Real Money Gaming and Opinion Letters

by: Brian Schaller and Max Landaw

If you want to launch a real money gaming (“RMG”) operation, like a website or app that will offer fantasy sports or sports betting, there are many legal hurdles to consider before launch.  An opinion letter analyzing the legality of the games offered is one item that cannot be overlooked.  Third parties will request opinion letters before doing business with you, as they serve as  an essential part of due diligence followed by many players in the RMG ecosystem, such as payment processors and other vendors.

In this article, we describe what an opinion letter is, why real money gaming operators and those who do business with them would need an opinion letter, and what makes a good opinion letter.

What is an Opinion Letter for Real Money Gaming?

Simply put, an opinion letter is a legal opinion by an attorney that analyzes the legality of the games offered by an operator.  While obtaining an opinion letter is generally a good idea for any type of game, it is especially helpful when the type of game falls into a grey area of the law; in particular, where there is no licensing regime that the business can comply with to prove government/regulator approval. An opinion letter speaks to the likelihood that a regulator or court would find the activity legal, and provide rationales as to why the activity is not contrary to the law. Opinion letters should also address any particular risks associated with the activity (e.g. negative treatment from a court, regulator, or an attorney general).

For RMG, opinion letters will typically describe the game, explain why a license is or is not needed, and comprehensively analyze federal and state law with respect to the game.

Why Would Real Money Gaming Operators Need an Opinion Letter?

RMG is riskier than many other businesses and is a highly regulated industry. If a game runs afoul of the law and is deemed to be illegal gambling there can be serious consequences, both civil and criminal. There is a history of stringent laws to restrict gambling and prosecutors/regulators actively enforce these laws, which can have penalties including fines, disgorgement, and imprisonment.

Because of this risk, it is common practice in the industry to present to third parties evidence that the company’s business practices do not violate the law and to explain to those third parties that your operations are likely legal in the jurisdictions in which you operate. Some third parties may therefore require an opinion letter in order to do business with an entity as a form of due diligence (e.g., payment processors, investors, vendors, co-promotion partners, and ad platforms).

While opinion letters are typically designed to share with third parties, we recommend that RMG operators engage an attorney to provide an internal legal memo before the games are developed regardless of requests by third parties. The internal memo will inform the business team as to the risks of the proposed operations and arm them with the important information as they build and launch the games; all potentially saving time and money upfront. Mitigating risks can also include deciding not to operate in certain states/jurisdictions.

What Makes a Good Opinion Letter?

A well drafted opinion letter is thorough and objective. Opinion letters should carefully analyze the statutes, regulations, enforcement decisions, regulatory activity and case law in each applicable state/jurisdiction with respect to the legality of the business activity. The letter should determine the likelihood that the gaming activity is legal. For games offered in the United States, this will mean analyzing both federal and state gambling laws and their interplay. Because the laws are constantly changing, the opinion letter should be current and revisited at regular intervals.

A poorly drafted opinion letter could dissuade third parties from doing business with an operator and will not give an operator the clarity it needs regarding the states/jurisdictions it is likely legal to operate or which aspects of its business activity are at a heightened risk. 

Drafting a carefully crafted opinion letter is therefore essential to RMG businesses. It lets your partners know that you take the legality of your services seriously, and that you understand the gaming/gambling industry and the potential legal risks. We have years of experience with opinion letters and would be happy to discuss your opinion letter needs.

Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.