Government and Our Game - the Heat is On

I'm not a lawyer, but my writing partner, John Bond, is. However, John doesn't devote the time to questions of gambling, and Internet and gaming law that some established authorities like I. Nelson Rose and Allyn Jaffrey Shulman do, and he is not an expert, as they are. I have written a lot lately about the poker industry, building up to some ideas I hope will prove beneficial to our game. To get where I'm going, I must address governmental regulation of poker. So, I write this column not as a lawyer, although I have the help of a lawyer and lawyerly matters are involved. I write it as an industry insider.

I am going to present some facts, then present some conclusions about how I think we ought to deal with regulation of our game. Conclusions are always arguable. These conclusions are not principally based on John's perspective as a lawyer, although his insight – especially into the lobbying process, where he has some experience – is certainly relevant. This column is more about how and why to try to influence the law of the future than it is about the state of the law today. When it comes to what the law is or isn't, I defer to experts such as Allyn and Nelson.

Let's get started:

1. State and local officials have been targeting live poker. Recent news stories report law enforcement coming down on poker in Tallahassee and Fort Lauderdale, Florida; Manitowoc and Green Bay, Wisconsin; Aberdeen, South Dakota; Stamford, Connecticut; Baton Rouge, Louisiana; Piney Chapel, Alabama; and many, many more locales.

2. Internet poker sites are essentially unable to use credit cards (as distinguished from debit cards) or PayPal to transfer money into or out of accounts, at least in part because of issues relating to laws and other regulations.

3. Several large banks, including Citibank and Bank of America, may end EFTs to and from "gambling" sites, including poker, citing among other things money-laundering concerns and the Patriot Act.

4. U.S. Sen. Jon Kyl, R-Arizona, began his fight to ban Internet "gambling" back in 1999. The current version of his bill is less ambitious, and is known as The Unlawful Internet Gambling Funding Prohibition Act. It reported out of the Senate Banking Committee unanimously in the 108th Congress, but stalled on the floor. It prevents the use of certain payment instruments, credit cards, debit cards, and fund transfers for unlawful Internet "gambling," and for other purposes. As currently worded, it would ban many funds-transfer methods now used by Internet poker sites. This bill will be back in one form or another when the 109th Congress convenes in January after the election.

5. The Bush administration in March appealed a ruling by the World Trade Organization (WTO) in favor of Antigua and Barbuda, finding that proposed and existing restrictions against online "gambling" violate international trade agreements.

6. One of the world's most reputable "gambling/gaming" entities, Ladbrokes of the United Kingdom (which happens to have the largest no-limit games on the Internet), does not offer services to addresses located in the United States. More and more sites are opening up that offer services to the rest of the world but not to the American market, because of fear of legal problems.

7. Internet poker's costs are substantially increased by "jurisdiction shopping" for places to legally locate servers. Quality of connectivity is also affected by the inability to have U.S.-based servers, because of legal issues.

8. The United States Department of Justice (DOJ) has taken the position that a 1961 law known as "The Wire Act," originally adopted as a tool against bookies working over the telephone, governs Internet "gambling" sites. Most experts knowledgeable about "gaming" law assert that the DOJ's position is untenable, but this hasn't stopped it from using The Wire Act to pressure the industry. As reported by The New York Times: " … So far, executives at media companies have not voiced public challenges to the government campaign … " Since that NYT report, one company has stepped up to the challenge: Casino City Inc., a Louisiana-based company that provides a directory of both Internet and land-based casinos, as well as several other informational services, on its websites, recently filed a complaint in the U.S. District Court for the Middle District of Louisiana.

8a. Last June, Deputy Assistant Attorney General John G. Malcom wrote letters to numerous media outlets and trade groups, including radio stations, television stations, networks, and print media, advising that accepting money for advertising of "gambling" sites is aiding and abetting illegal "gaming" activity, and running such ads subjects the media to fines, possible criminal penalties, and, in the case of broadcast media, actions against their licenses. Malcolm's justification for this position relies on The Wire Act.

8b. The DOJ seized millions of dollars posted by an Internet poker site for advertising with The Discovery Network, based on the theory of "aiding and abetting illegal 'gambling,'" as defined by Malcolm.

8c. Reacting to Malcom's letters, several major media companies, including Infinity Broadcasting, Viacom Outdoor, Discovery Networks, and Clear Channel Communications, stopped running ads for online casinos (including poker sites) and betting services. Google and Yahoo! stopped accepting such ads. (Paradise Poker built its initial customer base by using Google click-ads.) Yahoo! said "a lack of clarity in the environment" made 'gambling' ads "too risky." About 95 percent of all Web searches in the United States are handled by Google or Yahoo!, either directly or through other sites that use their technology (NYT, 8/23/04).

8d. Raymond W. Gruender, the U.S. attorney for the Eastern District of Missouri, has convened a grand jury in St. Louis that is issuing subpoenas not to online "gambling" sites, but to companies that do business with the online gambling industry.

9. There are at least dozens, probably hundreds and possibly thousands, of other examples of varying importance in which the heavy hand of government has reached out to influence and slap down our game, including additional bills pending in the U.S. House and Senate.

The heat is on! I think the industry as a whole has to be immediately reactive to what has already happened, and proactive relative to regulation of our game.

Last year I attended a meeting of the Internet poker industry to address what we should do about the Kyl bill. One thing that became apparent from that meeting was that although all of us shared a common interest in the well-being of poker generally and Internet poker particularly, different organizations had different agendas. Sites related to online casinos had different goals than sites with business affiliations to brick-and-mortar games, which in turn had different goals from pure Internet poker sites. Established sites had differing interests from small struggling sites. In the end, a few of the largest sites affiliated with online casinos, slot operations, and/or sportsbooks put up some pretty big bucks and hired a high-powered Inside-the-Beltway lobbying firm to oppose the Kyl bill.

Defeat of the Kyl bill would be a good result for Internet poker. However, not only do I think it is unlikely, I do not think it is the best possible result for Internet poker. I think the decision to battle the bill ignores political realities. I am by political inclination an independent. My friend John is an ardent Democrat, working hard for Kerry. But regardless of one's affiliation, practical political considerations have to be taken into account. If the Republicans retain control of the U.S. Senate (as I expect they will), the Kyl bill will likely eventually pass.

A new Bush administration, with an Ashcroft-led DOJ, will likely appeal to the religious part of its base by signing and vigorously enforcing the law, just as it has stretched The Wire Act in an attempt to shut down online gambling, including poker. Should Kerry win, I'm not sure how the dynamics of a Democratic White House with a Republican Senate will play out in terms of regulating our game. I am reasonably certain that a Kerry DOJ would put less pressure on our industry and direct its efforts elsewhere. Regardless, the industry needs to prepare a position that presumes the Kyl bill or something like it will eventually pass, and that the DOJ pressure will continue. (John is working on a plan to get both Kerry and Bush to make a public statement about poker. I don't think he'll pull it off, but it would be cool if he did.)

I put "gambling" and "gaming" in quotes because I think poker's best position involves defining it as something other than gambling, an industry apart from gaming. Some jurisdictions already distinguish the two, and treat them differently under their constitutions, statutes, and regulations. I've made the case elsewhere that poker and gambling are in fact different things (Card Player, Volume 17, No. 5, Feb. 27, 2004).

That's not my emphasis here. Whether it's the Aberdeen, South Dakota, sheriff's department, a minor municipal court in California, the regulators of Maryland's charity casinos, or the U.S. Senate, each and every time some legal authority determines that poker is a game of skill and gambling involves games of chance, that the two are not the same, the place of poker in American culture and law is strengthened.

I think in this era of mounting state and federal deficits (which I don't foresee ending for years, regardless of who occupies the White House in January), there is an opportunity to present income from taxes and licensing fees to be derived from poker as bait for widespread legalization of the game in both its brick-and-mortar and Internet forms. Indeed, America has a long tradition of taking what was considered a "vice" and legalizing it, regulating it, and taxing it, from lotteries to booze, and perhaps soon, marijuana. Frankly, I think uniform regulation would not be the worst thing for the Internet poker industry, even if governmentally imposed, and would indeed increase public confidence in the integrity of sites and tournaments (an issue I will be taking up in a column soon.). Whatever final result is reached regarding the possibility of legalizing Internet poker, it must be done in such a way as to open the field to many, rather than to limit opportunity to a few.

Considering the popularity of poker at the moment, to come out against poker in any form is risky for politicians. Never has there been a better time to pressure the situation to achieve a result that's good for the game. As a practical matter, poker's growth cannot continue forever at the pace of the past two years, and there may never again be as good a time as now to aggressively advocate the way the laws of America treat our game.

Of course, the "poker isn't gambling" position doesn't help gambling sites any, and to take this position to the exclusion of gambling issues may not be acceptable to those with an interest in both gambling and poker. Poker should lobby to have a provision inserted in Kyl's bill expressly excluding poker from the definition of gambling. The provision could be a simple one-sentence addition that says just that, or it could instead be more expansive and define poker, and recognize it as a game of skill, not chance. Imagine if it were the law of the land that poker isn't gambling, but a game of skill!

To those with an interest in both gambling and poker ventures, I would say, help poker to make changes to the Kyl bill and other laws, contribute to those efforts to the extent they are relevant to your poker operations, and handle legislative efforts regarding casino and gambling operations differently. It is not unusual for American businesses to take positions such as, "I oppose this bill, but if this bill is going to pass, I want these changes in it." To that extent, at least, everybody in poker shares common ground.

It's my hope that we can distinguish poker from gambling regulation and gaming law, creating a new thing: poker law. Attacking this issue at the local, state, and federal levels, legislatively, bureaucratically, and judicially is the way to protect and grow our game. It is a venture to undertake together – and soon, because, as noted, the heat is on!

Roy Cooke played winning professional poker for more than 16 years. He is a successful real estate broker/salesperson in Las Vegas. If you would like to ask Roy poker-related questions, you may do so online at www.UnitedPokerForum.com. His longtime collaborator, John Bond, is a free-lance writer in South Florida.