April 10, 2023
- Carlos Alberto Fonseca-Sarmiento, Partner, Fonseca Abogados LLC and Gaming Law S.A.C.
Foundations of a legal theory of betting games
To ensure we have gambling regulation which is consistent, it is essential first to define the games we wish to regulate argues Carlos Alberto Fonseca-Sarmiento
One of the most confusing and frustrating conditions facing regulators and those attempting to work according to their regulations is the anomalous and inconsistent way in which laws are enacted and applied. In Chile, for example, slot machines are considered games of chance and only allowed inside casinos, however, there are many electronic betting machines operating outside casinos because the law has not comprehensively regulated all betting games. In some Brazilian states there is a long-standing situation where slot machines are considered lottery games or one-person bingo terminals for the sole purpose of evading a federal ban on slot machines within the Brazilian territory. In Ecuador, as a result of a popular consultation, games of chance for profit were prohibited, but today, sports betting games are offered without regulation, even by the Internet.
In all these cases (and many more in Latin America), legal disputes between operators and regulators are frequent. On the one hand, operators defend their constitutional rights before ambiguous laws; and on the other hand, regulators seek to protect the public interest against any negative externality that may be caused by offering an insufficiently regulated game. In all these cases the solution is the same: define precisely what a betting game is. This is what we will set out to do in this article.
When developing a positive legal theory of betting games three dimensions need to be considered: first, an analytical dimension that seeks to provide clarity on the concept of betting games; second, an empirical dimension that describes the existing legislation and jurisprudence (case law); and third, a statutory dimension in order to propose appropriate legislation on betting games and to ensure laws are compatible with the Constitution.
This paper only deals with the analytical dimension and can be used to inform any national legislation. No legal theory can exist without a clear concept of the item it is supposed to explain. Regrettably, this is the first and biggest mistake observed in the laws of many countries from the author’s experience of Latin America. Poor understanding of betting games leads to logical, semantic, and syntactic problems. Hence, we must first define such notions.
What is a game?
All games have three basic elements: physical and mental activity; voluntary involvement; and players feeling pleasure.
As physical activities, they entail – to a greater or lesser extent – body movements. As mental activities, they stimulate brain functions. Certain games, like chess, require more brain activity than physical movement, whereas others, like “jumping rope”, require the opposite.
Games require voluntary involvement because players make a conscious decision to participate. Each person decides freely without the interference of a third party. Each person’s freedom to act is exercised in two areas: deciding whether or not to play, and deciding what game to play.
A game is a pleasurable activity. This is the subjective element of the game and is evidenced in the enjoyment felt by players. Not all people find the same things pleasurable, but the common factor among games is that they entertain. Games are associated with fun, which is why they are considered a normal way of exercising people’s right to leisure. But they are also a manifestation of the right to free development of the personality because each person can choose the game that will develop, within their daily life, their life project.
Conversely, there are characteristics that are not present in every game; therefore, the need to establish classifications and categories.
- Games may involve one player or several players. Indeed, some games can be played solely by one person, while others need at least two players.
- Games may or may not be regulated. In some cases, especially games involving minors, they are spontaneous and without regulations. At the same time, there are complex rules-based games, and one must follow these rules in order to meet the objective foreseen for such activity.
- Games may or may not imply competition. In many games, the fun lies in winning and to do so players must follow the rules of the game. In other cases, even if there are several players, the game does not create any competition between participants.
- Games may or may not have an economic interest. The basic purpose of games is to entertain, however, in certain cases, an economic benefit is also pursued, and this occurs, for example, when there are bets.
In summary, a game is a physical and mental activity that is voluntary and brings pleasure to players; can be performed individually or with other people; may or may not be subject to rules; may or may not involve competition; and may or may not contain an economic interest.
What is a betting game?
Given their social significance, some games are legally relevant. Their regulation is warranted when they have a public interest component. These games have four characteristics: they are multiplayer, rules-based, competitive, and with economic interest (implying betting). They can be grouped under one name: Betting games.
Taking these characteristics in turn:
1) Multiplayer games: For a game to be legally relevant it has to involve more than one person. It must be a social game. Games played by only one person are not relevant to the world of law since they do not have consequences on others. The “multiplayer games” category includes games played by one person but having an effect on more than one person. Slot machines are an example. In this case, the player’s “opponent” is the owner of the slot parlor. Therefore, any game offered to the public, even if it can only be played by one person, qualifies as a multiplayer game.
2) Rules-based games: In general, games may or may not have rules. We have already mentioned that there are ruleless games. Rules are directions that must be followed to play a game. If there are no rules, there is no way to create binding effects for the participants, for example, to determine a winner. Rules are important because they make it possible to achieve the goal of the game. Rules cannot be changed, i.e., they are pre-determined since players must know them in advance of the start of the game. They can be changed, but only if players are informed before they become effective. Rules are mandatory and govern players’ actions. Rules are general because they apply equally to all players in the game. Rules are constraints because they limit, among other things, the way players must behave in the game. If a player does not know the rules of the game, he/she is at a disadvantage compared to the others. Some games have more complex rules than others, and a player who knows them better will have an advantage over the rest. In any case, in a rules-based game, it is important for every player to know the rules before playing and that every player follows them. Any rules-based game, by the mere fact that it has to be played according to rules, triggers brain activity in the players, and is, therefore, good for their intellectual development. In legally relevant games, regulations seek to guarantee these two conditions: the right to know the rules and the duty to follow them.
3) Competitive games: Some games create an environment for winners and losers. Such games have two components. The first is the number of people involved: there must be at least two players. No competitive game is possible with only one player even if the “opponent” is the owner of the slot parlor. The second component is that it must be rules based; for a winner to be decided, there have to be rules to determine how this goal is achieved. Thus, competitive games have these two characteristics: they are multiplayer games, and they are rules-based games.
4) Games with economic interest. If players can be affected financially as a result of the game, it is a game with economic interest. Any game giving a prize or where money is at risk can affect the economic situation of the player. Betting games are essentially money games. Any multiplayer, rules-based, competitive, betting game is a game where there is a justifiable public interest in regulating it.
There are several classifications of betting games and these are usually associated with how their outcome is determined: by the degree of randomness involved. A betting game is not necessarily determined by chance. There are many cases where players may influence, to varying degrees, the outcome of the game. There are betting games that are purely random, for example, slot machine games where the player has no influence in determining the winning combination. In some slot machines that mimic live card games, e.g., video poker slot machines, the player is allowed to replace the cards initially dealt. A bad or good decision in replacing the cards dealt can change the outcome. An optimal game strategy increases the chances of winning. There are other games where the player’s decisions can improve his/her chances of winning, as is the case of sports betting. For example, when betting on the outcome of a soccer match, it is possible to predict the winning team with a reasonable degree of certainty by researching certain facts about each team and its players.
Therefore, whether the outcome of a betting game is based purely on chance, predominantly on chance or predominantly on skill is not relevant in the determination as to whether it must be regulated. To the extent that it is a multiplayer, rules-based, competitive game having winners and where players’ financial situation may change, there is a justifiable public interest in a State regulating it.
It is legally relevant. Since it involves players’ money, the State may consider it in the public interest to ensure the protection of consumers, who are the weaker party in any asymmetrical relationship with the operator. As these are competitive games, there will be winners and losers based on previously established rules, therefore, the State could also have an interest in ensuring that the rules freely accepted by players are fair. Finally, as the outcome of the game triggers changes in wealth, the State may have a fiscal interest and may punish unjust enrichment.
In summary, betting games are multiplayer, rules-based games having winners and, consequently, an effect on a player’s wealth.
Legal classifications of betting games
Considering one or more game characteristics as having a legal effect or requiring a special regulatory treatment, we can establish some legal classifications of betting games.
a) Based on the relationship among players. We can distinguish between symmetrical games, where players are on equal footing; and asymmetric games, where one of the players, usually the game operator (i.e. house), controls the game, can set the rules, and has more advantages to win. In asymmetric games, there is a weak party and a strong party, which is why the State regulates them with the purpose of balancing the relationship, ensuring rules are shared and/or controlling any abuse of the dominant position of the strong party in this relationship.
b) Based on the place where the game is played. There are face-to-face games, which are always played in the same place and in a physical manner: so-called onsite games. Then there are remote games, which are played anywhere by means of a remote access mechanism and virtually, also known as offsite games. The regulation of face-to-face games may include distance restrictions with regards to certain types of establishments such as schools as a measure to protect minors. Nowadays, these types of measures are considered unreasonable and disproportionate because the degree to which those who wish to operate a gaming house are negatively affected by such measures is not justified or necessary to protect minors. Current technology offers other more suitable means to prevent minors from entering a gaming house.
c) Based on the duration of the game. Some games, for example, slot machines offer immediate results, when the time between the beginning and the conclusion of the game is less than one minute. The instant lottery could also fall into in this category, although it is up to the player to choose when he/she wishes to discover the result. Usually, players want to see the result immediately and it takes less than a minute. On the other hand, there are delayed outcome games, when the results – win or lose – occur at a later time. This may be a few minutes (betting on horse racing or bingo), hours (betting on a sporting event), or days (betting on a televised lottery), etc. Behaviors associated with pathological gambling are more frequently observed in short games, and this is often used as the justification for legal measures regarding the minimum time that a game must last, for example, slot machines.
d) Based on the way the result is achieved. This is the most popular classification. There are games of chance (where the outcome does not depend on the player) and games of skill (where the player’s involvement influences the result). Regarding games of chance, the percentage payout to the public is usually subject to evaluation. A recurrent error, at least in Latin America, is to limit regulations and control to games of chance, leaving games of skills unregulated.
e) Based on the nature of the operator. In some jurisdictions, the operator of betting games must be a state entity. This is mainly the case for older games such as lotteries. In other cases, private entities are allowed to operate directly betting games. There may also be instances where there is a state gaming monopoly; yet this is only to create a barrier to market access since private parties can enter the gaming market through concession contracts with the public entity administering the monopoly.
f) Based on Regulations. Betting games are an economic activity. In principle, they should be protected by the constitutional right to free enterprise, however, as constitutional rights are by nature limited, the exercise of a free enterprise may be restricted. Thus, there may be prohibited games and regulated games. Likewise, there may be unauthorized games, i.e., games that are neither expressly prohibited nor expressly regulated.
g) Based on the player’s level of involvement. The outcome of a game may depend on the player’s own actions and degree of interaction, for example, when betting at a Black Jack or Baccarat table. In other games, as in the case of sports betting, the results of the events are outside the player’s control. This classification is important when it comes to limiting participation in certain games to persons whose own actions may influence the outcome of a game. For example, players or referees in a soccer game.
Human rights involved in betting games
When designing a public policy on betting games, governments often make mistakes due to paternalism, lack of technical knowledge, cognitive biases or a lack of equal treatment. Nevertheless, the most grievous one relates to the protection of human rights and the principle of proportionality: when States implement unnecessary, inadequate and unreasonable measures allegedly to protect human rights or other constitutional purposes. There are too many instances where the degree to which human rights are affected by the legislative measures that are implemented is not justified by the level of satisfaction that is intended to be achieved with respect to those human rights or other constitutional purposes. This is the cause of lawsuits between the State and the holders of the human rights affected by the unreasonable and unduly restrictive regulation of betting games.
But, which human rights are usually impacted by betting games’ regulations? Basically, there are 7: the right to the free development of personality, the right to equality before the law, the right to free enterprise, the right to work, the right to leisure, freedom of contract and the right to property (the latter due to the exercise of the State’s fiscal power through the taxation of gambling).
In conclusion, we will only address the first one: the right to the free development of personality. Human beings are unique, each individual has a particular value and orientation in life and sets goals on those bases. In other words, everyone has a unique life plan. The right to the free development of personality seeks to protect that very personal life plan. It consists of the right to do what one wants with one’s life. It is the right to decide what to do and what not to do in order to realize the personal project that each person has for his or her life. Not all people are motivated or amused by the same things. This right is exercised in the decision to get a tattoo, to smoke, to marry and divorce, to gamble and make any decision that arises from the most intimate conviction of each person and is limited by any harm that its exercise could bring upon others. Dignity is a value, but it can also be constituted as a right. Dignity is the right to entitlements by the mere fact of being human. The free development of personality is closely related to dignity since the latter is its foundation and the former is a realization of the latter in the field of constitutional rights. There are many rights where dignity is obvious and clear; this is one of them. In comparative law, it is sometimes considered a residual right of freedom and at other times an autonomous right. In some cases, it is an explicit and formal right, expressly enshrined in a written Constitution, and in other cases, it is an implicit right created by court rulings. But even if it is not specifically recognized in a constitutional text, this does not mean that it does not exist or that it cannot be protected. It is so closely linked to human dignity that there is no need to spell it out in a legal standard in order to defend it. When a State decides to regulate betting games, it is necessary to evaluate to what extent its legislative measures may affect the free development of personality.
As can be seen, constructing a legal theory of betting games is a cumbersome path. Betting games are businesses, contracts, jobs, manifestations of leisure, and a motive for creating taxes. All these approaches give rise to legal problems that can only be solved correctly under a comprehensive vision.