Colorado Continues to Caution Licensees Regarding Internet Gaming Activity

31 July 2002
By Richard L. Nathan
Robinson Waters & O'Dorisio, P.C.

The following article originally appeared in the Winter 2001 issue of The Gaming Lawyer.

The Colorado Division of Gaming and its Director Tom Kitts continue to caution Colorado gaming licensees in connection with any potential participation they may have in Internet gaming activities.

The Division holds firm on the position that, other than as permitted under the State’s Pari-mutuel Wagering Act, which permits wagering on horse and dog races at licensed tracks and certain offsite facilities, all online betting activity is unlawful in the State of Colorado. The rationale of the State, as expressed by Director Kitts, remains simple: All casino gaming activity will take place within the State’s licensed casinos or be considered a violation of Colorado law.

As to sports betting, the Director defers to 18 U.S.C. 1961, the Wire Act, which prohibits that activity unless specifically licensed by a state. Colorado does not license sports wagering.

Prior Warnings

As reported in a previous Colorado jurisdiction update, the Colorado Attorney General and the gaming commission issued a joint news release in August 2001 warning of the dangers of online and telephone gambling. This was a warning directed to the public and industry alike. On the one hand, the public was cautioned that betting activity on the Internet was illegal. On the other hand, the Division of Gaming took the opportunity to warn its licensees that the Division did not “sanction their involvement in any type of Internet gaming where customers residing in the United States can partake in the product.” In January 2002, the Division of Gaming announced that, by letter of December 17, 2001, it had advised a number of Denver radio stations of the State’s concern regarding the airing of advertisements promoting online gambling sites. The letter included the following admonition, “We encourage you to evaluate your policies in accepting and running these advertisements promoting illegal activity in Colorado.”

Continued Caution to Licensees

At the time of the preparation of this Update, the Director has advised the author that he continues to be concerned about the overall landscape of Internet gaming and appreciates the difficult situation that licensees find themselves in trying to walk a very fine line between lawful and unlawful participation amongst a variety of jurisdictions.

As to the earlier pronouncements concerning the presence of unlicensed and probably unlawful gaming site operations offered for play in Colorado, the Director’s primary concern was the unfairness, from a regulatory point-of-view, to the existing 42 casinos within Colorado who function within a strict regulatory framework.

Director Kitts emphasized that no such regulatory apparatus can protect the public from unlawful online operations and that the double standard of permitting unregulated and regulated gaming to exist within the same jurisdiction clearly appears to him to fly in the face of the intent of the Colorado Constitution and its laws regarding gaming.

Perhaps of more immediate concern right now are the well publicized efforts of U.S. mainstream gaming companies to become involved in licensed sites, principally at this time on the Isle of Man. With regard to participation of any current Colorado licensee in such activities, the Director urges caution on the following points:

  1. Whether the licensee is to be an operator or a content-provider, it takes steps to communicate to the Colorado Division of Gaming, as early at possible, its intentions to become involved in Internet gaming and the exact nature of its participation. In particular, the licensee should be prepared to discuss steps that will be taken to ensure that it will not permit the online gaming activity to be accessible from the State of Colorado until and unless the laws of the State with regard to such activity change. While the Division of Gaming will not be in a position to either sanction or bless the activity of any licensee, at least the Division will have been informed as to the licensee’s activities and be in a position to express some appropriate cautions as to how those activities are being conducted and the ultimate impact they may have on the State’s position on the licensee’s suitability in Colorado.

  2. The standard to which the Division feels licensees should be held is a “best efforts” standard with regard to its responsibilities to prevent violations of the laws of any jurisdiction in which the presence of Internet gaming may be an issue. Not only is the jurisdiction from which bets may be placed an issue but also matters such as the age of the player are of concern.

  3. Where a joint venture is involved, the Director cautions Colorado licensees to take care in determining whether a joint venturer might violate the laws of this or other jurisdictions and, thus, place the licensee in jeopardy, by virtue of acts other than its own. Particular caution is given to the nature of agreements which would enable the licensee to terminate its relationships with offending joint venturers and clearly demonstrate its lack of participation in any such activity.

  4. The Division will not take a position on an appropriate structure for any relationship in which a licensee is involved. Whether it’s an operator, or provides content, or in some other way facilitates an online site, each case will be judged on its own merits. As a result, there is no Colorado standard as to whether participation revenue differs from flat fee charges for services as, without examining the exact nature of a relationship, the Division will not be bound in advance.

  5. Finally, Director Kitts wanted to emphasize that the Division of Gaming is not passing moral judgment as to any licensee’s participation or operation of an Internet gaming site outside of the State of Colorado and within a lawful jurisdiction. The concern of the Division of Gaming remains whether the Colorado licensee operates appropriately under its grant of authority from the jurisdiction within which it is licensed and does not act in such a manner as to violate the laws of the State of Colorado or other jurisdictions which prohibit Internet gaming play.

The point of the Director and Division was easily summarized by him in the single sentence: The licensee bears the risk."