Public Gaming Magazine September-October 2016

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September/October 2016 // PUBLIC GAMING INTERNATIONAL // 69
Companies like Lottoland and Tipp 24 sell Powerball, Megamil-
lions, Euromillions, Eurojackpot, and many of the jurisdictional
games online and into markets where they are not licensed to sell.
They buy insurance to cover the liability of getting hit with smaller
jackpot prize-payouts. Then, when the jackpot exceeds a threshold
where it can’t be insured, they just use agents to buy the ticket from
the operator, effectively outsourcing the risk back to the operator
when the liability is too big. had an agent in Oregon
buy the lottery ticket in Oregon, so the person they sold it to actu-
ally received the legitimate lottery ticket. You might wonder how
they make money that way unless they upcharge the player. For one
thing, some of them do upcharge which is against the rules of many
lotteries. The thing is, though, they make their profit on the sales
that they self-fund by insuring against a jackpot win in the smaller
amounts. Or, in the unlikely event that they sold the winning num-
bers for a super large jackpot and failed to buy the actual ticket, one
would wonder if they would not just declare bankruptcy instead of
honoring the $1.6 billion jackpot, or even the $100 million jackpot.
James Maida: If you have seen the movie The Big Short, you
will recall the story of the financial crisis of 2007. The problem was
that the vast network of derivatives created a lack of accountabil-
ity and transparency which eventually caused the whole system to
break down. These operators that you refer to are, in effect, selling
a derivative product. They are legally licensed in one jurisdiction to
operate betting. Betting can be on anything, like who will win the
presidential election, would the UK vote to leave the EU or, in the
case of Lottery, what will the outcome of the Powerball draw be.
It is like a side-bet, a derivative investment, on the outcome of an
event, like a lotto draw.
Gordon Medenica: How is it that these companies can violate the
trademarks of Powerball and EuroMillions and our other products?
Lynne Roiter: Trademarks and other forms of intellectual prop-
erty can be defended in your own country. But it is time-consum-
ing and costly to register trademarks in every jurisdiction all over
the world. That has not been done because we did not imagine that
people in other countries would want to buy our products when
lottery products are already provided by their own jurisdictional
operator. We did not anticipate that a person living in Iraq would
pay a premium price to buy an Oregon lottery product from an
internet operator based in London. I still don’t quite get that. But
the Tipp24’s and Lottolands are making a lot of money by violating
our trademarks and selling illegally into jurisdictions where they are
not licensed to operate.
James Maida: Another example of applying a derivative model
to gambling: Indian tribes in the U.S. operate gambling within the
boundaries of their sovereign reservation. The land is considered a
sovereign jurisdiction with the right to operate games-of-chance.
An enterprising company now has a website that enables players to
log in and play from locations not on the reservation. This would
appear to be internet gambling which is illegal in the U.S. except
where it is specifically authorized and regulated by the state. This
operator, though, is claiming that the player is not gambling on-
line. Instead, the claim goes, the player is giving authorization for a
proxy who is physically located within the tribal land to play. Tech-
nically, the wagers are being placed legally within the tribal jurisdic-
tion. But they are being placed at the direction of a person who is
physically outside of the jurisdiction. The question is whether the
internet operator who is enabling this kind of derivative wagering is
acting legally or not. It is being litigated as we speak.
Mark Hichar: While Indian reservations are sovereign states, and
thus the federal government has a role to play in matters related to
gambling on them, states are usually in the best position to regulate
conduct occurring on state lands and off tribal lands. As James said,
states today prohibit all gambling and then, in all but two states,
carve out those exceptions that they deem most appropriate for its
local culture and public policy objectives, and the states regulate
and tax those gambling exceptions in the way they deem best. This
has proven to be the best regulatory framework, as each state can
tailor its gambling policies to its own citizenry and its own policy
objectives. For the federal government to get involved in the regula-
tion of internet gaming would impose a one-size-fits-all structure
that would likely not suit most states. Even if states could opt out,
a structure in which internet gaming was only allowed pursuant to
a federal regulatory infrastructure would be unlikely to satisfy the
states or be consistent with their goals.
Imagine a commercial land-based casino in which a proxy was
operating as James described. Would individuals outside the casino
delivering instructions over the internet to this proxy be comply-
ing with the law or not? Regardless whether there was technical
compliance, the main question would be whether the state wanted
to allow this type of proxy wagering. And the state would be in the
best position to address this. One thing is a sure bet: the rate of
innovation of ingenious entrepreneurial internet gaming operators
will outpace the ability of the U.S. Congress to react. That is why
these issues must be adjudicated at the state level. States should
retain the right to decide what is and is not gambling, what forms
of gambling should be legalized and regulated, and under precisely
which terms and conditions that should be done.
Massachusetts has a pending bill that would allow them to ex-
plore games of skill. This has the potential to redefine the precise
definitions of what constitutes a lottery. Nevada, for instance, has
passed a law that redefines the parameters of slot machines by al-
lowing them to integrate a skill-based component to the game. I am
not predicting what might happen with lottery, just pointing out
that legislators do have the authority to redefine the parameters of
gaming and regulatory laws and that applies to lottery as well as all
other forms of gaming.
Lynne Roiter: The Canadian definition from the criminal code
is exactly that. This code was written in 1969 before the internet