Missouri Gaming Commission Battles Licensee over Skill Games Web Site

4 February 2004

The Missouri Gaming Commission is attempting to cancel the temporary supplier's license of slot machines manufacturer Sierra Design Group over allegations that a subsidiary of Sierra offered illegal online gaming services to residents of Missouri.

The Nevada-based company is battling the commission in court, arguing that the commission does not have the authority to regulate its subsidiary, Arcade Planet, Inc., and also that the games offered by Arcade Planet were games of skill, which are not prohibited by Missouri Law.

Arcade Planet hosted and operated pay-for-play games of skill from the Web site Prizegames.com. Sierra Design describes the games as consisting "of a derivative of solitaire or math-based games, the outcome of which vary according to the skill of the player and not by chance." The company also claims that Arcade Planet blocked its pay-for-play services in jurisdictions where such activity is not legal. Sierra Design argues that Missouri law does not prohibit the games that Arcade Planet offers, but on July 30, 2003, the site began blocking access to customers from Missouri after the Gaming Commission alerted Sierra Design that it was concerned about the legality of the operations.

The Missouri Gaming Commission, however, maintains that Arcade Planet offered games that were not skill-based and that thus violated Missouri gaming law. According to the commission, "The player of the game risked something of value upon the outcome of a contest of a future contingent event not under control of the player upon the understanding that the player will receive something of value in the event of a certain outcome."

The commission also disputes that Arcade Planet blocked access from Missouri Players on July 30th, alleging that the company, which has over 500 registered users in Missouri, does not have adequate technology to block jurisdictions.

Aside from whether the games offered by Arcade Planet are games of skill or chance, the right of the Missouri Gaming Commission to regulate such services is also under dispute. Sierra Gaming argues that the commission does not have the authority to regulate Skill Arcade by taking action against Sierra Gaming. The company also insists that regulation of the California-licensed business falls under the scope of federal law. The commission, on the other hand, holds that by offering bets to residents of Missouri, Arcade and Planet has exposed itself and its parent company to the authority of the Missouri Gaming Commission.

By Jan. 19, 2004, the Gaming Commission was prepared to revoke Sierra Design's temporary supplier's license for slot machines and had placed the item on its meeting agenda for January 21. Sierra acted quickly, filing on January 20 for injunctive relief and a temporary restraining order against the Gaming Commission's canceling of the license.

The Circuit Court of Cole County, Missouri granted Sierra Design a temporary restraining order, finding that a revocation of Sierra Design's license would cause the company to suffer immediate and irreparable harm.

Sierra Design and the Gaming Commission are now set to argue their cases in a full hearing before the Cole County Circuit Court. The hearing was originally scheduled for Jan. 30, but has been postponed until February 12.

Prompted by the Missouri Gaming Commission's threats, Sierra Design shut down all games on Prizegames.com indefinitely. The company has an application pending for a permanent supplier's license with the Missouri Gaming Commission, which would of course be disregarded if the temporary license were to be revoked.

Canceling of the license would also jeopardize a Sierra Design contract to deliver its slot machine product, "Raining Diamonds," to Missouri in March.

The company received a $140 million buyout offer in November 2003 from Alliance Gaming Corp, the second largest manufacturer of slot machines in North America. A loss of license in Missouri would likely have detrimental effects on that deal.

Documents:

Sierra Group's Petition

The Missouri Gaming Commission's Response