Online "Bookmaking"

I’ve done at least one post on how U.S. law (federal law, in that instance) approaches online gambling (or gaming). This post is about a recent Washington Supreme Court that addressed the issue of online gambling under Washington state law.

The case is a civil action, a declaratory judgment action, to be precise. As Wikipedia notes, a declaratory judgment is

a judgment of a court in a civil case which declares the rights, duties, or obligations of one or more parties in a dispute. A declaratory judgment is legally binding, but it does not order any action by a party. . . .

A declaratory judgment is typically requested when a party is threatened with a lawsuit but the lawsuit has not yet been filed; or when it is thought by one of two (or more) parties that their rights under law and/or contract might conflict. . . .

The declaratory judgment action in this case was brought by Internet Community & Entertainment Corp., d/b/a Betcha.com (Betcha). Internet Community & Entertainment Corp. v. Washington State Gambling Commission, __ P.3d __, 2010 WL 3432595 (Washington Supreme Court 2010) [hereinafter Betcha v. Gaming Commission]. The issue was “whether Betcha has engaged in `professional gambling’ within the meaning of Washington's gambling act”. Betcha v. Gaming Commission, supra.

This is how the Washington Supreme Court described Betcha:

For a fee, registered Betcha users could post proposed wagers on the outcomes of certain events for other users to accept. Posted wagers on Betcha have ranged from sporting events, to political contests, to whether the moon would be full on a given night. Offerors were able to set the terms of the wager, including whatever stakes and odds they concluded were appropriate. Offerors were required to first fund an account with a credit card to ensure offerors had enough money to `cover’ their bets if they lost. . . . [T]hose accepting an offer to wager were required to have enough funds in their accounts to cover the bets before wagers could be accepted. Once a bet was accepted, Betcha placed the wagered funds into escrow and froze the account pending the outcome of the wagered on event. Betcha . . . charg[ed] a fee whenever a bettor listed a bet, accepted a proposed bet, proposed a counteroffer to a bet, or posted an offer in a larger font size and a more prominent location.

Once a wagered event was complete, bettors submitted claims that they had won or lost the bets or that the bets were ambiguous. If the losing bettor agreed to the loss, Betcha would transfer the money from escrow to the winning bettor's account. . . . [A] losing bettor had up to 72 hours after a winning claim was made to choose not to pay the loss. . . . by simply clicking a button on their computer screens. If a bettor did not exercise the option not to pay within 72 hours of a winning claim, or otherwise respond to the claim, Betcha would transfer the money from escrow to the winning claimant's account. . . .

Every registered user . . . was given an `honor rating,’ . . . representing the relative trustworthiness of a bettor. . . . Honor ratings were based on various factors including, among other things, the size of a user's bets, negative feedback from other users, and the promptness with which a bettor paid losses.

Betcha v. Gaming Commission, supra. Not long after Betcha launched, agents from the Washington

State Gambling Commission met with Nicholas Jenkins, Betcha's founder and principal. The Commission had determined that Betcha was engaged in professional gambling and ordered Betcha to cease operations. Jenkins disputed the claim that Betcha was engaged in professional gambling, arguing that because bettors are not compelled to pay their losses, they are not gambling.

Betcha v. Gaming Commission, supra. It was at this point that Betcha filed the action for a declaratory judgment. The trial judge held that Betcha was engaged in “booking” and “professional gambling” in violation of Washington state law, the Court of Appeals reversed the trial court judge and the case went to the state Supreme Court. Betcha v. Gaming Commission, supra.

The Washington Supreme Court began its opinion by noting that the resolution of the case depended “in large part” on whether Betcha was engaged in “professional gambling” as that term is defined under Washington law. Betcha v. Gaming Commission, supra. Section 9.46.0269(1) of the Washington Revised Code says that a person is engaged in professional gambling when

(a) Acting other than as a player . . ., the person knowingly engages in conduct which materially aids any form of gambling activity; or

(b) Acting other than in a manner authorized by this chapter, the person pays a fee to participate in a card game, contest of chance, lottery, or other gambling activity; or

(c) Acting other than as a player or in the manner authorized by this chapter, the person knowingly accepts or receives money or other property pursuant to an agreement or understanding with any other person whereby he or she participates or is to participate in the proceeds of gambling activity; or

(d) The person engages in bookmaking. . . .

The Supreme Court explained that

subsections (a)-(c) define `professional gambling’ in relation to a person's involvement in `gambling activity while subsection (d) defines `professional gambling as engaging in `bookmaking.’ Thus, a person may be involved in `professional gambling if he or she engages in various forms of `gambling activity’ or engages in `bookmaking.’

Betcha v. Gaming Commission, supra.

The Supreme Court found that Betcha was engaged in bookmaking, which Washington Revised Code § 9.46.0213 defines as “accepting bets, upon the outcome of future contingent events, as a business or in which the bettor is charged a fee . . . for the opportunity to place a bet.” The Court of Appeals had held that Betcha was not engaged in bookmaking because bookmaking required that the person/entity “take a position in the bets”, which Betcha did not. Betcha v. Gaming Commission, supra. The Supreme Court explained that the Court of Appeals erred, because the statute defined bookmaking as “either accepting bets as a business or charging a fee for the opportunity to place a bet”. Betcha v. Gaming Commission, supra. The Supreme Court then held that Betcha was, in fact, engaged in bookmaking:

Although Betcha did not take a position on the bets listed on its web site, it did charge its users a fee for the opportunity to place bets with others. Betcha's entire business model was based on charging fees from those wishing to bet on its web site. Users . . . were allowed to send bets to Betcha, which would post them on its web site for a fee. Betcha charged fees `for the opportunity to place a bet.’ It was unambiguously engaged in `bookmaking’ as that term is defined under the gambling act.

Betcha v. Gaming Commission, supra.

Betcha had argued that it could not have engaged in bookmaking unless it was first

engaged in gambling activity. It argues that the word `bets’ as used in the [relevant Washington statute] necessarily implies gambling bets and that because bettors were told they had no obligation to pay their losses, no gambling . . . occurred on its web site. We disagree. Under the statutory definition of bookmaking, it is immaterial whether or not Betcha users were engaged in gambling activity. . . .

[T]he statute does not require that `bets’ be “gambling bets” in order for a business or individual to be engaged in `bookmaking.’ Unlike many of the other statutory definitions throughout the act, the statutory definition of `bookmaking’ does not contain any reference to `gambling’ or `gambling activity.’ The statute prohibits the charging of a fee `for the opportunity to place a bet.’ The opportunity to place a bet does not require that the bets be paid if lost.. . .We hold that within the plain meaning of [Washington Revised Code § 9.46.0213], bookmaking is charging a fee for the opportunity to place a bet and the term `bet’ does not require that the bet be honored or betting losses be paid.

Betcha v. Gaming Commission, supra (emphasis in the original).

The Washington Supreme Court held that Betcha was “engaged in bookmaking and therefore professional gambling” under Washington law. Betcha v. Gaming Commission, supra. It therefore reversed the Court of Appeals and reinstated the trial court’s judgment, which had held that Betcha was engaged in professional gambling in violation of Washington State law. Betcha v. Gaming Commission, supra. (It also held the company had possessed gambling records and transmitted gambling information over the Internet, two more crimes under Washington state law.)

You can read more about the case here, if you're interested. According to this new story, this decision isn’t “expected to lead to any immediate criminal charges”, which seems odd. So does the fact that, as this news story notes, Betcha was “shut down in 2007 following a raid on the company’s [Seattle-based] offices that was conducted by Washington authorities at the behest of the state of Louisiana.” Those stories make it sound like Washington may just let this go, since the site has apparently been down for almost 3 years . . . ?