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top_banana

online game site with cash prizes

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Guest FindLaw_Pierre

This is a complicated question and should only be addressed by a competent attorney in the field. Please provide your location and I could refer you to local resources that might be of assistance. Even then, that would require a lot of research regardless of who is performing it. Good luck.

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The question concerns establishing an internet game site. The site would allow visitors that enroll to compete in the game online for cash prizes. The premium portal of the site would require a monthly membership fee to access and play the game. We would use membership fees and advertising revenue to pay the cash prizes.

My question is, would a business model like this be legal in all 50 states or could any federal or state law interpret this as "gambling"?

Thanks in advance!

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top_banana said...

The question concerns establishing an internet game site. The site would allow visitors that enroll to compete in the game online for cash prizes. The premium portal of the site would require a monthly membership fee to access and play the game. We would use membership fees and advertising revenue to pay the cash prizes.

As the expression goes, "the devil is in the details." Each state and federal law define gambling differently, and they certainly differing rules about what kind of gaming is allowed in their state and what is not. For purposes of this discussion I'll keep it fairly simple. Gambling is generally an activity in which a person pays to participate and a prize is determined by either (1) a game or event where the outcome is determined largely by random chance rather than skill or (2) betting on some future event that is out of the control of the person betting.

Examples of (1) include raffles, lotteries, etc., because the outcome is determined by drawing lots; games of chance like poker, blackjack, craps, roulette, etc., where the outcome is largely determined by the random distribution of cards dealt or dice tossed, and similar games. While there is some skill in a game like poker, where an experienced player will generally fare better than a novice, nevertheless the outcome of the games are largely based on how the cards are dealt, a random event.

Examples of (2) including betting on the outcome of sporting events like baseball, football, etc., the outcome of elections, betting on horse and dog races, etc.

On the other hand, paying prizes to players in a game or contest in which they participate (rather than betting on games played by others, like betting on pro football games) and in which skill determines the outcome is not generally going to raise a gambling issue. A couple of obvious examples will make the point: awarding prizes to winners of a tennis or golf tournament, winners of a chess match, winners of a spelling bee, etc.

In the video game world, you have games that, just like the real world, can resemble pretty much every example I've given. Players could compete in on-line poker matches, which would be every bit as much gambling as if they were sitting at a table in Vegas. They can also compete in on-line chess matches, which would be every bit a game of skill, just as if the physical board were in front of them.

So, a key question then will be, what kind of games do you plan to offer? In some cases, it may be a hard call as to whether it will fall under a particular jurisdiction's definition of gambling. The more chance involved, the more likely it is that it will be considered a form of gambling.

You'll want to consult an attorney who has experience in the gambling industry to thoroughly review what you plan to do and advise you if any jurisdiction prohibits it as a form of illegal gambling. Given the possibility of criminal penalties or civil fines for violating gaming rules, you don't want to rely on advice or information you get off the internet.

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