By Hartley Henderson
When Jay Cohen decided to return to the United States in 1999 to defend charges that he was in violation of the Wire Act, his attorneys argued that he and his company were not operating illegally because they were located in a different country and hence the Wire Act of 1961 did not apply in a different jurisdiction. Unfortunately the justice system did not agree and found Jay guilty of operating an illegal bookmaking operation. Since then several other cases against sportsbook owners operating in other countries have been levied by the DOJ and it is likely the lawyers in those cases will take a similar approach, i.e. that the U.S. arrests are illegal since the bets were taken in jurisdictions where the law allowed them. I was thus intrigued when I caught glimpse of a story in Reuters claiming that famed lawyer and Harvard law professor Alan Dershowitz would be representing a prominent sportsbook operator using the defense that sports betting is not illegal, as it involves skill. I phoned Mr. Dershowitz who confirmed that he was on the defense council for Gary Kaplan who was arrested earlier this year by the FBI while vacationing in the Dominican Republic.
My first question to Mr. Dershowitz was whether or not he truly believes that sports betting is a game of skill.
“Of course it is,” Mr. Dershowitz responded, “how can anybody doubt it is a skill game? Every major sports figure prognosticates on the outcome of games by looking at starting lineups, post-season experience, success without the designated hitter and so forth. The best prognosticators win while others lose and that is skill. It is not like dice.”
Mr. Dershowitz equated sports betting to poker which he also called a game of skill. “I play against the same people all the time and we all know who the best players are. Sometimes the best players don’t win but each of us can easily point out who is the best player, 2nd best, etc.”
Alan Dershowitz also suggested that when compared to other endeavours, betting on sports closely resembles trading on the stock market.
“What’s the difference between stock markets and sports betting?”, Mr. Dershowitz asked. “Goldman Sacks makes billions by trying to get a leg up on other prognosticators. The only difference is they are speculating on stocks rather than sports teams. There was a period in time when people felt the stock market should be made illegal.” Today, of course, the stock market is seen as vital to the economy. In fact, if skill is truly irrelevant to the legality of betting as the DOJ claims, then day traders should be arrested since they are gambling in the exact same way that sports bettors wager on games. There is absolutely no long term commitment with day trading; it simply involves turning a profit at the end of the day by outsmarting other day investors.
The next question I posed to him was whether or not it makes a difference if sports betting (handicapping) is a game of skill. The U.S. doesn’t have any laws which specifically make betting on skill games legal, so the Department of Justice may even concede that poker and sports betting do involve skill, but at the same time it is irrelevant to the charges at hand since the U.S. still finds betting on skill games to be against the law. Furthermore, Kaplan was charged with violating the Wire Act of 1961 which specifically makes betting by way of wire communication illegal.
Mr. Dershowitz agreed that the DOJ may not care whether the betting involves games of skill or are simply games of pure chance, but international law does. He pointed out that globally whenever disagreements between countries regarding gambling occur they almost always exclude betting on sports or other skill games. Where international law has issues with gambling is when it involves pure luck. In those instances, the law leaves it up to the country to determine what is in their best interests. Australia, for example, has banned online betting on games that involve luck, but still permits internet wagering on sports. In fact in many countries the government and the sports leagues in those countries have determined that it is in their best interests to allow betting on sports. The reasoning for this is that countries recognize that the sophistication of online monitoring tools can help maintain the integrity of the sports by identifying unusual betting patterns. Sports leagues in the United Kingdom, along with the ATP tennis federation, are working with major sportsbooks such as Betfair to help them monitor betting in an effort to catch sports cheaters.
Even in the United States the concern with sports betting has always been mob influence. The main intent of the wire act, which was passed over 4 decades ago, was to allow the police to tap into phone lines in an effort to stop the mob in the United States from taking sports bets on the telephone. The concern there was not so much with bettors placing wagers (there were never penalties against individuals for placing bets in the Wire Act), but rather with crime that occurs in America when the mob is involved. The way betting is done on the internet today, often hosted by publicly traded companies, clearly was not envisioned when the Wire Act was passed. It is when sports betting is done underground and out of the public’s eye that problems arise like the Ted Donaghy fiasco. It can be argued that if the U.S. government had simply allowed offshore betting to continue as it was without pressuring the public to not wager online or offshore, the Donaghy incident may never have occurred since most of the mobsters would have been out of business and online sportsbooks would have caught on to the cheating by way of its technology.
More importantly, countries don’t want to penalize individuals for making a profit because of their skills. It is the American dream for a person to do better for themselves because of his/her individual skill set and abilities. In fact, the United States seems to have implied an intention with the recent passage of the UIGEA to exclude skill games when it carved out exemptions for fantasy leagues and horse racing which clearly involve skill. If anyone has any doubt, just ask the millions of Americans who this weekend have actively adjusted and traded rosters for Sunday’s slate of NFL games or poured through the Daily Racing Form past performances trying to determine which horse had the best chance of beating others based on statistics such as speed, pace, distance, post position and track conditions.
Dershowitz’s argument for legalizing skill games has support in the house from both Barney Frank and Robert Wexler. Wexler introduced a bill called the Skill Game Protection Act that would decriminalize betting on any skill games where the players are betting against each other rather than against the house. Wexler’s bill doesn’t mention sports betting, but rather games like poker, bridge, mah-jong, gin rummy and chess. However, using the definition set forth by Wexler, sports betting would also apply. On any sporting event the sportsbooks set the opening line, but that line moves based on betting by the public to entice two way action on games. Consequently, it is the bettors who are really playing against each other, which moves the line and the sportsbooks take the vigorish. Thus it is the skills of the bettor that determines the lines. In fact various sites such as Betfair, Matchbook, TradeSports and Betdaq are interactive markets where the lines are actually set by one bettor and another bettor takes or lays (bets against) that line. The operators of those sites have absolutely no input into setting the lines, but rather just set up the markets and the players create the lines based on skill based prognosticating. And those sites are possibly even more successful than regular sportsbooks, since Betfair, which is based in England, is the largest internet sports betting site in the world.
The strategy that the defense will employ in defending Kaplan is therefore obvious and unique. Rather than relying solely on the jurisdictional argument, as has been done unsuccessfully in the past, Kaplan’s defense team will try and convince the courts that Kaplan should not be tried for promoting illegal gambling because the definition of gambling always includes games where one side has a material advantage over the other solely based on chance and odds. This would include betting on the lotteries or casino games where the odds are known ahead of time and no skill is employed. In better words, the only real “illegal gambling” by international standards in the U.S. is done by the governments themselves that run or take large fees from lotteries, casinos and video lottery terminals. It is somewhat ironic that the biggest rip-off scam in the country is conducted in 45 of 50 states in the form of lotteries where there is absolutely no skill employed by the players, where the poorest people usually spend money they can’t afford to lose and where the payback from betting is about 60 cents on the dollar. Governments feel this can be justified, however, because some of that revenue goes back into cultural, educational and medical research.
Naturally, there are jurisdictional arguments that will be used as well. Since Kaplan was operating BetOnSports from the country of Antigua where gambling is permitted and where the WTO ruled that Antigua had every right to offer gambling services to U.S. citizens under commitments it made long prior to BetOnSports taking bets from Americans, Kaplan and others must be tried not based on U.S. law, but by international law. The laws of the United States are irrelevant and that was affirmed by the WTO which stated that the Wire Act, Travel Act and other laws which prohibit betting on sports are inconsistent with commitments made by the United States when it signed its WTO agreement. Furthermore, since BetOnSports never offered casino games and never conducted lotteries, by international definition (and consequently by implied U.S. laws based on exemptions carved out in the UIGEA), BetOnSports never truly offered any gambling services that can be construed as illegal.
Mr. Dershowitz concluded by saying:
“The Federal government should stop wasting resources by banning activities where the states could benefit enormously and where individuals are only making a few dollars from each other based on their skill level.” He couldn’t be more correct.