The Differences Between Black And Gray Gambling Markets

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All hell broke loose on Twitter when the social media account of an offshore online sportsbook MyBookie took an ill-advised swipe at Dave Portnoy, the founder of Barstool Sports.

The exchange is the reason the popcorn GIF exists, but it’s also a teachable moment for US sports bettors, as it shone a light on the practices of the offshore, unregulated sports betting market, and more importantly, questioned their legality.

Apology not accepted

Without rehashing the back and forth, Portnoy put the sportsbook through a social media torture session that was reminiscent of the end-scene in Braveheart. Only unlike William Wallace, the sportsbook quickly capitulated and profusely apologized to Portnoy.

The apology was too little, too late.

It couldn’t stop hundreds of Twitter users from posting their negative dealings with the book.

And throughout the multiday battering, Portnoy repeatedly called the site an “illegal” sportsbook.

Not everyone agreed with that description. And why would they?

The mainstream press routinely cites odds from the offshore books, and the general public doesn’t have the time or desire to sift through gaming laws, and in other cases, verify the licenses of an online sportsbook to see if it’s licensed in the US or operating offshore.

But Portnoy is right. Offshore sportsbooks and online gambling sites serving US markets are breaking the law.

Are offshore sportsbooks illegal?

The short answer to that question is yes, but the answer isn’t always black and white. There’s a lot of subtlety when it comes to why and determining which laws they are actually breaking.

Jurisdictions fall into one of three general categories:

  • White markets: Where gambling is legalized.
  • Black markets: Where explicit prohibitions exist.
  • Gray markets: Where the lack of clearly defined laws causes ambiguity.

How to identify a white market

White markets are the most cut and dry of the three categories.

A white market is any jurisdiction that has expressly legalized online gambling.

Operating legally in a white market typically requires a specific license, tax payments and regulatory compliance. Any site operating without the requisite license would be considered a black market operator in a white market.

But, as Chris Grove, the managing director at Eilers & Krejcik Gaming, points out, even the cut-and-dry example isn’t devoid of nuance.

“The clearly legal is the easiest to define. States, such as New Jersey, have explicitly authorized various forms of online gambling. But even there, the federal government may ultimately conclude that federal law — specifically the Wire Act —  prohibits online gambling, even if it’s legalized by the state.”

Minus that caveat, white markets are typically seen as expressly legal, provided the business is licensed.

How to spot a black market

Black markets are also fairly easy to define.

A 2016 bulletin issued by David Rebuck, the director of the New Jersey Division of Gaming Enforcement, summarizes black markets thusly:

“Black markets are defined as jurisdictions where government authorities have taken affirmative, concrete actions to actively enforce that prohibit online gambling, or have issued unequivocal official pronouncements that online gambling is not legal in the jurisdiction.”

George Rover, a managing partner at Princeton Global and a former DGE regulator during the period the bulletin was released, told Play USA, “the DAB stated that if a jurisdiction took “affirmative, concrete steps” to show that it is illegal to engage in gaming activities in its jurisdiction without government approval, then the NJ regulator would identify the jurisdiction as a black market.”

Rover uses the recent changes in Australia as an example of affirmative, concrete action. Australia recently enacted a new law that clearly states that any operator engaged in gaming activity with its citizens must be licensed.

“In addition to the law, a high ranking Federal official from Australia sent a letter to the New Jersey Director of Gaming David Rebuck, explaining the new law and its application and asking that he inform any New Jersey licensees who are not so licensed to cease gaming operations in Australia, since it was illegal.

“NJ promptly advised its licensees to become licensed in Australia or cease its operations. Failure to do so would result in regulatory action against their NJ license.”

A beam of light can break through the darkness

But like white markets, black markets can have peculiarities that muddy the waters. And every operator in a black market will try to convince others that some aspect of the law makes it gray.

Grove highlights the difficulty in drawing a line in the sand between gray and black markets.

“The illegal market and the gray market have significant overlap, and much of what is considered illegal versus gray will feel arbitrary to many people. Frankly, the difference often comes down to how obvious it is to prosecutors that gambling is occurring, and how much political will there is to address a particular form of gambling.

“For example, some ambiguous forms of gambling get by because they are “games of skill,” but many people would argue (persuasively) that sports betting is a game of skill.”

Rover agreed, noting there are many different ways to define a black or a gray market.

“In some jurisdictions, the law was clear as written but not enforced or selectively enforced,” Rover said. “In other cases, the law predated the internet, was less than clear in its wording or it was subject to conflicting or no interpretations by the foreign jurisdictions highest courts.”

The gambling markets with shades of gray

And that brings us to gray markets.

Somewhere in between white and black markets are a wide array of gray markets — some darker than others.

“There’s a large and growing class of somewhat ambiguous activity,” according to Grove. “A great example: Real-money fantasy sports in states where there isn’t explicit regulation.”

“In these cases, there appears to be some space in the law allowing such products, but they aren’t explicitly authorized, and their underlying legality may be subject to debate.”

Former Nevada Gaming Control Board (NGCB) Chairman A.G. Burnett explained to Play USA that this ambiguity and nuance is why international gambling companies are devoting (or should be devoting) resources to compliance teams.

If the company is unable to determine on its own, they can either decide the market is simply too risky or bring the matter to state regulators, like the NGCB, for further guidance.

How Nevada regulators make the call on gray markets

Absence of explicit laws or selectively enforced laws blurs the lines between legal and illegal. That requires regulators to examine each market individually.

Burnett, a partner in the Gaming & Administrative Law Group with McDonald Carano, explained that during his time with the NGCB (where he dealt with multiple global gambling companies), Nevada regulators were in constant communication with foreign and domestic markets to make informed decisions on gray markets.

“If a company came to us and said they wanted to do business in Nepal or Tibet (random examples) we would look at a myriad of factors,” Burnett told Play USA.

“The analyses are done in conjunction with the industry. The Gaming Control Board will look at a jurisdiction on its own, and the company and its compliance staff will do that too. Companies have to make the ultimate decision, though, on a case-by-case basis, with the understanding that if something goes wrong and there is an issue, they may have to answer for it,” he said.

According to Burnett, Nevada regulators will look at a variety of factors when determining if a gray market is cinder-block gray and OK to do business in, or if it’s charcoal gray and should be avoided. Conclusions are reached after careful research and deliberations.

Among the factors Burnett cited:

  • What laws are on the books in that jurisdiction?
  • Is the jurisdiction actively prohibiting gambling or enforcing laws against gambling providers?
  • Is gambling out in the open, or is it confined to backrooms and underground casinos?
  • Does the jurisdiction impose a tax on gambling suppliers?
  • Does the jurisdiction have a regulatory/licensing system?
  • What do local gaming law experts think?

The DGE takes a more pragmatic approach

In its 2016 bulletin, the DGE also said it would look at gray market operators on a case-by-case basis:

“Clearly, when a government agency attempts to divine the intentions of another sovereign jurisdiction through a critical evaluation of local circumstances and resulting actions or inactions, any conclusion reached is fraught with the likelihood of error or misinterpretation.

“[…]

“It is in this context that the Division finds itself attempting to articulate a licensing standard that fulfills its regulatory responsibilities under the Act while also giving proper deference to the sovereignty of other jurisdictions.

“[…]

“As a result, the Division will examine whether or not the jurisdiction has a law that specifically prohibits internet gaming, and if so, whether the jurisdiction has taken affirmative, concrete action to enforce that law.”

According to Rover, the DGE bulletin removes the guesswork on why a law was enacted, how it’s being interpreted and if there are reasons (political or otherwise) for selective enforcement or application.

“Is it proper for a state regulator in New Jersey, based on limited information and understanding of the foreign jurisdiction’s law, politics and even culture, to declare for that country its gaming law policy?” Rover stated.

Rover went on to say:

I believe that how a regulator assesses its underlying regulatory mission and jurisdictional authority will determine how it forms its policy on what effect an operator’s foreign business activities have on suitability. From my perspective, as a former NJ regulator, the agency has a reputation for being strict but also fair and pragmatic.

As a result, after examining many various different policy choices to address this issue, it became clear that a stringent application was problematic since it would result in the regulator making legal and factual judgments about the law and politics of each foreign jurisdiction.

In Rover’s view, the burden should be on the foreign jurisdiction to indicate, “in a concrete, affirmative manner,” its gaming policy.

What kind of gambling market is the US?

The US is a mixture of all three gambling markets.

“As you might expect from a market that is composed of 50 individual markets, the US market offers a mix of clearly legal, somewhat ambiguous and clearly illegal opportunities,” said Grove.

There are states where it’s expressly illegal to operate an online gambling website. There are also states where online gambling has been legalized. And there are states that don’t have laws prohibiting or allowing online gambling.

But anyone considering operating in the US also has to contend with federal laws, from the Wire Act to UIGEA to IGBA.

Grove discussed the federal dilemma offshore gambling operators run into when they play the “we’re technically not illegal” game:

“Online sports betting or casinos offered by operators outside of regulatory structures explicitly authorized by U.S. state lawmakers are likely in violation of gambling laws in most states and multiple federal laws (e.g., IGBA, the Wire Act, UIGEA).

“That’s been the position taken by law enforcement over the last few decades, and — as far as I am aware — the courts have generally concurred.”

And, as Burnett explained, even if a state doesn’t expressly prohibit online gambling, “there’s a high likelihood an offshore sportsbook is violating a state’s gambling laws.”

Most states have general laws that require some level of licensure/taxation/compliance or the activity falls into the illegal gambling bucket.

“At a minimum, these companies are operating an unlicensed business, and in violation of the jurisdiction’s general laws,” Burnett said.

Steve Ruddock

About

Steve Ruddock is an avid poker player and a veteran member of the gaming media. His primary focus is on the regulated US online casino and poker markets. He writes for numerous online and print publications, including OnlinePokerReport.com, USPoker.com, and USA Today.

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