Are office lottery pools legal in Tennessee?

Subject

Opinion No. 14-58, Lawfulness of Lottery-Ticket Pool, May 23, 2014

Plain-English summary

Representative Bob Ramsey asked whether it is lawful to operate a lottery-ticket pool in which Tennessee lottery ticket holders deposit their tickets in a shared pool and split any prizes among the participants. The AG said no.

The Tennessee Constitution (art. XI, § 5) bans all lotteries except an authorized state lottery and certain annual charity events. Tennessee criminal law defines "gambling" in Tenn. Code Ann. § 39-17-501(1) as "risking anything of value for a profit whose return is to any degree contingent on chance," with three exceptions: (A) a lawful business transaction (e.g., futures or commodities trading), (B) annual events for tax-exempt charities authorized by two-thirds approval of the General Assembly, and (C) the state lottery itself.

The AG's analysis took the pool apart. When a participant places his ticket in the pool, he gives up his individual right to any prize on that ticket in exchange for a share of whatever any ticket in the pool wins. That second-bet structure (chance that one's own ticket would have been the winner, and chance about which ticket in the pool actually wins) is risking value for profit "contingent on chance" within § 39-17-501(1). The AG cited the Michigan Court of Appeals opinion Attorney General v. Powerpick Player's Club of Michigan, LLC, 287 Mich. App. 13, 783 N.W.2d 515 (2010), which reached the same conclusion under Michigan law.

None of the three statutory exceptions applies. The pool is not a "lawful business transaction" (§ 39-17-501(1)(A)) because that term covers regulated transactions like futures or commodities trading (Op. 04-042 (Mar. 12, 2004)). It is not a charity event authorized by two-thirds vote (§ 39-17-501(1)(B)). And it is not the authorized state lottery (§ 39-17-501(1)(C)) because, under the Tennessee Education Lottery Implementation Law (§§ 4-51-101 to -206), only games approved by the Board and operated by the Tennessee Education Lottery Corporation (TELC) qualify (§ 4-51-102(8)). A third-party pool is by definition not approved or operated by TELC.

The AG noted that this scenario is distinguishable from U.S. Postal Service v. Amada, 200 F.3d 647 (9th Cir. 2000), where the Ninth Circuit treated a service that pooled customer funds to buy lottery tickets as not a separate "lottery" under common-law definitions, because Tennessee's statutory definition of "gambling" is broader than the common-law definition of "lottery" and the Tennessee pool described is structurally a second bet, not a joint purchase.

A footnote explicitly preserves the unaddressed scenario: people pooling their money to buy lottery tickets jointly, consistent with TELC's rules and regulations, is outside the scope of this opinion.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What kind of lottery pool is illegal?

A pool where each participant buys his own ticket separately, then deposits the ticket into a third-party-managed pool in exchange for a share of any prize won by any ticket in the pool. The AG opinion focuses on that specific structure.

Why is it gambling?

Because the participant surrenders his chance to win the full prize on his own ticket in exchange for a chance to share in whatever any ticket in the pool wins. That second bet is "risking [something] of value for a profit whose return is to any degree contingent on chance," which fits the statutory definition of gambling in § 39-17-501(1).

What if my office just pools $20 from each person and we buy tickets with the joint money?

The AG opinion expressly does not address that scenario. The footnote on the last page says: "This opinion does not address the circumstance in which people pool their money toward the purchase of one or more lottery tickets consistent with the rules and regulations of TELC." Whether such an arrangement is legal would require its own analysis under TELC rules and the statutory gambling definition.

Are charity raffles illegal too?

No, if they satisfy § 39-17-501(1)(B): annual events for the benefit of charitable § 501(c)(3) organizations authorized by two-thirds approval of the General Assembly. Tennessee has a specific statutory framework for charitable gaming. Compliance with that framework is essential.

What about online sports betting or fantasy leagues?

The 2014 opinion does not address sports betting or fantasy leagues. It is limited to lottery-ticket pools under the gambling statute as it stood in 2014. Anyone with current questions about other forms of betting should consult a lawyer and current law.

Does the Powerpick case bind Tennessee courts?

No. It is a Michigan Court of Appeals decision, cited by the AG as persuasive authority. Tennessee courts would interpret the Tennessee gambling statute on its own terms, but the structural reasoning in Powerpick (the second-bet analysis) tracks the Tennessee text.

Does the opinion say what the penalty is?

No. The opinion resolves only the legality question: a third-party-managed pool of the kind described is "gambling" under § 39-17-501 and is unlawful. It does not discuss penalties, enforcement, or who would be charged. Anyone weighing the consequences of such an arrangement should check the current criminal statutes and consult a lawyer.

Background and statutory framework

Tennessee's constitutional lottery prohibition (Tenn. Const. art. XI, § 5) was amended in 2002 to authorize the Tennessee Education Lottery, but the prohibition on other lotteries remains intact. The statutory framework for the authorized state lottery is the Tennessee Education Lottery Implementation Law (Tenn. Code Ann. §§ 4-51-101 to -206). Section 4-51-102(8) defines "lottery" or "lottery game" to mean a game of chance approved by the TELC Board and operated under the chapter. Anything outside that approval channel is, by definition, not the authorized state lottery.

The criminal gambling statute, Tenn. Code Ann. § 39-17-501, defines gambling broadly and provides three narrow exceptions. Subdivision (1)(A)'s "lawful business transaction" exception is keyed to the futures and commodities example in (4), and prior AG opinions (04-042) have read it to mean transactions authorized and regulated by other statutory schemes. (1)(B) covers § 501(c)(3) charity events approved by supermajority legislative vote. (1)(C) covers the authorized state lottery itself.

A lottery-ticket pool that aggregates participants' separately purchased tickets and redistributes winnings was treated as gambling separate from the underlying lottery purchase by the Michigan Court of Appeals in Powerpick, which the AG cited as persuasive authority. Tennessee's broad statutory definition reaches the same outcome.

Citations

• Tenn. Const. art. XI, § 5 (lottery prohibition with exceptions)
• Tenn. Code Ann. § 39-17-501(1) (definition of gambling)
• Tenn. Code Ann. § 39-17-501(1)(A) (lawful business transaction exception)
• Tenn. Code Ann. § 39-17-501(1)(B) (charity event exception)
• Tenn. Code Ann. § 39-17-501(1)(C) (state lottery exception)
• Tenn. Code Ann. § 39-17-501(4) (lawful business transaction includes futures and commodities)
• Tenn. Code Ann. §§ 4-51-101 to -206 (Tennessee Education Lottery Implementation Law)
• Tenn. Code Ann. § 4-51-102(8) (definition of "lottery" for state lottery purposes)
• Attorney General v. Powerpick Player's Club of Michigan, LLC, 287 Mich. App. 13, 783 N.W.2d 515 (2010) (Michigan Court of Appeals; lottery-ticket pool illegal as second bet)
• U.S. Postal Service v. Amada, 200 F.3d 647 (9th Cir. 2000) (Ninth Circuit; common-law lottery definition distinguished)
• Tenn. Att'y Gen. Op. 04-042 (Mar. 12, 2004) (lawful business transaction exception interpretation)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-058.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
May 23, 2014
Opinion No. 14-58
Lawfulness of Lottery-Ticket Pool

QUESTION

Is it lawful to conduct a lottery-ticket pool in which Tennessee lottery ticket holders pool their tickets and share in any prizes awarded on winning tickets?

OPINION

No. Such a lottery-ticket pool is "gambling" within the meaning of Tenn. Code Ann. § 39-17-501, does not fall within any of the exceptions to "gambling" provided in Tenn. Code Ann. § 39-17-501(1), and therefore is unlawful.

ANALYSIS

Article XI, § 5, of the Tennessee Constitution prohibits the sale of lottery tickets in Tennessee but states that the General Assembly may authorize a state lottery that meets certain specified conditions. The same provision prohibits "[a]ll other forms of lottery not authorized herein," except for certain annual events operated for the benefit of a tax-exempt charity. Tennessee criminal law provides in relevant part:

(1) Gambling is contrary to the public policy of this state and means risking anything of value for a profit whose return is to any degree contingent on chance, or any games of chance associated with casinos, including, but not limited to, slot machines, roulette wheels and the like. For the purposes of this chapter gambling does not include:

(A) A lawful business transaction;

(B) Annual events operated for the benefit of charitable § 501(c)(3) organizations that are authorized pursuant to a two-thirds (2/3) approval of the general assembly, so long as such events are not prohibited by the state constitution; or

(C) A state lottery of the type in operation in Georgia, Kentucky, and Virginia in 2000 and authorized by amendment to the Constitution of Tennessee, if the lottery is approved by the general assembly[.]

Tenn. Code Ann. § 39-17-501(1) (emphasis added).

Purchasing a Tennessee lottery ticket, therefore, is not gambling, under the exception in subdivision 501(1)(C). But participating in a lottery-ticket pool, an organized plan, managed by a third party who is not affiliated with the Tennessee Education Lottery Corporation, under which Tennessee lottery ticket holders enter their tickets in a pool and agree to give up their right to any prize awarded on one of their tickets in exchange for the right to share in any prize awarded on any winning ticket in the pool (including their own), is gambling within the meaning of this statute. Because participants in such a pool give up the chance to win a full prize on one of their own tickets, they are "risking [something] of value for a profit whose return is to any degree contingent on chance." Tenn. Code Ann. § 39-17-501(1). See Attorney General v. Powerpick Player's Club of Michigan, LLC, 287 Mich. App. 13, 783 N.W.2d 515, 524 (2010) (finding lottery-ticket pool illegal because it involved a second bet that a participant would be assigned to a winning pool).

For this reason, the pool described here is distinguishable from the arrangement found not to be a separate lottery in U.S. Postal Service v. Amada, 200 F.3d 647 (9th Cir. 2000) (service that accepted funds from general public and purchased lottery tickets for pool participants held not to be a "lottery"). The common-law definition of "lottery" applied in Amada is also different from Tennessee's statutory definition of "gambling." See id. at 651.

Such a lottery-ticket pool does not fall within any of the three exceptions to the term "gambling" in Tenn. Code Ann. § 39-17-501(1). First, the pool is not a "lawful business transaction" under § 39-17-501(1)(A). The term "lawful business transaction" includes any futures or commodities trading. Tenn. Code Ann. § 39-17-501(4). As this Office noted in 2004, the term "lawful business transaction" as used in this statute was intended to include transactions that, like futures or commodities trading, are authorized and regulated by other statutory schemes. Tenn. Att'y Gen. Op. 04-042 (Mar. 12, 2004).

Second, the pool is not within the class of "[a]nnual events operated for the benefit of charitable § 501(c)(3) organizations that are authorized pursuant to a two-thirds (2/3) approval of the general assembly." Therefore, it does not satisfy the criteria for the exception under § 39-17-501(1)(B).

Finally, the pool is not "[a] state lottery of the type in operation in Georgia, Kentucky, and Virginia in 2000 and authorized by amendment to the Constitution of Tennessee, if the lottery is approved by the general assembly," under § 39-17-501(1)(C). The Tennessee lottery is governed by the Tennessee Education Lottery Implementation Law, Tenn. Code Ann. §§ 4-51-101 to -206. This statutory scheme gives the Tennessee Education Lottery Corporation the power, among others, to initiate, supervise, and administer the operation of the lottery.

"Lottery," "lotteries," "lottery game," or "lottery games" means any game of chance approved by the board [of directors of the Tennessee Education Lottery Corporation] and operated pursuant to this chapter, including, but not limited to, instant tickets, on-line games, and games using mechanical or electronic devices. . . .

Tenn. Code Ann. § 4-51-102(8) (emphasis added). Prizes in a lottery-ticket pool originate with Tennessee lottery tickets, but the pool is not approved or operated by the TELC. Instead, the pool is governed by contracts among the participants.

This opinion does not address the circumstance in which people pool their money toward the purchase of one or more lottery tickets consistent with the rules and regulations of TELC.

ROBERT E. COOPER, JR.
Attorney General and Reporter

JOSEPH F. WHALEN
Acting Solicitor General

ANN LOUISE VIX
Senior Counsel

Requested by:
The Honorable Bob Ramsey
State Representative
212 War Memorial Building
Nashville, Tennessee 37243