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February-12-2009,
Betcha.com Provides a Rare Legal Victory for Online Gambling...By Jay Graziani

Online gambling finally got a break in a court of law on Tuesday.

In a little-noticed case, a Washington state appeals court affirmed Betcha.com's contention that it was shut down unfairly, reversing a lower court ruling against the gambling website. While appeals are likely, the online gambling community can at least claim a victory for now.

Betcha.com was a very short-lived experiment in peer-to-peer betting. It existed for merely a month in the summer of 2007, quickly being shut down by Washington state authorities.

Betcha.com essentially operated a betting exchange, just like the many others still operating offshore, out of the reach of the U.S. government. Unfortunately, this particular one was operating in Seattle, Washington. Registered users were allowed to list nearly any wager for other users to accept as a bet. Betcha.com charged a listing fee for matched bets, and held both parties' money in escrow. But that is where the parallels to the offshore exchanges ended.

Betcha.com's business model was unique in that it did not require bettors to pay if they lost a wager. After the results of a bet were settled, the user could make one of four claims: "I won", "I lost", "I can't decide", or "I'm gonna welch". Deciding to "welch" released the escrowed funds back into the users account, letting him off the hook for his losing wager. As Betcha.com made quite clear, "Bettors are not obliged to pay when they lose...You are responsible for collecting on winning bets".

To discourage welching, an "honor rating" system was devised so that users could rate other users, much like eBay's user rating system. Losing a bet and paying it would raise your rating; walking away without paying your losses would lower it. Losers that decided not to pay their debts might stiff one or two fellow users, but karma would catch up to them eventually as the community weeded out the bad seeds.

Betcha.com made it extremely clear that bettors weren't required to pay losing wagers, not just stating it outright throughout the website, but by making it a cornerstone principal of their business. This was not unintentional - founder Nick Jenkins has a law degree and researched gambling statutes before creating the website. That legal homework seems to have paid off in this latest decision.

The legal case boiled down to the definitions of two words, "gambling" and "bookmaking". Betcha.com argued that all violations of the Washington State Gambling Act of 1973 were dependent on its involvement in either gambling or bookmaking. They then claimed that Betcha.com's unique business model excluded them from either category. Therefore, they could not be charged under the act.

Surprisingly, the appellate court agreed, by a split 2-1 count. The majority opinion states that "gambling" does not occur under Betcha.com's business model. Why? Well, most legal definitions of gambling require three conditions:

* Consideration, the risking of something of value
* Prize, the expectation of receiving something of value
* Chance, meaning the outcome is not determined (solely) by skill.

Betcha.com's business model stated that the bets were not guaranteed; they were on the "honor system". Therefore, the second condition, prize, was not met. According to the majority, "Because Betcha.com customers agreed in advance that participants were not required to pay their losses, Betcha.com was not engaged in 'gambling'".

The court also found that Betcha.com did not engage in "bookmaking", but that was more of a legal technicality. Betcha.com contended that they did not "accept bets" since they did not have a stake in the outcome. Washington state law was ambiguous as to the meaning of "accept bets", so the court ruled in Betcha.com's favor.

The dissenting opinion cited "an unregulated platform for Internet wagering that undoubtedly will result in unpaid wagers being collected through unpaid means". The minority opinion hinges on "the result the legislature intended," but does acknowledge the validity of the majority opinion under a strict reading of the law.

Meanwhile, the state Attorney General's office says they have not decided whether to appeal to the state Supreme Court, though they contend that the "expectation" of a prize exists, even though it is not explicitly guaranteed.

This is a decision likely to be pored over by more than a handful of offshore lawyers in the coming days. While Betcha.com reportedly has no plans to reopen its virtual doors anytime soon, this ruling may provide some legal ammunition for other cases or some inspiration to find other loopholes in current online gambling law.

02-12-08
Jay Graziani
MajorWager.com
graziani@majorwager.com

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