Oct. 20, 2014
By Stephen G. Collura, Jr., Senior Editor

We do almost everything on the Internet today. People use the Internet to make purchases, play games, watch movies, and even conduct research for pieces of scholarship. In fact, you are using the Internet to read this article right now. However, if you are in Louisiana, or any state besides Nevada, your other open Internet pages cannot be displaying your winning hand in an online poker game.

In reaction to the wave of Internet gambling[1] that came about during the late 1990s, Congress and several state legislatures, including Louisiana, passed statutes criminalizing online gambling.[2] Although other countries around the world initially took this approach, the United States remains one of the last developed countries to continue to hold steadfast against online gambling[3]—the exceptions being Nevada, New Jersey, and Delaware.[4]  Many parts of the world have proven that a system of regulation, as opposed to a complete ban, can be successful while still providing protection to participants.[5]

The prohibition of online gambling in Louisiana is particularly vexing because many traditional forms of gambling still legally exist within the state.[6] Currently, Louisiana allows several recognized forms of gambling: horse racing, a state lottery, Native American gambling, charitable lotteries, and brick-and-mortar casinos.[7] Instead of wasting energy and resources on prohibiting online gambling, Louisiana should legalize online gambling and regulate the industry to its own advantage according to its own particular needs.

Louisiana could receive several benefits by implementing an online gambling regulatory system. The system could potentially increase tax revenue for the state and promote job growth in the online technology and financial markets. The gambling industry brought approximately $5.6 billion in revenue to the state in the past eight years—$670 million in the 2012–2013 fiscal year alone—and a successful online gambling system is likely to increase revenues.[8] After all, revenue generation is the “endgame for all the states [and] . . . [n]o taxing authority ever wants to get left behind.”[9]

I. Path to Legality: How Louisiana Could Legalize Online Gambling

In order for online gambling to become legal under current Louisiana law, the legislature would have to authorize online gambling. Following legislative authorization, each parish would then be able to vote on whether to allow it in their jurisdiction.[10] Since Louisiana would have to hold elections parish-by-parish to implement a statewide online gambling industry, serious logistical issues would arise if one parish decides to continue criminalizing online gambling while other parishes permit the practice.[11] It would create confusion for citizens if the practice was legal in some areas but not legal in others. Given the arguably blurred territorial lines of parishes in some areas, how could a citizen traveling ever be sure they were not violating the law?

In addition to the regulation of gambling in the Louisiana Constitution, two Louisiana Revised Statutes, 14:90 and 14:90.3, also affect the implementation of an online gambling system.[12] Section 14:90 makes gambling a crime and sets out specific punishments for the violation of this statute.[13] Thus, for online gambling entities to avoid criminal penalties under this statute, the legislature would have to amend the statute to include online gambling among the “licensed games” that are exempt from prosecution.[14]

Furthermore, in 1997, the legislature promulgated Louisiana Revised Statutes § 14:90.3, which specifically defines and prohibits online gambling.[15] Louisiana is one of only a few states to expressly criminalize online gambling by a specific statute, and the state did so even before the online gambling industry boom in the early 2000s.[16] The language of the statute lists several reasons for excluding online gambling from the scope of legalized gambling activities, including “protect[ing] individual rights . . .  promoting the health, safety, education, and welfare of the people, including the children . . . who are our most precious and valuable resource,” from certain influences that can “result in irreparable harm.”[17]

Louisiana’s explicit criminalization of online gambling offers a puzzling question: Why did the legislature choose to prohibit this specific form of gambling? The complexity of this question is compounded by the fact that online gambling is not a new game but instead is arguably just one of several means of playing games that are already legalized within the state.[18] Louisiana has chosen to criminalize online gambling, yet at the same time it allows many other forms of gambling.[19] Presumably, the same reasons listed in the statute would exist for outlawing all forms of gambling indiscriminately.

The stated purpose of Section 14:90.3 holds little weight when compared to Louisiana’s current gambling landscape.[20] It is hard not to notice the prevalence of video poker machines throughout the state, yet Louisiana claims that online gambling might influence minors and increase gambling addiction and that it has a duty to protect citizens from “the pervasive nature of [Internet] gambling”[21]—apparently more so than from the mini casinos in most restaurants, bars, and gas stations.[22]

Perhaps Louisiana currently outlaws online gambling because of the moral and protectionist purpose stated in the statute,[23] or perhaps it is to protect the current gambling industry from competition. It may even be because Louisiana has not yet figured out how to best regulate the industry.

II. Implementing a System: What Online Gaming in Louisiana Would Look Like

There are three potential models available that are regarded as the basic set of standard implementation models within the online gambling industry: the single-network model, the multiple-license model, and the limited-hub model.[24] Which model to implement can be determined by looking at the state’s gambling history, the degree of oversight desired, and the amount of competition preferred within the system.[25]

The single-network model is the simplest of the proposed models, offering only one main provider for online gambling within the state.[26] This model provides a state with the opportunity to easily create a network with other states in the future because there are few components.[27] Washington, D.C. attempted to implement the single network model in 2011 by authorizing one sole provider within the jurisdiction, but the regulations were eventually repealed.[28] Also, Canadian lotteries in certain provinces successfully follow the single-network model.[29] The single network ensures successful implementation more than any other model; all players must support the single gambling entity since there is no market competition.[30] However, a lack of competition is often not an advantage since it deters growth and development within the market.

The multiple-license model is most closely associated with a free market system. This model features the least amount of regulation and allows entry into the market fairly easily compared with the other models.[31] This model likely creates the largest turnover of providers since players are free to patronize whichever website they prefer. This potentially causes harm to the inferior competition.[32] Only states with a permanent and successful gambling regulatory system should seek to implement the multiple-license model—the broadest and least regulated—as states with more experience would be better suited to deal with the problems that the model creates.

The limited-hub model presents a compromise between the other two models. This model allows a state to authorize a specific number of online gambling entities. The number ultimately depends on how the state decides to regulate, but it is usually less than 10.[33] States still have significant oversight under this model since the number of entities remains low and the customer base is still confined to only a few available websites.[34] Competition exists in this model, but it is likely not enough to create significant harm among the authorized entities.[35] This model provides a worthy option for a state that is more comfortable with gambling regulation and wishes to allow for some growth and competition.

No formula can determine which model would work best for Louisiana. Although there are advantages and disadvantages to each model, the limited-hub model appears best suited to Louisiana’s specific needs and would provide the appropriate amount of structure to successfully implement online gambling regulation. With the limited-hub model, Louisiana can maintain substantial control over regulation due to the limited number of gambling websites.

Another aspect that Louisiana may take advantage of is utilizing the current brick-and-mortar casinos already regulated in the state. Louisiana can implement an online gambling system comprised only of those entities already authorized in Louisiana to operate—essentially limiting gambling websites to only those casino operators that already have a physical gambling operation in the state. This limited-hub system would expand upon the relationship between the state and its gambling industry and would keep new entrants out of the market. In doing so, it would leave the profit to entities already in Louisiana and keep the current gambling industry happier than if new entrants were allowed. This idea would likely be most supported by those currently operating in Louisiana since only the method by which the gambling product is offered would change and not the entry into the market.

A major concern with implementing the single-network model in Louisiana is that it seems too simple for a state that already allows so many forms of gambling and already has numerous gambling operators all over the state. Additionally, the multiple-license model does not appear to give Louisiana the amount of control and oversight that the legislation suggests Louisiana wants to maintain. The thought of a free market structure for this type of industry is probably at once too frightening and too broad to be truly considered.

III. Untapped Potential: Louisiana’s Chance to Pave the Way

Louisiana has seen success with its current gambling industry, and the new Internet gambling regulation functions could fit well into the current regulatory structure. Like Nevada, Louisiana has the resources and gambling regulation experience to implement a system to regulate online gambling.[36] There are many benefits to being one of the first states to enact legislation in this area of the law and setting a standard for which all following states may use. As the industry grows and more individuals are allowed to gamble across state lines, the systems of the individual states will need to be operationally uniform in many respects; creating that system would be a major achievement for any state. Louisiana should desire to be on the forefront of the online gambling industry and have a direct hand in shaping how the industry will be regulated for years to come.

Just because a regulatory system has not been put into place or enacted does not mean that Louisiana is sitting idle in the online gambling conversation. It remains to be seen how Louisiana will approach the issue of online regulation with the current gambling industry and how far the state will allow the online industry to go. Perhaps in the not-too-distant future, you will be able to read this article while simultaneously dealing into a hand of poker—all from the comfort of your living room.

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[1] “Internet gambling,” for purposes of this Blog Post, refers to the playing of traditional casino games—such as poker, black jack, roulette, craps, or slots—via the Internet.

[2] See, e.g., La. Rev. Stat. § 14:90.3 (2013) & 31 U.S.C. § 5363 (2012); see also 720 Ill. Comp. Stat. Ann. Act. 5 § 28-1(a)(12) (West 2013) & S.D. Codified Laws § 22-25A-8 (2013). The federal government is involved in the regulation and criminalization of illegal gambling activities and has “traditionally respected the divergent approaches of the states by attempting merely to assist states in maintaining their public policies” within their borders. Gambling within a state is typically regulated under a state’s Tenth Amendment individual police power. However, Congress has passed several laws that prohibit online gambling across state lines, such as the Interstate Wire Act in 1961, 18 U.S.C. § 1084 (2012), and the Unlawful Internet Gambling Enforcement Act in 2006, 31 U.S.C. § 5363 (2012).

[3] Dominican Republic (1996), United Kingdom (1996), Australia (1996), Costa Rica (1997), Belize (1997), Panama (1997), Finland (1997), Gibraltar (1998). See Robert J. Williams & Robert T. Wood, Internet Gambling: A Comprehensive Review and Synthesis of the Literature 6 (2007), available at http://www.nsgamingfou ndation.org/articlesReports/Internet%20gambling%20A%20comprehensive%20review%20and%20synthesis%20of%20the%20literature.pdf, archived at http://perma.cc/4LV7-TD45.

[4] See Nevada Legalizes Online Gambling, CBS News (Feb. 22, 2013, 3:24 AM), http://www.cbsnews.com/8301-250_162-57570664/nevada-legalizes-online-gambling/, archived at http://perma.cc/H2MZ-6G2P. See also, N.J. Dep. of Law & Public Safety, Div. of Gaming Enforcement, available at http://www.nj.gov/oag/ge/gamingsites.html; Delaware Lottery Games, http://lottery.state.de.us/backgrounder.asp.

[5] For an illustration of the United Kingdom’s gambling regulatory scheme, see Luke Reeves, From Chance to Ka-Ching: A Model for Legalization and Agency Regulation of Internet Gambling in Texas, 14 Tex. Tech. Admin. L. J. 487, 493 (2013).

[6] Samuel B. Nunez, La. Senate Office of Fiscal Affairs & Policy Dev., Louisiana Gaming: A State Budget Perspective 1, 7 (1994).

[7] In addition to online gambling, greyhound dog racing, telephone betting, sports betting, card rooms, keno and passive lottery games, and Jai Alai (a sport similar to racquet ball) are the only forms of gambling legalized in other states that remain illegal in Louisiana. Id. Louisiana currently has 21 gambling outlets in operation, including four racetrack and slot operations, 13 riverboat casinos (including two riverboats licensed but nonoperational), three Native American casinos, and one land-based casino. This is in addition to the 14,467 video poker machines in operation at 2,124 locations throughout the state. See La. Gaming Control Bd., Report to the Louisiana State Legislature, 1–3 (2012–2013) [hereinafter La. Gaming Control Bd.], available at http://lgcb.dps.louisiana.gov/docs/2012-2013%20Annual%20Report.pdf, archived at http://perma.cc/NG4X-TGS5.

[8] Id.

[9] See Richard Finger, Online Gambling: A Pastime Whose Time Has Come, Forbes (June 30, 2013, 9:27AM), http://www.forbes.com/sites/richardfinger/2013/06/30/online-gambling-a-pastime-whose-time-has-come/, archived at http://perma.cc/DH3W-ZS9A.

[10] La. Const. art. XII § 6(C)(1)(a) (2013).

[11] The likely answer to this issue, if applying only the current constitutional provision, would be to allow online gambling participation in all the parishes that vote to allow it and to continue the criminalization of online gambling in all parishes that voted against its introduction. But as discussed below, that poses major logistical issues.

[12]  See La. Rev. Stat. § 14:90 (2007); id. § 14:90.3.

[13] Id. § 14:90(A)(1)(a). The statute defines gambling as “the intentional conducting, or directly assisting in the conducting, as a business, of any game, contest, lottery, or contrivance whereby a person risks the loss of anything of value in order to realize a profit.” Id.

[14] For an example of Louisiana imposing a strict penalty ($20,000 fine and three years imprisonment) for a Section 14:90 violation, see State v. Tracey, 831 So. 2d 503 (La. Ct. App. 2002).

[15] See La. Rev. Stat. § 14:90.3(D) (2007) (“Whoever commits the crime of gambling by computer shall be fined not more than five hundred dollars, or imprisoned not more than six months, or both.”).

[16] See id. § 14:90.3 (2013). Note that the passage of Louisiana’s online gambling criminalization statute came almost 10 years before the federal government passed a similar statute—the UIGEA in 2006.

[17] Id. at § 14:90.3(A).

[18] See La. Gaming Control Bd., supra note 7, at 1–3.

[19] Id.

[20] See La. Rev. Stat. § 14:90.3 (2007).

[21] Id. at § 14:90.3(A).

[22] See La. Gaming Control Bd., supra note 7, at 22.

[23] La. Rev. Stat. § 14:90.3(A) (2007).

[24] See Iowa Racing & Gaming Comm’n, Report on the Possible Regulation of Intrastate Internet Poker in the State of Iowa (2011) [hereinafter Iowa Racing & Gaming Comm’n], available at http://www.iowa. gov/irgc/StudyIntrastate%20Internet%20Poker.pdf, archived at http://perma.cc/V3WQ-ZZJL.

[25] Id.

[26] Id. at 64.

[27] Id.

[28] Jeffery Anderson, D.C. Online Gambling Deal Dead; Questions Buried, Wash. Times (Feb. 12, 2012), http://www.washingtontimes.com/news/2012/feb/12/dc-online-gambling-deal-dead-questions-buried/?page=all, archived at http://perma.cc/6B82-9CJB. In fact, the District of Columbia was the first U.S. jurisdiction to adopt online gambling regulations. D.C. partnered with a single company to develop and operate the online gambling website and software. However, D.C. cannot truly claim to be the first successful jurisdiction with online gambling. Less than a year after the legislation was passed, several issues emerged, and the D.C. Council made the decision to repeal the regulations and abandon the plan entirely. The D.C. Council is the legislative branch of the local government of the District of Columbia. The District is not part of any U.S. state and is instead overseen directly by the federal government, but since 1973 the United States Congress has devolved certain powers to the Council that would typically be exercised by state legislatures. See D.C. to Offer Internet Gaming, USA Today (Apr. 13, 2011), http://usatoday30.usatoday.com/news/nation/2011-04-12-DC-Internet-gambling.htm#, archived at http://perma.cc/GG7R-PH3Q; Jeff Ifrah, D.C. Becomes First Place in U.S. to Legalize Online Poker, JD Supra Law News (Apr. 8, 2011), http://www.jdsupra.com/legalnews/dc-becomes-first-place-in-us-to-lega-65489/. For more information about the issues plaguing the D.C. online gambling implementation, see Tim Craig, D.C. Council Rejects Internet Gambling, Wash. Post (Feb. 7, 2012, 2:57 PM), http://www.washingtonpost.com/blogs/dc-wire/post/dc-council-rejects-internet-gambling/2012/02/07/gIQAX0O0wQ_blog.html, archived at http://perma.cc/6KF9-NW2D.

[29] See Iowa Racing & Gaming Comm’n, supra note 24.

[30] Id. at 65.

[31] Id. at 65–66.

[32] Id.

[33] Id.

[34] Id.

[35] Id.

[36]See La. Gaming Control Bd., supra note 7, at i. (discussing the mission statement of the Louisiana Gaming Control Board and the entities currently under its regulation).