Indiana Supreme Court Brings Lottery Definition Back in Line with Majority

Published On April 27, 2011 | By Bart Huff | Litigation
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In October 2010, the Seventh Circuit certified three questions to the Indiana Supreme Court in a case brought against the NCAA by individuals claiming that the NCAA’s former distribution method of certain sporting event tickets was an illegal lottery. See here for our previous post on the case. Last week, the Indiana Supreme Court handed down its decision, answering the first question that the method of allocating tickets was not a “lottery” prohibited by Indiana’s gambling statute and therefore obviating the need to address the other two.

The Court first recognized that its previous holdings regarding the definition of “lottery” were inconsistent. In its 1957 Tinder v Music Operating, Inc. decision, the Court had used the common and plain definition of lottery as “[a] scheme for the distribution of prizes by lot or chance,’ especially ‘a scheme by which one or more prizes are distributed by chance among persons who have paid or promised a consideration for a chance to win them.’” By contrast, in State v Nixon, the Court greatly expanded the scope of the prohibition by interpreting lottery “broadly, holding that the constitutional prohibition on lotteries ‘embrace[d] all forms of gaming which, by reason of retainage, service charge, or odds, preclude the participants, in sustained play, from winning while providing a reasonable expectancy of profit for the sponsors.” Id. at 161. In other words, the constitutional prohibition on lotteries was interpreted to prohibit all forms of commercialized gambling.”

The Court reverted to its earlier interpretation in Tinder and stated that “there are three essential elements to a lottery: (1) a prize; (2) chance; and (3) consideration.”  The Court justified its decision because it was most consistent with the statutory language and purpose, to do otherwise would lead to “absurd results,” the Courts of Appeals in Indiana had consistently used the Tinder standard notwithstanding Nixon, and the overwhelming majority of courts use the definition articulated in Tinder.

The Court then turned to analyzing whether the elements were present in the NCAA’s ticket distribution method, concluding that there was no “prize.”  The process the NCAA used was as follows.  Each person submitted an application with up to ten entries along with case sufficient to cover the face value of the tickets, plus a $6 non-refundable fee for each entry.  An applicant could win only once.  Chosen applicants received their two tickets and a refund of the ticket price for the other entries.  Those not chosen received a refund of the ticket price for all entries.  In both cases, however, the NCAA kept the processing fee.

The Court relied heavily on its prior decision in Lesher v Baltimore Football Club, which upheld a similar ticket distribution method that was challenged when the Colts moved from Baltimore to Indianapolis.  In addition, the Court pointed out that, at the time applicants submitted their applications for the tickets (the primary market), the market value equaled the face value.  Moreover, the Court noted that the plaintiffs’ argument that the NCAA tickets were worth much more on the secondary market – and therefore the applicants who obtained tickets received more than the face value paid – was speculative because factors could lead to the tickets being worth less than the face value (injuries to star players, the identity of the teams playing, state of the economy, weather etc).

Because the Court’s decision focused exclusively on the “prize” element of the test, it likely will have little impact on internet gaming, where the battle is typically waged over the “chance” element.  Nevertheless, the decision is a welcomed repudiation of the outlying standard enunciated in Nixon.

About The Author

Bart's practice focuses on representing clients on many areas related to online content and services, including criminal and internal investigations, internet privacy and security litigation, theft of trade secrets, compliance obligations relating to the use and disclosure of customer and subscriber information, and gaming law. Before ZwillGen, Bart was an AUSA in Chicago, prosecuting federal crimes including white collar fraud, securities and other regulatory violations, and computer and internet related crimes. Bart tried 18 jury trials and briefed and argued numerous appeals before the Seventh Circuit.

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