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Cory attends many auctions. He is always looking for something to buy for which he believes he can resell for more and make a profit.

Sometimes he buys things and makes money, and other times he buys things and loses money.

Cory assumes a risk when he buys something — as there is not a guarantee he will profit.

Valerie likes going to casinos. She plays blackjack, craps, roulette, and other games by paying a fee, and hopes she comes away from the game with a profit. Sometimes she plays games and makes money, and other times she plays games and loses money.

Valerie assumes a risk when she plays — as there is not a guarantee she will profit.

We ask this question as there is a current lawsuit filed in the United States District Court, Northern District of Illinois alleging that Penny Auction sites violate all 50 state’s laws prohibiting unauthorized gambling because they charge a consideration for the chance to win prizes (or something of value.)

Previously, we suggested Penny Auction sites resembled gambling. However, we’ve never concluded that fact, nor stated that buying at auction should be considered gambling. Aaron Traffas also wrote about Penny auctions and gambling.

However, an interesting statement in this lawsuit caught our attention:

    Unlike normal auctions, where there are no entry fees or bidding fees, Defendants charge an entry fee and a bidding fee for each chance to win a prize. This is a violation of Illinois criminal statutes, 720 ILCS 5/28, et. seq.; Massachusetts General Laws Chapter 271, et. seq.; Georgia Criminal Code, § 16-12 et. seq.; New Jersey Criminal Law 2A:40, et. seq.; and the Ohio Revised Code Chapter 2915 et. seq.

Does this mean if a traditional live auction or online auction charged an entry fee, it too would be considered gambling? What if the entry fee wasn’t really a fee but some other valuable consideration such as promising to abide by the terms and conditions … promising to pay, or promising to remove?

There are many live and online auctions which require a deposit (payment) in order to enter the auction. This deposit is typically returned if nothing is purchased, or applied to any purchases; some online auctions charge bidders a nominal fee to “authorize” a credit or debit card.

Some live auctions require a bidder paddle to be purchased, and that money is returned only if the paddle is turned back in at the end of the auction. Nearly all auctions, no matter live or online, require the bidders agree to the terms and conditions before being permitted to participate.

Some common definitions of gambling include:

  • To bet on an uncertain outcome, as of a contest.
  • To play a game of chance for stakes.
  • To take a risk in the hope of gaining an advantage or a benefit.

Can we say that Valerie is gambling, but Cory is not?

It seems reasonable that if this lawsuit results in these Penny Auction sites being considered gambling, that other live and online auctions could be considered gambling as well.

For example, could a buyer who lost money upon resale successfully show the auction was an illegal gambling operation in hopes of recovering his loss?

This could be a very interesting lawsuit to watch.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.