STATE REGULATION OF INTERNET POKER

by Bob Ciaffone

“Be careful what you wish for; you might get it.” Those people who have said that we should not ban internet poker, we should tax it, have just had their wish come true, though not in a manner they sought. (I am one of those people.) The Unlawful Internet Gambling Enforcement Act of 2006 is going to create revenue from internet poker for those states where it is legal to do so. The “collateral damage” is enormous. Every other internet poker site is going to lose most or all of an important part of its customer base—the US player. We need to take closer look at the bill that was passed and visualize what is going to happen as a result.

The law is going to put a big dent in poker for now, but it is far from the worst possible bill that could have been written. It does not make it illegal to play internet poker, and it allows states to still have the freedom to set their own gambling laws within their own boundaries, as long as they do not allow anyone under 21 to play. If one were assigned the task of writing a bill to legalize internet poker in the USA so government could make money off it, the following content would be likely:

1) Eliminate or greatly reduce outside competition from other countries.

2) Do not link poker with the wire act.

3) Do not criminalize the bettor who uses either a legal or unlawful internet playsite.

4) Do not handicap any state's ability to offer internet poker to players within its boundaries.

5) Make sure the main objection to playing internet poker of offering the game to underage players does not take place.

The above has all been done in this new bill, despite the fact there were many other options in wording the bill to make internet gambling unlawful. For the above reasons, I believe that any meaningful change to this legislation will not take place, and that states will move to take advantage of this new potential revenue source. I will give you my further take on the situation, using a question and answer format.

Does the bill ban the playing of poker on the internet?

No. The player is not directly affected, in the sense that gambling legislation pertaining to the poker player is left up to the state where he resides.

Are they really going to enforce this bill?

One cannot say how rigorously any anti-gambling bill is going to be enforced. However, even if it were enforced in a lax manner, the effect will be enormous, because financial institutions located in the US can hardly afford to be in non-compliance with the law.

Am I going to be able to circumvent this law and play online?

If you are knowledgable about such things, it is quite possible you will find a workaround. But it is also quite possible that most of your countrymen you want to gamble with will no longer be available as opponents.

I don’t use my bank to transmit money so I can play online. I use a money transfer company that is a legitimate business in another country, so I will be able to play, right?

One can never be sure which companies will be designated by our government as aiding illegal online gambling and thus be a violation of the law. However, the new law allows our government to identify such a company and declare a transaction with it to be illegal. The money transfer company you are using is likely to be identified in this manner. Here is a link to the press release made on October 19, 2006 by the most popular internet money transfer company with poker players: Neteller statement

How was this law passed?

The house passed it with a direct vote on the legislation in July 2006. The Senate passed the bill this fall because Senate Majority Leader Bill Frist of Tennessee was able to put the anti-gambling legislation inside the Port Safety Bill, which was not the kind of legislation any senator could afford to vote no on, especially with an election a month away. This also insured there would be very little discussion of the bill, as Congress was eager to go home and campaign.

So maybe the bill can be amended or repealed next year or sometime.

True, but my opinion is this legislation is not going to be changed. There are several reasons for my saying this, but the main one is it is difficult for our country and states to make money from legalizing internet poker unless the provider is geographically located within the territory where the users are located. This bill shuts out foreign competition, but it leaves the legality of internet poker within the power of each individual state. The only requirements for a state is that it cannot allow players from anywhere out-of-state to play on its own legal internet sites. Once the states see they are in a position to make money from internet poker, because the competition has been extensively decimated, where will the political will be to undo the law?

So the only legal kind of internet poker in the US will be where all the players are within a single state?

True, for now. But I can see two states who have both legalized internet poker asking the federal government to amend the law so they can offer a wider choice of games, and I think the government would oblige.

Can foreign internet connections and routing be used to assist in making a poker game available to players within a state where internet gambling is legal?

Yes; the bill specifically says this. The user and the company providing the gambling must be physically present within a state where the activity is legal, but the actual routing of the transmissions is immaterial. Here is the bill’s language:

“The intermediate routing of electronic data constituting or containing all or part of a bet or wager, or all or part of information assisting in the placing of bets or wagers, shall not determine the location or locations in which a bet or wager is transmitted, initiated, received, or otherwise made, or from or to which a bet or wager, or information assisting in the placing of bets or wagers, is transmitted.”

What will the internal setup be within a state that has legalized internet poker?

It is silly to have multiple poker-playing sites within a state, because the customer base is too small to support such a structure. So I think the state will make a deal to allow only one site, but license a number of marketing companies to recruit players and be “skins” off the site. I also think that other card games besides poker where the players may wish to compete against each other for money will be allowed. Card games like bridge and gin rummy are likely candidates.

What will the timeline be for internet poker to become legal in a number of states?

First, there has to be a period of time where people get to see the effect of this legislation, so I do not expect a lot of movement before the end of 2007. Second, legislators do not like to tackle wedge issues like gambling in an election year, so 2008 is not so promising. So my prediction is that the first state will be collecting revenue from internet poker in late 2009, several states by 2011, and 20 states by 2013. I also think that by this time the bill will be amended to allow states which have legal internet poker within them to pool their resources, as is done in other state gambling revenue sources such as lotteries, and have some play such as big tournaments take place on a mega-site.