In the Matter of the Petition by                                )
                                                                               )
STANLEY R. SLUDIKOFF                                       )
Publisher                                                                 )
Gambling Times, Incorporated                                )
16760 Stagg St., #213                                            )
Van Nuys, CA 91406-1642                                    )
                                                                               )
                                                                               )
Denial of Second-Class Mail                                   )
Privileges for Win Magazine                                   )    P.S. Docket No. 40/127
 
APPEARANCE FOR PETITIONER:                           Stanley R. Sludikoff, President
                                                                               16760 Stagg St., #213
                                                                               Van Nuys, CA 91406-1642

APPEARANCE FOR RESPONDENT:                         Kenneth N. Hollies, Esq.
                                                                                United States Postal Service
                                                                                Law Department
                                                                                Washington, DC 20260-1146

INITIAL DECISION

This proceeding arises out of a Petition filed by Stanley R. Sludikoff, publisher, Gambling Times, Inc. ("Petitioner"), from the ruling of the Manager, Business Mail Acceptance, Customer Service Support, United States Postal Service ("Respondent"), denying Petitioner's application for second-class mail authorization for Win Magazine ("Win") on the ground that Win failed to meet the mailability requirement enunciated in §422.11 of the Domestic Mail Manual ("DMM").⁽¹⁾

The DMM excludes as nonmailable "any newspaper, circular, pamphlet, or publication of any kind containing any advertising of a lottery or similar enterprise...". DMM §123.432.

The parties submitted this case for determination based on a fully stipulated record, including an agreement with respect to the issues to be considered in this proceeding. Both parties filed briefs in support of their respective positions, which have duly been considered. Based on the entire record herein, including the stipulations, pleadings, and exhibits, I make the following findings of fact and conclusions of law:

FINDINGS OF FACT

1. On June 29, 1992, Petitioner filed an application for second-class mail privileges with the Postal Service Rates and Classification Center ("RCC"), seeking an authorization to enter Win as a second-class publication (exhibit 2).

2. By letter dated November 12, 1992, the RCC denied Petitioner's application on the ground that issues of Win contained lottery advertising as defined in DMM §123.431.⁽²⁾

The RCC decision cited advertisements in five issues of Win as detailed below :

(a) May 1992 (Vol. 13, No. 12) -- advertisement on the inside cover promoting slot machine gambling at the Riviera Hotel and Casino, Las Vegas, Nevada, and an advertisement on page 67, soliciting business for American Sports Betting Service, an enterprise that accepts wagers on various sporting events. (Exhibit 3).

(b) June 15-July 15, 1992 (Vol. 14, No. 1)--advertisement on the inside cover for "Las Vegas style gambling" at the Colonnade Casino in Pusan, Korea, and advertisement on the outside back cover for the Diamond Jim Brady poker tournament at the Bicycle Club Casino, Bell Gardens, California. (Exhibit 4).

(c) Mid-Summer 1992 (Vol.14, No. 2)--advertisements identical to those described in ¶(b), above, for the Colonnade Casino and the Bicycle Club Casino. (Exhibit 5).

(d) April 1992 (Vol.13, No. 11)--advertisement identical to the one described in ¶(a), above, promoting slot machine gambling at the Riviera Hotel and Casino. (Exhibit 6).

(e) August 1991 (Vol.13, No. 5)--advertisement identical to the one described in ¶(b), above, for the Colonnade Casino and advertisement on the outside back cover for poker games at the Commerce Casino in Las Vegas, Nevada. (Exhibit 7).⁽³⁾

3. By letter dated November 25, 1992, Petitioner filed an appeal of the RCC decision with the Director, Office of Classification and Rates Administration ("the Director"). (Exhibit 8).⁽⁴⁾ Petitioner's appeal was denied in a letter dated December 30, 1992. Petitioner filed a timely appeal of the Director's decision with the Judicial Officer of the Postal Service.

CONCLUSIONS OF LAW

Petitioner stipulated that its position in this matter could be summarized in six arguments (stipulation, pp. 3-5), each of which, as supplemented by the parties' briefs, are considered below:

1. Petitioner contends that its predecessor, Gambling Times Magazine ("Gambling Times"), which was nearly identical to Win, obtained a second-class permit in 1977 and held it for over a decade, losing it only when the parent corporation experienced financial difficulties and ceased publication. Petitioner maintains that if Gambling Times was entitled to second-class privileges, then Win should also be entitled to second-class status. (Stipulation, ¶9(a)).

Petitioner makes no showing that Gambling Times contained advertisements for casino gambling when it first applied for second-class privileges. However, even assuming that it did, this circumstance would not support Petitioner's argument that Win is entitled to second-class privileges, it merely suggests that the Postal Service's enforcement efforts are less than perfect. As the Postal Service acknowledged in other litigation, "'there are limits to the number of second-class proceedings that can be conducted at any given time'". Aimes Publications, Inc. v. United States Postal Service, Civil Action No. 86-1434, slip op. at 15-16, (D.D.C. Feb. 23, 1988), quoting from the Postal Service's memorandum at p. 26. In any event, after the Postal Service became aware of the casino gambling advertisements in Gambling Times it initiated steps to revoke the magazine's second-class permit, but the magazine ceased publication before the proceedings could be concluded. (Exhibit 12).

2. Petitioner contends that since the laws from which the DMM regulations are derived were enacted over 100 years ago, when there was no legal casino gambling in the United States or a national gambling magazine, it was not the intent of the framers of those laws to prohibit casino gambling businesses or a national gambling magazine from using the mails. (Stipulation, ¶ 9(b)).

Even assuming, arguendo, that neither a nationally distributed gambling magazine nor legal casino gambling was specifically targeted in the original anti-lottery legislation, this early legislation was given a broad reading by the Supreme Court with respect to the forms of gambling advertisements prohibited. In Horner v. United States, 147 U.S. 449, 458 (1893), the Court found that the anti-lottery statute in effect at the time, which prohibited mailing any letters or circulars concerning "any lottery, or gift enterprise of any kind offering prizes dependent on lot or chance", was directed against "all schemes for the distribution of prizes by chance", including "various forms of gambling".

In any event, the question of the intent of the framers of the original legislation is irrelevant, since the law prohibiting the mailing of gambling advertisements has been reviewed by Congress periodically and revised to meet changing circumstances. The current law, which is found at 18 U.S.C. §1302, prohibits mailing any publication containing "any advertisement of any lottery, gift enterprise, or scheme of any kind offering prizes dependent in whole or in part upon lot or chance".⁽⁵⁾ Congress had the opportunity to review this broad prohibition when it added amendments concerning state-sponsored lotteries. In 1975, Congress exempted from the provisions of §1302 advertisements for state-sponsored lotteries in newspapers published in the state conducting the lottery or in an adjacent state which conducts such lotteries. However, no such exemption was carved out for advertisements concerning other forms of gambling. Subsequently, Congress enacted the Charity Games Advertising Clarification Act of 1988, Pub. L. 100-625, 102 Stat. 3206, codified at 18 U.S. C. §1307, which broadened the scope of permissible advertising of state-conducted lotteries.⁽⁶⁾ The legislative history of the Charity Games Act shows that its proponents emphasized that interstate advertisements for professional gambling businesses would continue to be prohibited under 18 U.S.C. §1302. See 134 Cong. Rec. S16318 (daily ed. October 14, 1988) ("In addition, the committee wishes to make it clear that no provision of [the Charity Games Act] is intended to change current law as it applies to interstate advertising of professional gambling activities.") Thus, Congress recognized that the law, as interpreted by the courts, prohibits the distribution of professional casino gambling advertisements through the mails and affirmatively chose to continue this prohibition. Whatever Congress originally may have intended in passing the first anti-lottery legislation, it has recently expressed its approval of a continuation of the ban against interstate advertisements for professional gambling enterprises.

3. Petitioner contends that the Postal Service's interpretation of 18 U.S.C. §1302 has the effect of limiting the First Amendment rights of an entire class of publications, to wit, gambling magazines. Petitioner contends that the Postal Service is thus depriving gambling magazine publishers of their First Amendment rights and fair treatment under the law. (Stipulation, ¶9(c)).

Petitioner's First Amendment contention amounts to an allegation that the Postal Service's second-class mail regulations relating to gambling advertisements are unconstitutional. First, the Administrative Law Judge lacks authority to rule on the constitutionality of agency regulations. Tillet v. Lujan, 931 F. 2d 636, 640 (10th Cir. 1991); Zion's Hope, Inc., P.S. Docket No. 38/163, slip op. at 8, and cases cited (P.S.D. August 23, 1993). Second, even if it were appropriate to consider Petitioner's First Amendment claim, it would not avail the Petitioner. Petitioner cites no authority to support its First Amendment claim and none could be found by the undersigned. Moreover, several courts have squarely held that the Postal Service's regulations concerning gambling advertisements do not infringe upon the First Amendment rights of publishers. Minnesota Newspaper Association, Inc. v. Postmaster General, 677 F. Supp. 1400 (D.Minn. 1987) (appeal dismissed under Supreme Court Rule 53), 488 U.S. 998 (1989); Aimes Publications, Inc. v. U.S. Postal Service, Civil Action No. 86-1434, Memorandum Opinion (D.C.D.C. February 23, 1988).

4. Petitioner contends that the U.S. Attorney's office has "backed off" enforcement of 18 U.S.C. §§1302-1307, upon which the DMM regulations are based, because of the Supreme Court's decisions in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976) and Central Hudson Gas & Electric Corp. v. Public Service Comm'n., 447 U.S. 557 (1980). Petitioner further contends that the Postal Service has not updated its policies toward gambling advertisements and that the Postal Service should not attempt to enforce laws that are not being enforced by the appropriate government authorities. Petitioner adds that more protection is now being given to commercial speech, that there needs to be a clear governmental purpose in limiting such speech, and that no clear governmental purpose exists here. (Stipulation, ¶9(d)).

Although Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976) established that speech proposing a commercial transaction was entitled to the protections of the First Amendment, subsequent cases have made it clear that the Constitution affords less protection to commercial speech than to other forms of protected expression. See, e.g., Board of Trustees of State University of New York v. Fox, 492 U.S. 469, 477 (1989); Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 637 (1985); Ohralik v. Ohio State Bar Ass'n., 436 U.S. 447, 455-456 (1978).

In Central Hudson Gas & Electric Corp. v. Public Service Comm'n., 447 U.S. 557, 566 (1980), the Supreme Court established a four factor test to determine whether commercial speech is protected by the First Amendment. The test requires (1) that the commercial speech must concern lawful activity and not be misleading, (2) that the asserted governmental interest must be substantial, (3) that the regulation must directly advance the governmental interest asserted, and (4) that the regulation not be more extensive than is necessary to serve that interest.

Assuming, arguendo, that the U.S. Attorney's Office had some concerns about prosecuting violations of 18 U.S.C. §§1302-1307 in light of the above cases, such concerns should no longer be a factor in prosecutorial decisions. Subsequent to the above-cited decisions, the Supreme Court has held that a substantial government interest is served by regulating interstate advertisements of exempted state lotteries where the advertisements reach into non-lottery states. FCC v. Edge Broadcasting Co., ____ U.S.___, 113 S. Ct. 2696 (1993). The Court in Edge Broadcasting upheld an FCC ban on advertisements concerning a state-conducted lottery that were broadcast not only in the state in which the lottery was conducted but also in an adjoining state which did not permit lotteries. The Court found that the FCC regulation did not infringe upon the broadcaster's First Amendment rights because it met all of the Central Hudson factors, including the requirement that the governmental interest must be substantial. The Court unequivocally held that the government has "a substantial interest in supporting the policy of nonlottey States, as well as not interfering with the policy of States that permit lotteries." Id.,at 2703.

Since, as shown above, the Supreme Court has found that the government has a substantial interest in limiting broadcast advertisements for exempted state-conducted lotteries, Petitioner's claim that no clear governmental purpose is served by limiting mail advertisements for non-exempt casino gambling is plainly without merit.⁽⁷⁾

5. Petitioner contends that the Postal Service has adopted an improperly broad definition of a lottery by defining it as any scheme or promotion involving chance, consideration, and prize. Petitioner argues that under this definition nearly all classes of business would be deemed to be lotteries and all investment publications would be denied second-class mail privileges. Petitioner also argues that a more reasonable definition of lottery appears in other sections of the U.S. Code, but that the Postal Service is using a technicality to refuse to adopt that more reasonable definition. Finally, Petitioner contends that casino gambling does not fall within the Postal Service definition of lottery because the elements of chance and prize are lacking. (Stipulation, ¶9(e)).

Petitioner's attack upon the definition of lottery adopted by the Postal Service is not well founded.⁽⁸⁾ The definition employed by the Postal Service is substantially the same definition of a lottery that has been accepted at law since the Supreme Court rendered its decision in Horner v. United States, 147 U.S. 449 (1893). In Horner, the Court stated that "[i]n law the term 'lottery' embraces all schemes for the distribution of prizes by chance,...and includes various forms of gambling." Id. at 458. That definition has, over time, been distilled into three elements, namely, consideration, chance, and prize. See FCC v. American Broadcasting Co., 347 U.S. 284, 290 (1954); Eastman v. Armstrong-Byrd Music Co., 212 F. 662, 665 (8th Cir.1914); Commonwealth v. Laniewski, 173 Pa. Super. 245, 98 A.2d 215, 217 (1953); Games of Skill, Inc., P.S. Docket No. 17/139, slip op. at 9, and cases cited (I.D. April 25, 1984). The definition of a lottery adopted by the Postal Service is based on these three established elements. While the Postal Service definition is broad enough to include many forms of financial investing, the courts have had no difficulty in distinguishing between legitimate investing and gambling. See, e.g., Public Clearing House v. Coyne, 194 U.S. 497, 515 (1904). In any event, the distinction between gambling and investing is not an issue here because Petitioner's advertisements for casino gambling and sports betting are not even arguably advertisements for financial investments.

Petitioner's contention that the definition of a lottery found in other sections of the U.S.Code--presumably, 18 U.S.C. §1307(d) and §1953(e)--is more reasonable than the broader definition adopted by the Postal Service, also lacks merit. The definition of lottery contained in those sections of the code does not purport to be a general definition, but is restricted by its terms to the sections in which it is found.⁽⁹⁾ A more restrictive definition of lottery is used in those code sections because they concern exemptions from the anti-lottery laws for the specific form of lottery that is being conducted by some states and foreign countries for purposes of raising revenues for public use. Since no similar exemptions have been granted to commercial casino gambling or sports betting services, the definition of lottery for purposes of those code sections necessarily excludes such activities. The broader definition of lottery adopted by the Postal Service is, as shown above, based on well-established court interpretations of that term as used in the anti-lottery laws which form the basis for the Postal Service regulations at issue here.

Petitioner contends that casino gambling does not fit within the Postal Service's definition of lottery because no "prize" is awarded, only a return on a wager. Contrary to Petitioner's contention, the term "prize" has been interpreted to include a return on a wager. U.S. v. Rich, D.C.E.D. Ill., 90 F. Supp. 624, 627 (1950). ("[A] prize may be anything of value offered as an inducement to participate...the winnings the bettor hopes to receive constitutes a prize within the meaning of the lottery statute.")

Petitioner further contends that the element of chance is missing from the games it advertises because skill is the dominant element. Petitioner's contention is unmeritorious. Most of Petitioner's advertisements are for gambling casinos which offer a wide variety of games. Many of the games, such as slot machines and dice games, require no skill at all and are pure games of chance. Although skill may increase the odds of winning at certain card games and in placing bets on sporting events, the issue is whether skill or chance is "the dominant factor in determining the distribution of prizes." Games of Skill, Inc., P.S. Docket No. 17/139, slip op. at 9, and cases cited (I.D. April 25, 1984). Chance and not skill has been found to be the dominant factor in sports betting, regardless of the fact that individuals with superior skill or knowledge may have an increased likelihood of success. Commonwealth v. Laniewski, 173 Pa. Super. 245, 98 A.2d 215, 217 (1953). Cf., National Football League v. Governor of State of Del., 435 F. Supp. 1372, 1385-1386 (1977). The only specific card game mentioned in Petitioner's advertisements is poker. Since winning at poker is primarily dependent upon which cards are randomly dealt to the players, it cannot seriously be contended that poker is predominantly a game of skill. Cf., Automatic Music and Vending Corp. v. Liquor Control Comm'n., 426 Mich. 452, 396 N.W.2d 204, 206 (1986)

(Operation of draw poker machine involved the element of chance because winning depended upon "the random distribution of the cards").

6. Petitioner contends that the Postal Service is, in effect, taking the position that all casino gambling is illegal, even though such gambling may have been licensed by the government of the state where it occurs. Petitioner argues that if casino gambling is illegal then all mailing privileges, and not just second-class mail privileges, should be denied to publications that advertise such gambling. (Stipulation, ¶9(f)).

Petitioner's contention misstates Postal Service regulations. None of the second-class regulations concerning the nonmailability of gambling advertisements suggest that the Postal Service views casino gambling as per se illegal. The Postal Service regulations discourage gambling advertisements by denying the more favorable second-class rates to publications which carry such advertisements. As a practical matter, the second-class permit procedures afford the only means of scrutinizing publications prior to mailing to ascertain whether or not they contain gambling advertisements. In addition, the cost differential between second-class rates and other postage rates is considered to be sufficient to deter most large volume mailers from foregoing second-class eligibility in order to carry gambling advertisements. The Postal Service's policy of denying certain types of publications second-class privileges but allowing them to be mailed using other rates has been found to be constitutionally sound.⁽¹⁰⁾

7. Petitioner's editions of Win which comprise exhibits 3-7 contain advertisements for various forms of casino gambling and a sports betting service as described in ¶2(a)-(e) of the Findings Of Fact. Copies of these advertisements are also attached as an appendix to this Initial Decision. These advertisements for casino gambling and a sports betting service constitute nonmailable matter under 18 U.S.C.§1302 and DMM §123.432. DMM §422.11 provides that nonmailable matter is not eligible for second-class mail privileges. Accordingly, the decision of the then-Director denying second-class mail privileges to Win is hereby affirmed.

Judith A. Dowd
Acting Chief Administrative Law Judge

1. The Domestic Mail Manual has been reorganized and renumbered, but no substantive changes were made as a result of this process. The parties have consistently used the previous designations in their pleadings and stipulations. In the interests of clarity, all references in this decision are also to the DMM sections that were in effect when this case was initiated.

DMM §422.11 provides in pertinent part:

Only newspapers and other periodical publications

that meet the mailability conditions stated in [§]123

...may be mailed at the second-class rates.

22. DMM §123.431 provides as follows:

Any scheme or promotion, whether or not

lawful under the laws of any state, which, on

payment of consideration, offers a prize depen-

dent in whole or in part upon lot or chance, is

a lottery.

3. Copies of the gambling advertisements contained in exhibits 3-7 are appended at the end of this Initial Decision.

4. The Director, Office of Classification and Rates Administration, has subsequently been replaced as the deciding official in such proceedings by the Vice-President, Customer Service and Support.

5. 18 U.S.C. §1302 provides more fully as follows:

Whoever knowingly deposits in the mail, or sends

or delivers by mail: ...

Any newspaper, circular, pamphlet, or pub-

lication of any kind containing any advertisement

of any lottery, gift enterprise, or scheme of any

kind offering prizes dependent in whole or in part

upon lot or chance, or containing any list of the

prizes drawn or awarded by means of any such

lottery, gift enterprise, or scheme, whether said

list contains any part or all of such prizes; ...

Shall be fined not more than $1,000 or

imprisoned not more than two years, or both; ....

6. 18 U.S.C. §1307 now provides, in pertinent part, as follows:

Exceptions relating to certain advertisements and

other information and to State-conducted lotteries

(a) The provisions of sections 1301, 1302, 1303,

and 1304 shall not apply to--

(1) an advertisement, list of prizes, or

information concerning a lottery con-

ducted by a State acting under the authority

of State law which is--

(A) contained in a publication published

in that State or in a State which conducts

such a lottery....

7. Petitioner errs in contending that the Postal Service has not updated its policies towards gambling advertisements. The Postal Service has amended the DMM as necessary, to conform to changes in the underlying statutory law. See DMM §§123.434-123.436, now reorganized and renumbered under Section C 3.0 of the DMM.

8. The Postal Service's definition of a lottery, which is set out in full, supra., n. 2, encompasses any scheme or promotion which, "on payment of consideration, offers a prize dependent in whole or in part upon chance". DMM §123.431.

9. 18 U.S.C. §§1307 (d) and 1953 (e) both provide:

For the purposes of this section "lottery" means

the pooling of proceeds derived from the sale of

tickets or chances and allotting those proceeds

or parts thereof by chance to one or more chance

takers or ticket purchasers. (Emphasis supplied).

10. See Milwaukee Social Democratic Publishing Co. v. Burleson, 255 U.S. 407 (1921). See also Butz v. Glover Livestock Commission, 411 U.S. 182, 185-186 (1973); American Power & Light Co. v. S.E.C., 329 U.S. 90,112 (1946).