Legalized casino gambling and sports wagering are approaching the finish line in Virginia following the recent passage of two bills by the Virginia General Assembly. Senate Bill 36 and House Bill 896, both awaiting the signature of Virginia Governor Ralph Northam, would permit five land-based casinos, online sports betting and up to 2,000 additional historical horse racing machines.
Colorado House Bill 1327, titled “Proposition DD: Legalization and Taxation of Sports Betting” was put to voters in a ballot measure and was narrowly approved on Tuesday, November 5. Colorado Governor, Jared Polis, signed Proposition DD into law in May 2019 and Colorado voters decided its final, successful outcome making Colorado the 19th state to legalize sports betting. The law will permit land-based sports betting at Colorado’s 33 casinos, as well as state-wide mobile betting. Notably, Proposition DD does not permit proposition bets for college sports.
The Colorado Division of Gaming is charged with regulating the new market which will allow three types of licenses to be submitted for approval. Each casino will be limited to a single online/mobile platform or “skin.” A master license will be issued to an operator that holds a retail gaming license in the state prior to May 1, 2020, or has obtained one through the purchase of an ownership interest in a casino that was in operation prior to May 1, 2020. A sports betting operator license or an internet license sport betting operator license will be allowed to contract with a master licensee to operate sports betting in person or online. The bill sets the maximum license fee at $125,000 and each license must be renewed every two years.
Proposition DD’s passing will allow legal bets to be placed as early as May, 2020 and will tax a casino’s net sports-betting proceeds at a 10% rate. This tax revenue will be used to pay for regulating sports betting in Colorado, a hold harmless fund, gambling addiction services, water projections, and other obligations. According to Colorado’s fiscal impact statement, lawmakers expect around $10 million in tax revenue in the first year based on the expectation that Colorado sports betting licensees would take between $1.3 billion to $1.5 billion in bets. We will continue to monitor this topic and provide updates on this legislation.
On September 24, 2019, the Third Circuit Court of Appeals found in favor of the New Jersey Thoroughbred Horsemen’s Association (“NJTHA”) and ruled that the NJTHA is entitled to recover the bond it posted as the result of a temporary restraining order (“TRO”) and subsequent preliminary injunction against the NJTHA in the 2014 case, National Collegiate Athletic Association v. Christie. The issue of recovering posted bond was a matter of first impression in the Third Circuit. The majority opinion, written by the Honorable Marjorie Rendell, concluded “wrongfully enjoined” under Federal Rule of Civil Procedure 65(c) can only be determined after a final judgment on the merits. Moreover, the court found a party is “wrongfully enjoined” when the final judgment concludes that party had a right all along to do what it was enjoined from doing. Also, in accordance with the majority of other circuits, the court found there is a rebuttable presumption that a wrongfully enjoined party is entitled to recover damages up to the bond amount.
On August 13, Financial Crimes Enforcement Network (“FinCEN”) Director Kenneth Blanco addressed the 12th Annual Las Vegas Anti-Money Laundering Conference and provided insights on his agency’s expectations for the ever-evolving gaming industry.
The following are some key takeaways:
Cost Cutting Poses National Security Threat. Director Blanco stressed that reports of compliance budget cuts by casinos looking to trim costs and retain gamblers is seen by FinCEN as a national security issue and not something the agency takes lightly. Further, despite FinCEN not publicizing any enforcement actions against a casino during the last year, it is continually looking at compliance across all financial institutions and will not hesitate to act if it identifies violations of the Bank Secrecy Act (“BSA”). It is also important to note that not all enforcement actions are public—FinCEN often closes cases with warning letters sent to financial institutions or refers cases to our delegated examiners for additional review.
Casino Industry Trends. In terms of suspicious activity being reported in 2019, Minimal Gaming with Large Transactions is the highest reported activity with more than 5,000 Suspicious Activity Reports (“SAR”) reflecting this activity. Reports of Chip Walking have dramatically increased since this was added to the SAR form in the summer of 2018. Chip Walking is now the second most selected suspicious activity on the SAR form, with more than 4,400 reports being cited this year to date.
The other frequently cited suspicious activities include:
- Transactions below CTR Threshold
- Unknown Source of Chips
- Two or More Individuals Working Together
- Alteration or Cancelation of Transactions to Avoid CTR Requirement
- Suspicion Concerns on the Source of Funds
Additional analysis of trends reported by casinos checking the “other” box on the SAR form includes reports of suspicious activity involving sports betting, abandoned jackpot, and bill stuffing.
Sports Betting and Mobile Gaming. Casinos and card clubs must integrate sports betting and mobile gaming products into their existing AML programs. FinCEN expects casinos and card clubs to collect cyber-related indicators through their mobile gaming or betting applications in order to monitor and report potentially suspicious activity. Examples of such cyber-indicators include: source and destination information, file information, subject user names, system modifications, and account information.
Relevance of Convertible Virtual Currency (CVC) Advisory to Casinos. There are generally two areas where CVC will intersect with casinos and card clubs: so-called CVC casinos on the internet, and physical casinos and card clubs that accept CVC for gaming.
As FinCEN’s CVC guidance points out, internet gaming sites that operate online without licensure from a state or tribal gaming regulator are not “casinos” for purposes of regulations implementing the BSA. However, they are likely operating as money transmitters. Money transmitters have their own obligations under the BSA and its implementing regulations, which includes a formal registration with FinCEN.
Casinos and card clubs that accept CVC from customers either on location or through mobile applications, need to ensure that CVCs are accounted for in policies, procedures, internal controls and risk assessments. This includes developing processes for reviewing and conducting due diligence on transactions in CVC, for conducting blockchain analytics to determine the source of the CVC, and incorporating CVC-related indicators into SAR filings.
Culture of Compliance. Critical to fostering a culture of compliance is utilizing enterprise-wide information and ensuring such information gets into the hands of compliance personnel. For example, information developed by casinos for business and marketing, as wells as information developed by casino security departments for combating and preventing fraud should be used by casino compliance personnel to monitor customers for suspicious activity. Similarly, a casino’s legal department should alert compliance personnel when a subpoena is received as it could trigger reviews of customer risk ratings and account activity. Moreover, larger casinos may have multiple affiliated casinos that could benefit from the sharing of information across the organization.
Innovation and BSA Value. In January 2019, FinCEN began an ambitious project to catalogue the value of BSA reporting across the entire value chain of its creation and use. The project will result in a comprehensive and quantitative understanding of the broad value of BSA reporting and other BSA information to all types of consumers of that information.
As an example, given the current state of the opioid epidemic, something a minor as the mobile phone number of a suspect from a casino SAR could be vitally important to a DEA agent since the suspect would provide a real phone number to ensure he is called when his winnings are wired out to a bank account. Using that mobile number, the agent can build out a communication tree and identify new individuals, entities, addresses or accounts. A DEA agent can also use this information to seek legal approval to wiretap or track the movement of the phone, identify potential informants, and build out a network of associates.
On June 3, 2019, Judge Paul Barbadoro for the District of New Hampshire concluded in a 63-page Memorandum Opinion that the purview of the Wire Act is limited to sports wagering. The effect of the Court’s opinion, however, may be limited in states other than New Hampshire.
After determining that the plaintiffs in the case, the New Hampshire Lottery Commission and NeoPollard Interactive LLC, new Hampshire’s iLottery vendor, have standing to challenge the DOJ’s 2018 Wire Act Opinion because they have established a threat of imminent injury, the Court addresses whether the Wire Act applies beyond sports wagering.
Duane Morris partner Chris Soriano was a guest on the Good Law | Bad Law podcast, “Game on! After a historic Supreme Court decision, sports betting is a go.”
Chris joined podcast host, Aaron Freiwald, to discuss the recent Supreme Court decision that in effect legalized sports betting across the country and the implications this decision may have for the future of gambling, as well as professional sports. Chris also talks about how his interest in the gaming area introduced him to gaming law.
Duane Morris’ Christopher Soriano will be presenting at a gambling law symposium hosted by the Seton Hall Law School’s Continuing Legal Education at Seton Hall University on March 1, 2018 at 3:30 p.m.
The symposium will discuss New Jersey’s gambling laws while focusing on the following topics:
- The New Jersey Constitution, Statutes, Rules, and Regulations Governing Gambling
- The Definition of Gambling Under New Jersey Law: The Chance Versus Skill Debate Involving Fantasy Platforms and Poker
- The Impact Of Technological Advances Upon Laws Governing The Placement of Wagers On Horse races
- Overview Of Supreme Court’s Sports Betting Case and
- On-Line Casino and Other Forms of Gambling Under Federal and New Jersey Law
For more information and to register, please visit the event website.
John Brennan, a staff writer for The Record, was a panelist for Duane Morris’ event “The Future of Sports Betting” on April 27, moderated by partner Christopher Soriano. Mr. Brennan’s column today, about the notorious poor luck of professional sportswriters and sports executives at fantasy leagues in their own sports, mentioned the event, sharing a story told by panelist Andrew Brandt of ESPN. The firm thanks Mr. Brennan and Mr. Brandt for their participation in the event.
Duane Morris, the Sports Business and Leadership Association and the Sports Lawyers Association will be hosting the roundtable discussion, “High-Stakes Games: Betting on Sports,” on Thursday, January 26, 2017 in Miami, Florida. This in-depth roundtable discussion will focus on the key issues and high stakes of sports betting and will feature sports and gaming industry executives, lawyers and pro-team executives. Duane Morris partner Christopher L. Soriano, of the firm’s Cherry Hill office, will moderate the discussion.
- Eric Frank, Director, Legal Affairs, Amaya
- Myles Pistorius, Senior Vice President and General Counsel, Miami Dolphins
Topics to be discussed include:
- The current state of sports betting in the United States
- New developments in gaming law
- The pro team’s view on expanding sports betting
- Online and offshore wagering on games
Duane Morris Sports Practice AdvantageSM
Duane Morris attorneys have extensive experience representing clients doing business in sports. Whether pursuing new opportunities or investments, enforcing contracts or agreements or protecting clients’ rights, the firm’s lawyers understand the unique issues presented by operating in the industry, including the importance of establishing and maintaining relationships, controlling sensitive information, maintaining privacy and confidentiality and achieving goals in tight time frames.
About the Sports Business and Leadership Association
The Sports Business and Leadership Association (“SBLA”) is a non-profit charitable organization whose members are professionals working in the sports business industry. The SBLA’s core mission is to organize an affinity group of legal professionals working in the sports business industry and to educate them on trending sports business issues and concerns. The SBLA’s goal is to raise money to provide underprivileged children with the financial means to attend a summer sports camp at a university (the “SBLA Scholarship Program”).
About the Sports Lawyers Association
The Sports Lawyers Association (SLA) is a nonprofit, international, professional organization whose common goal is the understanding, advancement and ethical practice of sports law. There are more than 1,000 current members: practicing lawyers, law educators, law students and other professionals with an interest in law relating to professional and amateur sports.