PART I
ITEM 1—DESCRIPTION
OF BUSINESS
THE COMPANY
Kenilworth Systems
Corporation hereinafter referred to as “Kenilworth”, the “Company” or “we”, was
incorporated on April 25, 1968 under the laws of the State of New
York. Kenilworth has been a publicly traded Company since August 1968
formerly on the National NASDAQ Market, presently on the OTC Pink Sheet Market
since emerging from Bankruptcy Proceedings in September 1998.
Kenilworth is now being presented as a Development Stage Company.
GENERAL
Since early in the
year 2000 we have been solely engaged in developing patents, markets and
investigating how best to obtain Governmental approvals, by engaging lobbyists
and consultants that would allow television satellite and cable subscribers
throughout the industrialized world to play and wager along from remote
locations with live, in-progress casino table games (Roulette, Craps, Baccarat
and more) from strictly regulated casinos located in the United States and
other locations around the world.
Employing the latest
encrypted satellite, cable and Internet technology and placing television
cameras in strategic locations above the casino table games, without disrupting
the normal game-monitoring activities, (a separate control room would direct
the various camera angles), and transmitting the table games over the digital
satellite, digital cable and Internet networks (in countries that permit
Internet wagering) to television sets (“TV’s”), which become a platform for
playing along with the casino games wherever TV’s are located.
Kenilworth titled
the overall project “Roulabette™”. There are thirty-eight million
(38,000,000) satellite and seventy-three million (73,000,000) cable TV
subscribers in the United States and more than five hundred million
(500,000,000) subscribers throughout the rest of the industrialized world (“The
Market”). On average, households in the U.S. have three (3) TV’s.
(It is important since the satellite and cable companies will charge a separate
fee for transmitting the table games). Public gathering places can
accommodate (be able to network) up to one thousand (1,000) or more TV sets
with a single satellite receiving dish, direct cable connections, or streamed
via the Internet. With wagering possible in homes, hotel rooms, resort rooms,
pubs, restaurants, race tracks and other public gathering places the Company
believes it will become a more than $500 billion net win Market within five (5) years throughout the
industrialized world (by the year ended 2012).
To best market the
casino games, the Company is selecting lotteries throughout the world to manage
and operate the distribution and cash handling (deposits to play and paying
winnings) using the lotteries’ existing databases for the sale of lottery
tickets, and paying winnings at regular lottery licensed terminal locations.
All forty-three
(43) lotteries in the United States are owned and operated by County and State
agencies. Since the beginning of year
2007, Texas, Illinois and Indiana are engaged in privatizing their lotteries by
selling or leasing (on long term leases) their lotteries. Maryland, Michigan, Iowa and New Jersey are
also exploring the privatization of their lotteries. This could greatly enhance
our efforts to broadcast the live casino table games to these lottery locations
and could result in having Cafés that offer terminals and TV sets to play
along. Internet Cafés that offer
wagering on various events have been a huge success in the Asian Market. With
Internet wagering outlawed in the United States, our patented satellite,
one-way broadcasts offer the best possibility to establish satellite Cafés.
Throughout the
rest of the world, lotteries are owned by government agencies or non profit
charitable agencies that distribute the net earnings to benefit social and
charitable programs, or by private entities that pay a percentage of their net
win to designated government agencies.
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These foreign
lotteries also have the same databases as lotteries in the United States,
except most lotteries throughout Europe pool their lotteries between countries,
not unlike Mega Millions and PowerBall in the United States, which makes the
distribution simpler and very cost effective for both Kenilworth and the
lotteries.
There are no
technical breakthroughs required. The equipment for the technology is
readily available. What is needed is to get through the maze of Local,
County, State and Federal regulations in each U.S. State and foreign
countries. When the first State in the United States grants the Company
permission to transmit the broadcast from one of its casinos to their residents
and to States that do not have any casinos, (the entire East coast of the
United States), the other forty-three (43) States with lotteries will join
expeditiously. The same will occur in foreign countries.
Kenilworth will
share the net win revenue with all
participating entities that provide Roulabette™ gaming without costs of any kind. State lotteries or their private
operators will receive a minimum of forty percent (40%) of the total net win from their respective
jurisdictions.
In States and
foreign countries that designate exclusively lottery proceeds to schools and
their teachers it is a welcome contribution. It also will help close
budget gaps.
In addition,
throughout the United States and most foreign countries there are hundreds of
facilities that simulcast live in-progress horse/dog races. At most
facilities there are several large TV screens that show the races from the
different tracks with general theater-type seating for patrons and at private
cubicles with television sets outfitted with touch screens. The cubicles
rent for additional fees. After players open an account and select pin
numbers, they can watch, in privacy, each race offered on the different tracks
on the TV and place wagers on the different races by simply changing
channels. The players may also watch sporting events, the news, the stock
market reports, and in the near future Roulabette™, live, in-progress casino
table games. The simulcast centers have their own databases to manage the
cash deposit and pay winnings on the horse/dog races and will be able to manage
the casino games, on the same methods as the lotteries will manage
Roulabette™. With private TV’s, available in simulcast centers,
especially at night, when fewer tracks are operating.
When playing along
with live table games from a highly regulated jurisdiction, players will be
assured that the game results are exactly what they see; and, playing along
with live casino table games such as Roulette, Craps and Baccarat, we believe,
will provide interaction, fun and far more excitement than playing make believe
animated (virtual) games. It is the next best thing, we believe, to actually
being at the table in the casino.
To conduct actual
live test broadcasts Kenilworth believes it will require a minimum of ten
million dollars ($10,000,000) and there are no assurances we will ever be able
to obtain any of such money. At present, the Company does not have the funds
readily available but hopes to obtain same, from investors, as soon as
Kenilworth can commence broadcasting from a casino in the United States or
other casinos throughout the world.
In prior years,
Kenilworth completed a prototype system that allowed casino patrons to play
along with live in-progress casino table games only within the confines of a casino, via closed circuit
television. Also in 1990, we developed and delivered for the TAB (Totalizator
Agency Board) a quasy government agency of the State of Victoria, Australia, a
cashless slot machine system. Both systems required debit cards and central
mainframe computers to manage the wagers. By making use of the expertise applied
in the development of the aforementioned systems we plan to develop a
second-generation system that will manage the wagers by the microprocessor
installed in TV set-top boxes or an attachment directly connected to the TV set
to receive satellite and/or Internet broadcasts. This as planned would allow a
player in an interactive manner, at a remote location (outside the casino
confines), to experience the actual play and excitement at the casino table
game and to make wagers on the various games, without having to be physically
present at the casino or casino table. There are no assurances we will be
able to successfully develop any system.
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We also propose
for slot machine manufacturers to develop “Roulabette™ Slot Machines”.
The Roulabette™ Slot will offer the regular slot or video lottery games and by
the touch of a button, the live in-progress casino table games. Slot
players are offered a change of pace at the cost of a slot handle pull.
The games are transmitted to the Roulabette™ Slot via satellite or the Internet
(all broadcasts are encrypted to prevent unauthorized use of the broadcasts).
Where authorized,
hotels, resorts, clubs and other public gathering places will be able to offer
casino table game action in their establishments without incurring the costs to
operate a casino. There are now believed to be more than ten million
(10,000,000) slot machines played throughout the world, outside of casino
confines.
Project
Roulabette™ is a concept intended to be built and there can be no assurances
that it will ever be built. The Patented microprocessors to be installed
in the TV set top boxes have not been designed.
SUMMARY:
(1.)
Kenilworth continues to fine tune its patented technology dubbed
Roulabette™. It now plans to “outsource”
the manufacturing of all the components instead as formerly manufacture some of
the equipment in its 26,000,000 square foot facility located in Melville,
NY. Roulabette™ would allow casino
patrons and other players to play along with live in-progress casino table
games such as Roulette, Craps and Baccarat and more via digital satellite,
digital cable television or Internet broadcasts (simulcasts) emanating from
strictly regulated casinos located in the United States and other locations
around the world, to self-sufficient computer terminals dubbed “Roulabette™
Slots” and digital satellite, cable TV set top boxes or the Internet in
countries that permit Internet gaming. The Roulabette™ terminal is a proposal
intended to be built and there can be no assurances that it will ever be
built. The microprocessors to be installed in the TV set top boxes have
not been designed. We have as at July 31, 2006, no firm agreements, customers,
or proposals for any future business and there can be no assurances that we
will ever have same. Reference is also made
to each of the “Risk Factors” that are set forth in Item 7.
(2.)
We believe the thousand virtual casino websites via the Internet obtain sixty
percent (60%) of their annual revenue from customers in the U.S. These website have been shut down when President
Bush signed the Internet Enforcement Act of 2006.
Simulcast
broadcasts of digital satellite and digital cable transmissions around the
world must meet, and will be supervised by, the regulations by the gaming
authorities of the broadcasting casino and the jurisdiction, which receives the
broadcast. We believe the supervision will not be difficult to enforce,
because all simulcast wagering is “cash only”, from regulated, supervised
betting sites. There are no wire money transfers with banks and no credit
or debit cards permitted. We believe this fact should ease any opposition
from concerned citizens and anti-gambling groups, as regulation and enforcement
responsibility will be vested in each individual state (or foreign
jurisdiction).
Kenilworth was the
first to use color personal computers (PC’s) to replace electromechanical slot
machines (1988). We provided the software for the first Tabaret located
at the Menzie at the Rialto in Melbourne, Australia, which opened in November
1990. This consisted of cashless, variable denomination and multiple
game, virtual PAT’s (“Player Activated Terminals”). Prior thereto
Kenilworth sponsored, with the assistance of three (3) Nevada casino operators,
legislation to permit cashless wagering in the state of Nevada. The
legislation, which is in the form of an amendment to existing casino control
statutes, permits the use of account cards (debit cards) and was signed into
law by Governor Richard H. Bryan on June 13, 1985.
Kenilworth has
been a publicly traded Company since 1968. Prior to commencing its endeavors
into its present business in 1988, it also provided security systems to Nuclear
Electric Generating Plants in the U.S. and foreign countries, as well as
time/attendance systems at a major department store chain.
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THE STATUS WITH
PAGCOR
During January
2006, the Company reestablished negotiations with the Philippines Amusement and
Gaming Corporation (“PAGCOR”) for permission to broadcast live, in-progress
casino table games from their casinos.
PAGCOR is the Republic
of the Philippines chartered government gaming monopoly. PAGCOR partially
owns and exclusively operates all fourteen (14) Filipino casinos, some of which
are located in exclusive resort facilities frequented by Asian patrons
(tourists).
In March 2006,
Kenilworth conducted a live, in-progress casino table game test to demonstrate
the ability to broadcast the table games, for around the world viewing, without
disrupting the normal security monitoring and protecting the privacy of players
at adjoining table games. The film clip of the test broadcast which was
made at a roulette table located in the new Hyatt Hotel and Casino, Manila, is
available for viewing on our website www.kenilworthsys.com (see Press Release:
Monday, March 6, 2006).
In April 2006,
Kenilworth offered to pay PAGCOR monthly payments, for hosting the broadcasts
when they commence, for a period of ten (10) years; US $1 million for year one
(1); US $2 million for years two (2) and three (3); US $5 million for years
four (4) through seven (7) and US $10 million for every year thereafter,
totaling US $636,000,000 over the ten (10) year period. The payments have to be
made regardless from where we broadcast. Kenilworth requires the
flexibility to broadcast from other casinos besides the Philippines.
In July 2006,
PAGCOR board of Directors approved to commence the first live, in-progress
casino table game broadcasts to emanate from the new (August 2005) Hyatt Hotel
& Casino in Manila, Philippines.
We, thus, have
acquired a broadcast site for Roulabette™. Now we have to obtain
agreements for locations that will permit us to receive the broadcasts.
We are in an active search in Europe, including Eastern Europe, South America,
China, India and the Pacific Rim nations. We filed our patents in all of
these destinations. Our status with
PAGCOR since then is in serious doubt.
In 2002, the
Philippines Government permitted the establishment of two (2) Internet Cafés in
the Manila area and allowed the operators, for a fee to PAGCOR, to provide life-like
action on virtual baccarat, accept sports bets and video broadcast of actual
in-progress cock fights with wagering on the outcome. By year end 2004, the number of Cafés
operating in the Manila area increased to sixty (60) Cafés. At the end of 2006 there are now six hundred
(600) Cafés in Manila with an additional thirty four hundred (3,400) throughout
the country.
Kenilworth never
attempted to provide live in-progress real time casino table games to the Cafés
since President Gloria Macapagal-Arroyo
stated, at all times, that our broadcast should not expand gambling throughout
the Philippines. The Cafés now represent
a huge profit base for PAGCOR which provides the income from its overall
operation entirely for socio-civic endeavors. PAGCOR is the most profitable corporation in
the Philippines.
The phenomenal success by the Internet Cafés may not require our
broadcasts to improve PAGCOR’s income stream.
Kenilworth planned to broadcast to the Pacific Rim countries to maintain
the tourist’s trade to the Philippines resorts, all of which have casinos, and
now have to compete with Macau. We
believe PAGCOR will require our broadcasts to maintain the tourist trade.
MARKETING
STRATEGY/SALES PLAN
Our marketing
strategy consists of developing the Roulabette™ Slot terminal and the
Roulabette™ broadcasts. We estimate at this time, that we will need at least
approximately ten million dollars ($10,000,000) for promoting the Roulabette™
concept. We do not have this money nor do we have any agreements or understanding
to procure this money. We may never get this money. If we do obtain this money,
it may not be sufficient. Further, should such monies be available it may not
be available on terms
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satisfactory to
Kenilworth or it may be available on such terms that substantially dilute the
interest of existing shareholders. If we obtain this money, we will need
substantial additional funds for the proposed marketing plan and there can be
no assurances that such funds will ever be available to allow Kenilworth to engage
in business on a profitable basis.
At the present
time, we do not engage technically oriented employees who will be able to
assist in the development of Roulabette™ (we have available three [3] former
technical Kenilworth employees that have indicated to rejoin Kenilworth at the
appropriate time). It will be necessary for us to obtain additional personnel
qualified and with the expertise to develop Roulabette™. We would require
additional employees and several more consultants and there can be no assurances
of our being able to obtain any necessary personnel. There can be no assurances
of the availability of any such employees and consultants.
The Company will
outsource the development of Roulabette™ and the microprocessors for the TV set
top boxes.
In the United
States, Kenilworth must refrain from using the Worldwide Web (WWW) Internet to
manage wagers from individuals outside of the casino confines. It is against
the law. In Roulabette™, the play-along broadcast emanates from casinos that
are regulated by strict and comprehensive rules and state and jurisdiction
regulations, enforced by gaming control regulators and everybody plays along
with the same live table game. There is a world of difference between playing
in a virtual make believe casino compared with an actual casino.
For the reasons
stated, Kenilworth will ask state lotteries, Off-Track Betting (OTB)
corporations, pari-mutuel race tracks, and other state and federal regulated
agencies to manage the wagers from individuals playing along on their PC’s and
their television sets using interactive TV set top boxes that convert regular
television sets into minicomputers within their state or jurisdiction. There
can be no assurances that we will be able to obtain any arrangement with any of
these entities or that they would be on suitable terms.
The individuals
would have to pre-deposit funds into an account with the wager management
company and then place wagers with their credit balance. The wagers and running
balances will be transmitted to the Roulabette™ player’s PC and/or television
sets with telephone lines not crossing any state lines, similar in principle to
telephone accounts wagering offered by the New York State Off-Track Betting
Corporation and the state of Nevada casino sports book and recently with remote
purchase of lottery tickets in many states within the United States.
After we obtain
permission to play Roulabette™, of which there can be no assurances, in a
given state and engages a wager management organization in order to promote
digital satellite and interactive television to the state’s residents,
Kenilworth would install the eighteen (18) inch dish antenna and converter box
required to receive digital TV programming and interactive TV at its own cost,
if the subscriber opens a Roulabette™ wagering account for two hundred dollars
($200). In addition, Kenilworth would pay the monthly subscription fees to view
all digital TV programming offered and the Internet service provider (ISP)
subscription fee if the customer wagers at least one hundred twenty dollars
($120) each month — win, lose, or draw — makes no difference. In the U.S. the contracts would be financed
by the satellite carrier such as EchoStar and DirecTV.
In states with
approved lottery and/or other gambling legislation, we plan to introduce
Roulabette™ Slot terminals to hotels, clubs (similar to card clubs in
California) and resorts, to provide upscale gathering places for tourists and
local residents. Charitable organizations that are permitted to conduct “Nevada
Nights” and Bingo games may wish to offer Roulabette™ gaming on a more
permanent basis. To receive the broadcast signal, all that would be required is
an eighteen (18) inch dish TV antenna and distribution equipment. The
Roulabette™ terminals are intended to be self-sufficient and accept dollar
bills (or script, to control the amount an individual is allowed to wager in
one day or other time period). We plan to lease all the equipment necessary to
participants for a share of the profits.
To gain approval
for our Roulabette™-style gambling in jurisdictions that have not approved any
gambling legislation, Kenilworth proposes to engage lobbyists to introduce,
promote, and obtain legislative approval to permit Roulabette™-style gambling.
Our strategy is to find depressed resort areas and have the
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resort/hotel
operators convince their local politicians of the benefits to their business
and the local economies and request them to promote legislative approval,
either state-wide or limited to their areas. Riverboat gambling started to
rehabilitate decaying waterfronts. Roulabette™ can do the same in depressed
economic areas. No assurances can be given that we can obtain any such
approvals.
When the live
casino TV broadcasts are beamed for global viewing, Kenilworth will seek out
similar organizations, as proposed for the United States and betting shops and
slot route operators that can provide the servicing of individual accounts and
placement of Roulabette™ terminals in hotels, clubs, pubs, racetracks, etc. In
all instances, we plan to offer only profit sharing arrangements to
franchisees, which will require leasing all the equipment necessary to the
franchisee, to discourage competition.
In overseas
installations, wherever permitted, Kenilworth will make use of the WWW Internet
only to manage the wagers, and only in jurisdictions that permit the data
collection of the gambler, not for the live broadcast.
In the event a
substantial amount is won by a player, Kenilworth will make the payment to the
winner, via money wire transfer, to the establishment which managed the wager,
within twenty-four (24) hours. Kenilworth will establish a worldwide cage
for winning payments; or, a guarantee payment by a well-recognized
international bank.
COMPETITION
Many segments of
the gaming industry are characterized by intense competition, with a large
number of companies offering the same type of wagering products and services.
None of these companies, at present, are believed to offer the same or similar
equipment or systems as intended by Roulabette™. The most likely competition
will come from slot machine manufacturers who could relatively quickly adapt
slot machines to play along with live casino table games. We believe there are
three (3) major slot machine manufacturers in the world, all of which have
vastly greater capital resources and substantially more personnel than the
Company and may have under development systems that directly compete with
Roulabette™.
Our present plans
are to broadcast the live casino table games from companies that own casinos
throughout the industrialized world. Other casino owners may start their own
broadcasts and have their own terminals manufactured that compete with
Kenilworth after Kenilworth has done all its pioneering for play-along
wagering.
PATENTS, TRADEMARKS
AND INTELLECTUAL PROPERTY
Our most important
assets are Patents we have acquired and Roulabette™ related trademarks and
service marks. The Patent granted on June 10, 2003 titled “SYSTEM
AND METHOD FOR REMOTE ROULABETTE AND OTHER GAME PLAY USING GAME TABLE AT A
CASINO” and Patent Application filed October 15, 2003, entitled “METHOD
AND SYSTEM FOR SUPPLYING FUNDS TO A TERMINAL FOR REMOTE WAGERING”, “MULTI-USE
GAMING MACHINE” trademarks ROULABETTE™, as in pre-marked cards similar to
lottery cards to select number in each game, used with terminals “ROULABETTE™
SWIPE CARD” to activate set-top boxes to play Roulabette™ and “PLAY ALONG WITH
ROULABETTE™, LIVE” and MULTI-USE GAMING MACHINE.
GOVERNMENT
REGULATIONS
Kenilworth has no
licenses from any casino regulating authorities and may not require any casino licenses
at the present time and may never become able to obtain any licenses that may
be required in the future. Each state has its own regulations, and in states
where Kenilworth does business, Kenilworth will have to comply with these
regulations and there can be no assurances that it will be able to do so or
obtain the necessary license in an applicable jurisdiction. The following
discussion is not necessarily complete, or current regarding laws and
regulations that may be applicable to us. Any present laws are also
subject to future change, amendment or cancellation.
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Federal
The Federal
Gambling Devices Act of 1962 (the “Federal Act”) makes it unlawful for a person
to manufacture, deliver, or receive gaming machines, gaming machine type
devices and components thereof across interstate lines unless that person has
first registered with the Attorney General of the United States.
In addition,
various record keeping and equipment identification requirements are imposed by
the Federal Act. Violations of the Federal Act may result in seizure or
forfeiture of equipment, as well as other penalties.
Other
Regulations
The manufacture,
distribution, sale, and use of slot machines are controlled by state and
federal law, which may also apply to our Roulabette™ gaming terminals. Certain
foreign countries permit the importation, sale, or operation of slot machines.
Where importation is permitted, some countries prohibit or restrict the payout
feature of the traditional slot machine or limit the operation of slot machines
to a controlled number of casinos or casino-like locations. Certain of these
jurisdictions also require the licensing of gaming devices. Our Roulabette™
terminals may be considered similar to slot machines and may have to meet these
regulations.
Greenberg
Traurig Opinion
August 11, 2005
Kenilworth Systems
Corporation
185 Willis Avenue
Mineola, New York 11501
Attn: Herbert Lindo, Chairman and CEO
Re: Legal
Issues Relating to Roulabette(TM)
Dear Sir:
We are writing in
response to your request for an opinion as to the legal issues relating to the
implementation of the Roulabette(TM) concept of Kenilworth Systems Corporation
(“KSC”).
Roulabette(TM) is
a method and system for placing wagers on live, in-progress casino table games
such as roulette, baccarat and dice from locations remote from the actual
casino tables at which the games are taking place. The system begins at the
casino, where television cameras in strategic locations above the casino table
games follow the games being played at the casino tables, and microphones pick
up the sounds of the table play. The game play is transmitted via digital
satellite and cable transmissions to subscribers who are able to wager by using
set top boxes which receive the broadcast of the game and record wagers and results.
LEGAL ANALYSIS
In making use of
this opinion, Kenilworth Systems Corporation (“KSC”) should be aware that this
is a very complex area of law, involving U.S. federal gambling statutes, the
gambling statutes of the fifty states and the District of Columbia, and the
gambling statutes of all the countries of the world where you might want to
operate a Roulabette(TM) casino or offer Roulabette(TM) wagering. The gambling
laws of these jurisdictions vary widely, ranging from the absolute prohibition
of Utah, to the street-side betting shops of England, to the wide-open casinos
of Las Vegas. Further confusing matters is the fact that there is very little
statutory law specifically addressing remote gambling, and the few statutes
which do exist relate to Internet gambling, which is not the same as
Roulabette(TM). So, for the most part, we will be interpreting the provisions
of gambling statutes which were enacted before the digital technology of today
existed, and did not contemplate the possibility of playing casino games from
remote locations. Similarly, the case law
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relative to remote
gambling is also very sparse and, once again, concerns Internet gambling, which
is different from Roulabette(TM). Finally, there are the interpretations of the
law relating to remote gambling which have been publicly pronounced by the U.S.
Department of Justice (“DOJ”), which in our opinion are clearly erroneous.
Consequently, although the opinions expressed below are our best assessment of
the situation after years of research and active involvement in numerous cases,
they are to a great extent projections of what we believe the courts would hold
if the issues were ever adjudicated. They are not shared by the DOJ, they do
not take into account laws which may be enacted in the future as the countries
of the world continue to address the issues of remote gambling, and in time
they may prove to be incorrect in one respect or another.
In the United
States, the prohibition and/or regulation of gambling is a matter of state law.
Some states, such as Nevada, permit a wide range of gambling activities
throughout the state. Other states, such as Mississippi and New Jersey, permit
a wide range of gambling activities, but only at certain geographic locations,
such as riverboats and Atlantic City casinos. Finally, other states, in fact
most states, permit only very limited gambling activities, such as thoroughbred
racing, jai alai, bingo, etc. Superimposed on this tangle of state laws and
regulations are the federal statutes, which are designed to assist the states
in combating illegal gambling operations which cross state and national
borders. So, basically, the U.S. legal regime applicable to gambling is
two-tiered. The individual states determine the forms of gambling which are
legal and illegal, and to what extent they are banned or regulated, and the
federal government assists the states in dealing with illegal gambling
activities which cross state or national borders.
Given the fact
that Roulabette(TM) would be most successful if distributed on a national or
international level, the federal issues must be addressed first to determine
whether it is legally feasible to distribute the product across state and
national borders. If there is no federal prohibition, casino locations must be
selected and the state and local laws of the jurisdiction where the casino is
located must be analyzed to determine if it is legal and feasible to broadcast
from the chosen locations. In view of the fact that casinos can be chosen from
anywhere in the world, there is little doubt that locations can be identified
from which to originate the broadcasts. It is only a matter of identifying the
best casino or casinos from a legal and business perspective. Finally, several
U.S. and foreign courts have concluded that remote gambling takes place both
where the server is located (or in this case, the casino), and where the player
is located. So, once one or more casinos are identified, another analysis will
be necessary to determine the markets where it would be legal to offer the
games being played. It is not a question of whether there are legal markets for
one or more games, but a matter of the number of markets available and the
types of games which can be offered in each market.
There are four
federal statutes which are most applicable to remote gambling.(1) They are:
(1) There
are also additional statutes, such as conspiracy (18 U.S.C.
section 371), money laundering (18 U.S.C. section 1956 and
racketeering (18 U.S.C. section 1962) statutes which could apply if
the gambling statutes are violated.
— The Wire Act, which
prohibits the use of interstate or foreign communications facilities to
transmit wagering information on sporting events or contests; (2)
(2) 18
U.S.C. section 1084.
— The Illegal Gambling
Businesses statute, which prohibits the operation of a gambling business in
violation of the laws of the state where it is conducted; (3)
(3) 18
U.S.C. section 1955.
— The Travel Act, which
prohibits the use of interstate or foreign travel and the use of the mail or
any facility in interstate or foreign commerce (such as the Internet or digital
satellite services) to facilitate illegal activities, including illegal
gambling; (4) and
(4) 18
U.S.C. section 1952.
— The Interstate
Transportation of Wagering Paraphernalia statute, which prohibits transporting
gambling-related items in interstate or foreign commerce. (5)
(5) 18
U.S.C. section 1953.
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1. The Wire
Act
This statute
prohibits gambling businesses from using interstate or international telephone
facilities to transmit gambling-related information, and states:
Whoever
being engaged in the business of betting or wagering knowingly uses a wired
communication facility for the transmission in interstate or foreign commerce
of bets or wagers or information assisting in the placing of bets or wagers on
any sporting event or contest, or for the transmission of a wire communication
which entitles the recipient to receive money or credit as a result of bets or
wagers, or for information assisting in the placing of bets or wagers, shall be
fined under this title or imprisoned not more than two years, or both.(6)
(6) 18
U.S.C. section 1084(a).
The Wire Act has
been a formidable tool for the DOJ in the prosecution of operators of Internet
gaming sites. The DOJ merely has to establish that a bet was transmitted or
received over the Internet and it can obtain a conviction, without ever having
to address such issues as the actual location of the betting (i.e., where the
bettor is or where the bookmaker is), or the fact that the operator was
licensed by a sovereign nation to provide gambling services over the Internet.
In the Spring of
1998, when the United States Justice Department proclaimed its opinion that the
Wire Act prohibits Internet gambling, U.S. Attorney General Janet Reno
announced charges against numerous off-shore Internet gambling operators,
stating:
The Internet is not an
electronic sanctuary for illegal betting. If a state outlaws soliciting
or accepting bets, you can’t evade those requirements by going online. It’s a
federal crime to use the Internet to conduct betting operations. And to
Internet betting operators everywhere we have a simple message; you can’t hide
online and you can’t hide off-shore.
This assertion
appears to be correct. “Wire communication facility” is broadly defined as an
instrumentality or service “used or useful in the transmission of writings,
signs, pictures and sounds of all kinds by aid of wire, cable or other like
connection.”(7) The courts have ruled that even with satellite transmissions,
there is still a wire connecting the gamblers computer to the Internet.(8) So,
even though Roulabette(TM) utilizes satellite transmissions, it is likely that
there will be a wire of some sort used for the transmission somewhere along the
line, most likely at the casino or at the player’s TV and set-top box. However,
regardless of whether a wire was used in the transmissions, the Wire Act still
would not apply for two reasons.
(7) 18 U.S.C. section
1081.
(8) World Interactive
Gaming, 1999 WL 591995, 6-8 (N.Y. S.Ct.) (“Like a prohibited telephone
call from a gambling facility, the Internet is accessed by using a telephone
wire”); United States v. Cohen, 260 F.3rd 68 (2nd Cir. 2001).
13
First, although
the DOJ takes the position that the Wire Act applies to all Internet gambling,
sports and non-sports alike, the courts have held otherwise. The DOJ reasons
that the word “sports” in the phrase “sports events or contests” modifies only
the word “events” thereby leading to a reading that the statute covers betting
on sports events and betting on [other] contests. However, the courts and
virtually all legal scholars and attorneys experienced in the field are of the
opinion that it only applies to sports betting.
The Supreme Court
has established the rules of statutory construction, and if the statutory
language is clear and unambiguous, then you look no further and follow the
language of the statute. The Wire Act makes it a crime to send or receive
wagers on sporting events and contests. Sporting events and contests are
football, baseball, basketball, hockey, golf, tennis prize fighting or
whatever, but not poker, bingo and similar games. Although a card game or a
poker tournament, may be a contest, is not as sporting contest.
If there is some
doubt as to the meaning of the statute, the courts turn to case law and the
legislative intent of Congress. There have been cases addressing the question
of whether the Wire Act applies to non-sports gambling and the case law is
consistent — it does not. The most recent case dealing with the issue was In
re: MasterCard International, a civil RICO case, which hinged on the
applicability of the Wire Act to non-sports Internet gambling.(9) In deciding
the issue, the court stated that the wording of the Act, the case law and the
legislative intent all lead to the conclusion that the Wire Act only covers
sports gambling. The case was upheld on appeal by the Fifth Circuit Court of
Appeals, which stated: “we agree with the district court’s statutory
interpretation, its reading of the relevant case law, its summary of the
relevant legislative history, and its conclusion.”(10)
(9) 2001
WL 197834 (E.D.LA.).
(10) In
Re: MasterCard Int’l., 313 F.3d 257, 262 5th Cir. 2002).
It should be noted
that although the DOJ loudly proclaims that the Wire Act applies to all
Internet gambling, it is apparently concerned that its interpretation may be
wrong, and has never attempted to use the statute against non-sports gambling
business in the ten years that Internet gaming has existed. In our opinion, the
Wire Act does not cover non-sports gambling, such as Roulabette(TM) — that is
the law, as enacted by Congress and interpreted by the courts, the desires and
opinion of the DOJ notwithstanding.
Second, there is
an exemption to the Act, which provides that it is not illegal to transmit “information
assisting in the placing of bets or wagers on a sporting event or contest from
a place where such betting is legal to another place where such betting is
legal.”(11) The Roulabette(TM) broadcast would constitute “information
assisting in the placing of bets or wagers” within the meaning of the statute,
and it would be broadcast from a casino in a jurisdiction where such gaming
activity is legal to a jurisdiction where the actual wagering activities would
take place and where such wagering would be legal. Consequently, even if one
accepts, or accedes to, the expansive view of the U.S. Department of Justice,
with which most people do not agree, that the Wire Act is not limited to sports
betting but extends to other forms of wagering activities, Roulabette(TM) would
be exempted from the statute.
(11) 18
U.S.C. section 1084(b); United States v. Ross; Martin v. United States, 389
F.2d 895, 898 (5th Cir. 1968); See also e.g. United States v. Miller, 22 F.3d
1075 (11th Cir. 1994) (affirming conviction under Section 1084 “for aiding and
abetting the telephonic transmission of wagering information between Georgia
and Nevada”); United States v. Scavo, 593 F.2d 837 (8th Cir. 1978) (affirming
conviction of defendant who when living in Nevada provided gambling point
spread information to a Minnesota bookmaking business); United States v. Cohen,
260 F.3rd 68 (2nd Cir. 2001) (cert. denied, 2002).
2. The Illegal Gambling
Businesses Statute(12)
(12) This
statue is also knows s the Organized Crime Control Act or OCCA, because it was
included as part of that omnibus crime bill.
This statute prohibits
persons from operating an illegal gambling business, and states:
(a) Whoever conducts,
finances, manages, supervises, directs, or owns all or part of an illegal
gambling business shall be fined under this title or imprisoned not more than
five years or both.
(b) As used in this section
— “illegal gambling business” means a gambling business which (i) is a
violation of the law of a State or political subdivision in which it is
conducted; (ii) involves five or more persons who conduct, finance, manage,
supervise, direct, or own all or part of such
14
business;
and (iii) has been or remains in substantially continuous operation for a
period in excess of thirty days or has a gross revenue of $2,000 in any single
day.(13)
(13) 18
U.S.C. section 1955.
The statute
applies to all forms of gambling, sports and non-sports alike, and makes it a
federal offense to conduct, finance, manage, supervise, direct or own all or
part of an “illegal gambling business.” An illegal gambling business is defined
as a gambling business, which “is a violation of the law of a State or
political subdivision in which it is conducted.” The application of this
statute to Roulabette(TM) is obvious, because it applies to sports and
non-sports gambling alike, and Roulabette(TM) would be operated, managed,
financed or owned by at least five people. Despite the language appearing to
limit the statute to persons who conduct, finance, manage, etc., numerous cases
have recognized that the statute proscribes any degree of participation in an
illegal gambling business except participation as a bettor.(14) As one court
recently put it, “conducts extends to those on lower echelons, but with a
function at their level necessary to the illegal gambling operation.”(15)
(14) Sanabria
v. United States, 437 U.S. 54, 70-1 n.26 (1978).
(15) United
States v. O’Brien, 131 F.3d 1428 (10th Cir. 1997).
However, unlike
the Wire Act, under this statute, the location of the actual activity is of
critical significance, because it must be a violation of the law of the state
or political subdivision in which it is conducted. This should not be an issue
for Roulabette(TM), because it intends to broadcast from a casino in a
jurisdiction where it would be legal. If it was not legal under the laws of the
jurisdiction where the casino is located, and the casino is in the United
States, then there would be a violation not only of state law, but of this
federal statute as well.
The statute could
also apply if the player is located in a state where the gambling would be in
violation of state law. I think there is little question that offering services
to players in a particular state would constitute doing business in that state.
So, it will be essential that the service not be offered to players located in
states where such gambling would be illegal. Otherwise there would be a
violation of this federal statute, as well as the laws of the player’s state.
3. The Travel Act
This statute
prohibits the use of interstate or foreign travel, and the use of the mail or
any facility in interstate or foreign commerce, to distribute the proceeds of
illegal gambling, or otherwise promote, manage or facilitate any illegal
activity, including gambling, in violation of federal or state law.(16)
(16) 18
U.S.C. section 1952.
15
Once again, the
statute will not present a problem so long as Roulabette(TM) is legal in the
state where the casino is located and the states where any U.S. players are
located.
4. The Transportation of
Wagering Paraphernalia Statute.
This statute
prohibits persons from carrying or sending gambling paraphernalia in interstate
or foreign commerce, and states:
Whoever ... knowingly
carries or sends in interstate or foreign commerce any record, paraphernalia,
ticket, certificate, bills, slip, token, paper, writing, or other device used,
or to be used, or adapted, devised, or designed for use in (a) bookmaking; or (b)
wagering pools with respect to a sporting event; or (c) in a numbers, policy,
bolita, or similar game shall be fined under this title or imprisoned for not
more than 5 years or both.(17)
(17) 18
U.S.C. section 1953
A New York state
court declared that an Internet gambling web site located in Antigua violated
the law by sending records of gambling activity into the State of New York.(18)
Moreover, the court also held that the defendant Internet gambling operator
further violated the statute by sending computers to Antigua, which computers
would ultimately be used for conducting gambling business between the United
States and Antigua.(19) More on point, a California court has held that a
computer disk containing a program for recording and analyzing bets on sport
