Struggling with the ‘Grey Market’

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From Florida to the Carolinas, The South seems to pride itself on its deliberate, methodical way of doing things. That seems OK if you’re enjoying sweet tea on the porch, but when it comes to dealing with the gambling industry the approach, frankly, isn’t working.

In The South, most state gambling laws were written when Al Capone and Meyer Lansky were in their heyday. Computers, Internet and state lotteries weren’t on the radar … heck, radar itself wasn’t even invented. Gambling operators feared revenue officers and the local sheriff, and a judge knew a gambling device when he saw it.

Today, that’s not even close to the case. All over The South these laws have been turned upside down by new computer networked slot machine environments. Any game of chance, be it bingo, lottery, sweepstakes, pull tabs, even charity raffles can be morphed into a slot machine apparatus. The industry refers to these devices as “grey market” machines as they’re not specifically legalized but instead are operating in an undefined, unregulated environment.

To limit the extent of the “grey market” industry, many states have looked to a new industry that has emerged in the past decade to help sort out these devices, the gambling device test laboratories. Filled with engineers and mathematicians, the labs serve as the experts for most mature gambling jurisdictions to understand whether a device is, in fact, legal. They also help state regulators and law enforcement officers evaluate if a purported legal game is fair to the public or incorporates certain house “cheats” that can manipulate the payout to the unknowing public. These labs test everything from slot machines and table games to the automatic shufflers used at poker tables.

These test labs usually work with a statewide commission or law enforcement agency tasked by the state legislatures to interpret the state’s gambling statutes. Mature gambling jurisdictions such as Nevada, New Jersey and even Mississippi have formal gaming commissions that oversee all gambling within their borders.

In The South, every state save Mississippi is struggling to deal with the “grey market” industry. This industry ranges from slot machine operators to organized poker networks. Unfortunately, most southern states are still stuck in Prohibition in the manner in which they attempt to deal with this very sophisticated industry. Sheriffs and local prosecutors are regularly embarrassed by the industry when they attempt to bring the alleged criminals to justice. Often times, machines are surrendered only to have them returned when a judge misapplies or misunderstands the gambling laws written more than 80 years ago. If law enforcement has a good case, the alleged criminals merely plead to a misdemeanor and leave the county to set up shop in a neighboring city or county in the hopes of finding local officials who will look the other way or stumble in trying to build a case against them.

At the state level, rarely is it any better. State politicians, under the mantra of “no gambling expansion in my state,” more times than not stick their head in the sand and ignore local officials who are requesting assistance in clarifying gambling laws and establishing bright line tests to identify what’s legal. The net result is absurd prosecutions such as the case involving a home poker game in North Carolina, which probably will go all the way to the state Supreme Court to tell us what we already know: Poker is a game of skill. Or, you get the thousands of arguably illegal slot machines in Florida, Georgia and Alabama that continue to exist as the court cases wind their way up through the state appellate system to answer basic questions such as, “What is bingo?” or “What is a slot machine?”

Each southern state should look at the more mature jurisdictions and empower a state agency or commission to define the parameters of gambling within their state. The industry is now too sophisticated for part-time, often term-limited politicians to define the intricacies of a slot machine device or the amount of skill allowed in a game of poker. The empowered state agencies could then enlist the assistance of the testing labs in forming statewide standards that law enforcement and state attorneys could administer. The net result for players and proprietors would be a clear understanding of what is legal within these states. It will create a body of experts that can help the legislatures better evaluate the impact of gambling expansions on their state from a social cost and a budget perspective.

Slow and easy in The South is a way to make grits, not form comprehensive gambling policy in the Internet age. It’s time lawmakers and bureaucrats recognized the reality that each state has an incumbent gambling industry within its borders that cater to millions. To safeguard the welfare of their constituents, they need to embrace modernizing their state’s gambling laws and enlist the assistance of sophisticated techniques for evaluating and regulating the industry.

— Marc W. Dunbar is a shareholder with Tallahassee law firm Pennington, Moore, Wilkinson, Bell & Dunbar, P.A.  He represents several gaming clients before the Florida Legislature and teaches gambling and parimutuel law at the Florida State University College of Law.