. As an indicator of the Tribe’s sound economic development strategy, in 2015, these business enterprises were self-sustaining, with no supplemental funding from the gamng operations.

The drafters of the IGRA legislation intended it to be a vehicle to provide the ability for Indians to benefit their communities and help tribal members escape wide-spread poverty. The PCI economic development focus is a demonstration of the wisdom of that policy.

Article By Larry C. Lavender of Jones Walker LLP

© 2016 Jones Walker LLP

Should There be a Legislative Solution to Disputed Indian Trust Applications?

Recent actions in Arizona and Indiana suggest that there is a new approach to local government opposition to Indian tribal applications for trust status of newly acquired land. The question has to be whether this is sound Indian Law policy, although the follow-up question seems to be whether the proponents even care.

The most shocking proposal is being sponsored by Arizona’s Senior Senator John McCain and Congressman Trent Franks to repeal a federal law enacted long ago as part of a land settlement negotiated with the Tohono O’odham Nation of Arizona. Specifically, the Tribe entered into an agreement with the federal government pursuant to which the Tribe would be compensated for the flooding of tribal reservation land with both cash and the right to construct a casino in the state on land not otherwise restricted for such a project.

The history of this dispute was summarized by Tribal Chairman Ned Norris, Jr. before the House of Representatives in 2013 as follows:

In 1986 the United States made a promise to the Tohono O’odham Nation when Congress enacted land and water rights settlement legislation, the Gila Bend Indian Reservation Lands Replacement Act, Pub. L. 99-503 (Lands Replacement Act) – legislation that the Department of the Interior has described as “akin to a treaty.” Tohono O’odham Nation v. Acting Phoenix Area Director, Bureau of Indian Affairs, 22 IBIA 220, 233 (1992). This settlement legislation was intended to compensate the Nation for the Army Corps of Engineers’ unauthorized destruction of the Nation’s Gila Bend Indian Reservation. Among other things, the United States promised in that settlement legislation that the Nation could acquire new reservation land in Maricopa County to replace its destroyed Gila Bend Reservation land (which also was located in Maricopa County). The United States also promised that the new land would be treated as a reservation for all purposes.

Following enactment of that federal law, the Tribe has moved forward to develop a resort/casino on newly acquired land on unincorporated land within Maricopa County in the Glendale-Phoenix area – commonly referred to as the “Glendale Project.” It has been opposed with multiple lawsuits filed by the State, local governments and even other Indian tribes.

The Tohono O’odham Nation has prevailed in every judicial determination rendered and is now constructing its resort/casino project. But there is new Congressional activity to prohibit the project and – in the process – change federal law for the sole purpose of stopping this single tribal project by unilaterally repealing critical parts of the Congressional Act settling an important dispute over federal flooding of tribal reservation lands.

The McCain-Franks bill has been favorably reported out of the relevant committees in the both the Senate and the House of Representatives. The legislation is not of general application; rather, it is written for the sole purpose of blocking the Glendale Project.

Indian gaming is conducted pursuant to a 1987 Supreme Court decision which led to enactment of the Indian Gaming Regulatory Act of October 17, 1988 (“IGRA”). Since that time, many local governments and citizen groups have opposed tribal gaming development on lands newly acquired in trust status. Those challenges properly have been grounded on the very clear requirements of IGRA which impose subjective standards for review and decision. To this end, the challenges to Glendale Project under applicable federal laws – including both IGRA and the Indian Reorganization Act of June 18, 1934 – have been unsuccessful. By all legal assessments, the Tribe is clearly within the law.

However, the Tribe is subject to Congressional action since the Indian Commerce Clause of the United States Constitution gives Congress plenary power over Indian affairs. And this legal fact is the foundation of the McCain-Franks assault on the project. Thus, what should be a dispute determined on the basis of existing law suddenly becomes a battle over whether Congress should legislate a final resolution in contradiction to existing law.

Let there be no doubt about the fact that Congress can terminate the Glendale Project, but the real question is whether it should do so through enactment of a dangerous precedent which likely would lead to other state Congressional delegations seeking “killer” federal legislation. And, the better question is whether this result is either necessary or advisable.

First, the Tohono O’odham situation is unique, in that the Tribe is pursuing an economic opportunity that is specifically tied to provisions of a federal land settlement statute. Reversing a key provision of that earlier legislation probably exposes the United States to a major Court of Federal Claims lawsuit for massive financial damages for the uncompensated taking of the tribal claims to the Glendale site that were legislated by the Gila Bend Indian Reservation Lands Replacement Act.

Second, how can this precedent be ignored when local politicians in other states propose similar legislative attacks on tribal projects that also are concededly legal under existing law? Rather than pursue claims on existing law, the door suddenly opens to outright statutory revocation of tribal rights.

And the scenario for the next such claim is coming from Indiana where state politicians are proposing federal legislation to block the Pokagon Band of Potawatomi Indians from expanding its casino empire from its reservation in the northern part of the state to newly acquired lands near South Bend. The tribe proposes to construct a $480 million project on lands that it claims qualify for gaming pursuant to specific provisions of IGRA. Whether the land does or does not quality for gaming has not been determined, but Indiana legislators do not want to take a chance on tribal success. Rather, they want immediate federal legislation blocking this single project without regard to legal or factual merit.

Other local groups are almost certainly watching these developments. If Congress blocks the Glendale Project, then there is no reason why it would not block others without regard to existing law. A political resolution of Indian trust applications would reverse many decades of established law. The precedent needs to be carefully considered.

Authored by Dennis J. Whittlesey  of Dickinson Wright PLLC

© Copyright 2015 Dickinson Wright PLLC