The Rebuilding of Online Poker In America

Two years have passed since Black Friday and for the first time since then, online poker has returned to the United States in an extremely limited way. Within the next several years, access to online poker sites will slowly return to the lucky residents of states that choose to give their taxpayers access to online poker sites while the simplest solution remains off the table:

Allow Americans to play on any poker site they wish.

Unfortunately, that request is much too simple for the complicated and seemingly arbitrary ways laws are made in this country, especially with the billions of dollars at stake.

“There’s so much legal gambling in this country that legalizing one form is no big deal politically, but there’s so much legal gambling in this country that almost every state has very powerful, entrenched special interests,” says I. Nelson Rose, professor of law at Whittier College in California, and the premier scholar on the history of gambling and the law in the U.S. “Legal gambling already exists and says: We’re in favor of Internet poker as long as we’re the ones that get the money.”

No one can blame the casino conglomerates and shareholders for staking their claim. The United States online poker market is potentially worth about $2 billion annually.

The worldwide industry continues to trudge on despite losing access to around one-third of the world’s online poker customers in 2011.

While millions of people in countries like Ireland, Russia, and Mexico are allowed to play online poker, here in America, we are shut out. That is unless you live in Nevada, where you can now play online poker against others that are located geographically within the Silver State. New Jersey and Delaware will try and offer online poker to its residents by the end of the year, and a few other states, including Pennsylvania, have bills in the works to do the same.

The reasons used to keep Americans from accessing global sites amount to greed and a total misunderstanding — or willful ignorance — of poker.

The established casino companies and the government want our money. As far as they are concerned, they have first rights to serve Americans. After completely missing the boat on online poker in the early part of this century, the brick and mortar casino industry has staked their claim and are making demands.

“Five years ago, when I spoke at various gaming conferences, the industry couldn’t understand how something like Zynga poker would work. Why in the world would people pay to play poker where you couldn’t win anything?” says Rose.

“That feeling is long gone. Now, all the casino companies are buying up or partnering with social gaming companies and true online gambling companies, and yes, there’s a mix of cultures happening and a potential conflict, but the casino industry understands that this isn’t going away and they want to be a part of it.”

The massive amount of money involved in online poker changed everything. It doesn’t matter that the Department of Justice (DOJ) says poker is a game of skill. It doesn’t matter that local courts have ruled the same way. It doesn’t matter that most state poker laws are more than 100 years old and usually only address “illegal gambling.”

Online poker is now and forever the property of established casinos that are hell-bent on keeping it that way, American consumers be damned.

Since the Obama administration excused itself from this debate by refusing to endorse federal online gambling, poker players in America are being held hostage by the states whose politicians don’t give one wet fart about them.

In the states where casinos exist, the politicians are, in turn, being held hostage by the casinos that, not only played by strict rules established by the states, but also are responsible for billions of dollars in annual tax revenue.

It’s a nasty cycle that will continue to screw American poker players for at least the next decade.

Just in June, Nevada Congressmen Harry Reid again came out against a federal bill that would allow online poker. He said because the bill allows all forms of casino gambling, it would hurt online poker.

Here’s what World Series of Poker (WSOP) media director Nolan Dalla wrote about Reid’s inaction on pushing online poker federally:

“Consider yet another bill introduced recently to legalize online gambling and poker. After so-called ‘attempts’ by Sen. Reid to rally support for these bills within his own party have continuously failed, he’s become so pathetic now that he won’t even step up to the plate and take a swing. He’s already surrendered before the other side tossed the ball. Already, he’s making lame excuses before any kind of debate has begun and the game hasn’t even started yet.”

But here’s the rub: poker, which, in markets like Las Vegas, account for only about one-percent of a casino’s profits, shouldn’t even be included in the same conversation as online slots, blackjack, keno and bingo.

But because of tradition, a willful disregard of the components of the game, and a complete lack of care and understanding for the American poker consumer, the game remains stuck in the muck in most jurisdictions.

The Traditional Bad Guys

The first law prohibiting poker dates to the 1700s in Louisiana, and the laws that soon followed around the country still exist. For example, in Pennsylvania, poker isn’t even specifically addressed. Nothing is. Everything falls under “unlawful gambling.” Unlawful gambling is gambling “not specifically authorized by law.” Poker isn’t mentioned.

But since casinos opened in Pennsylvania in the mid-2000s, the right to deal poker is limited to licensed casinos. It’s basically the same story in all states that license casinos.

The online gambling law that New Jersey Gov. Chris Christie signed into law early this year specifically prohibits companies that operate outside of New Jersey’s borders. Pennsylvania’s proposed online gambling bill has the same restrictions.

That means poker sites will have to wedge themselves inside state borders with actual public casinos in order to apply for the licenses.

The largest online poker company in the world, PokerStars, recently suffered a defeat in New Jersey, where its parent company was prevented from buying a casino in Atlantic City. A judge ruled in May that the Colony Capital LLC, the casino’s owner, had the right to cancel the deal. PokerStars desperately wants access to U.S. customers, as evidenced by its $730 million settlement with the U.S. DOJ in July 2012, but is facing harsh rebuttal from the powerful and well-versed American Gaming Association (AGA).

The “existing casino” rule obviously is inserted in legislation as requested by the AGA. The limited number of licenses in each state creates a monopoly.

What else does AGA interference mean to online poker players in the future? It all depends on where people live and which companies own the casinos and card rooms and there are more questions at this point than answers.

Will Nevada residents be able to play against players in New Jersey and elsewhere? Delaware licensed 888 Holdings to run its online gambling. Will players in Delaware be able to play against players on the other side of the globe?

If not, the games may lack the necessary liquidity to make them worthwhile for players or operators.

Will states without legalized gambling enter into agreements with other states to give its residents access to sites “located” across state borders? How about international borders?

Will politicians ever realize how many billions of dollars they are throwing away to appease existing casinos? Will United States residents ever be allowed to access the large global sites ever again?

“The state by state thing is not the best way, but it seems like the only way,” says online pro Blair Hinkle, who has more than $1.2 million stuck with the government because of Black Friday and the inability of the U.S government to repay settlement money in a timely manner. “The way they’re doing it seems to be OK. I just really hope more states get involved sooner rather than later, because when that happens, I could only imagine, there will be another poker boom.”

Like many poker pros who have set up shop in other countries in order to continue their careers, Hinkle is making plans to live temporarily in Vancouver after the WSOP, specifically to play in PokerStars’s next World Championship of Online Poker.

“Just think about the WSOP.com,” Hinkle says. “That site alone is going to make the World Series even better with all the qualifiers they’ll have, especially if they could get 15-plus states all connected.”

Graft and Grime

So much modern politics is based around the lobbying system. Poker has the Poker Player’s Alliance (PPA), but, according to Rose, it got off to a rocky start at a very important time for online poker.

“The Poker Players Alliance started out fairly politically naïve,” he says. “I remember hearing from one of the poker players who were working with them in Washington D.C. that Jon Kyl’s assistant met with them and they thought that was a breakthrough, but they didn’t understand. No, Jon Kyl wanted to know what the opposition was doing.”

The PPA has gotten better at sharpening its message, but the power of the casinos and the AGA is overwhelming.

“The PPA has become much more politically sophisticated and is really good with trying to separate poker from other forms of gambling, but the money is with the casinos.”

A glimpse into the minds of AGA members occurred at the Global iGaming Summit and Expo in April, where Jan Jones-Blackhurst, senior Vice President of Communications and Government Relations of Caesars Entertainment, went hard after PokerStars, insisting that the site continue to be punished because it operated in the U.S. after the UIGEA.

The AGA also petitioned New Jersey’s gambling control board to oppose PokerStars’ attempt at purchasing a casino in the state, which would give it a foothold in the U.S. market.

And you could bet your last dollar that special interests don’t care how the harsh takedown of the online poker industry by the DOJ affected Americans who chose to play online poker after the UIGEA.

Months later, the same DOJ determined that the Wire Act only covered sports bets across state lines and poker and casino games are technically legal — if state lawmakers decide to allow them.

How utterly convenient for the casino industry that this ruling was made after Black Friday.

And, ironically, nobody in the halls of legislature or industry is bashing the government for slow paying the more than one million Americans that had money on Full Tilt Poker. That money was paid by PokerStars to the government to reimburse American players.

The Players Screwed

On April 15, 2011, an estimated 1.3 million American citizens had property seized by the United States government. In some electronic bank vault sits at least $180 million that is owed to just the American Full Tilt Poker customers.

This is the biggest seizure of dollars, in terms of the number of people affected, in United States history.

The money exists somewhere, collecting a nice interest for either the federal government or the Garden City Group, the company hired to distribute the money.

Why PokerStars, which paid $557 million to liquidate Full Tilt, wasn’t given the task of paying Full Tilt’s customers is a mystery. PokerStars was allowed to pay off its own U.S. customers after Black Friday. Full Tilt’s non-U.S. customers were all paid back immediately..

It’s a solution Hinkle wishes was pursued, and a solution that John Pappas, PPA’s Executive Director, believes the government now would have done simply because the amount of people affected seems to be causing such problems and delays.

“It’s been frustrating. At first, it was a roller coaster. I had some pretty rough days thinking about it. I kind of learned to deal with my emotions and everything about it and just kind of imagine that I wasn’t waiting on the million dollars or anything,” Hinkle said.

Hinkle guesses he’s one of a handful of Americans who are waiting for a substantial amount. He’s received no more notification than the players who have less than $100 stuck with the DOJ.

“It is amazing though that PokerStars paid people back within 90 days after they bought Full Tilt. I really don’t understand why they weren’t allowed to do the payouts. It’s more frustrating that it could’ve been done and over with six months ago,” Hinkle says.

Poker professional David Benefield says he had “low six figures” stuck when the DOJ shuttered Full Tilt, but the money, which is to be returned, isn’t what’s really bothering him.

“To say I am unhappy with the way the DOJ handled this is a massive understatement. They gave us no warning, planned it for the day after we paid taxes, and after over two years have yet to return money to Full Tilt players,” Benefield wrote in an email. “I have paid around two million dollars in U.S. taxes and it feels pretty awful to have my livelihood taken away and treated thusly.”

Benefield, a tax-paying online poker professional since 2004, ended up in Macau playing online and live games. He’d rather be in the States. PokerStars Team Online member Shane Schleger commutes to Mexico once a week to continue his online poker career. Players have tried to go to Canada, where the government ruled that online poker can exist within its borders by interpreting existing laws, but Canada is stricter with its visas than Mexico and has stopped players at the border.

Bills For the Billions

But online poker now exists in the U.S. legally for the first time in an extremely limited manner. As previously mentioned, Nevada went live last month, New Jersey’s Governor signed his state’s bill in February, and Delaware recently hired Gibraltar-based online casino 888 Holdings to run its internet gambling operations, which were approved last year. Pennsylvania also has an online gambling bill that won’t make it out of committee in its current version.

All of these bills place online poker right next to the casino games, though, and the rules are different state by state. All the bills require a casino to be physically located within its borders in order to qualify for gambling licenses.

So after carpet bombing the entire poker industry, the federal government gave its OK to the states to pursue this revenue stream as long as it’s regulated, licensed and taxed. This is fine with Benefield.

“I think bureaucrats have every right to tax online poker, though it should be in line with current income tax brackets,” he wrote. “I have no problem paying my fair share, though I worry someone unfamiliar with how poker works could create a tax law specific to online poker that makes it impossible to beat in the long-term.”

In reality, residents are all for sale. A license of any kind gives people and companies access to its population. It’s a way for the government to keep its population safe and snug. It ensures a certain kind of quality. It also allows states to hammer companies with inflated fees, which are eventually passed on to the consumers.

The online gambling bill currently in Pennsylvania’s gambling oversight committee will require casinos pay a one-time $5 million fee. Pennsylvania has approximately nine million residents old enough to gamble. Using a low guess, say half of those nine million will get curious and check out the state’s casino’s version of virtual gambling.

On top of the fee is a proposed 28-percent tax, the largest in the country. You, me, and the old man in the senior citizen home playing video slots know who ends up paying. Again, the consumer is the lost voice. We aren’t even treated like criminals. We are treated, by the people making the rules, as nothing but dollar signs.

Benefield puts it more eloquently.

“I think what we forget sometimes is that the government isn’t necessarily working for the best interests of the ‘people’ as a whole, rather the corporate interests that lobby for change, internal political maneuvering to further personal agendas, etcetera. I don’t want to get into personal thoughts on how the US government operates, but this type of thing is far from unique to poker. It is a good example of some of the failings within our current governmental structure that cater towards the moneyed minority.”

As the global $4 billion online poker industry grows, players here pine for access to the largest sites in the world. The established casinos want the U.S. residents all to themselves. Benefield is right. As more and more unsavory details emerge, the story of online poker prohibition is becoming a “good example” of how the system works.

Although I’m not sure “good” is the right word.