Gambling and the Law: Amnesty for Internet poker sites?

28 October 2011

Poker operators who took online bets from residents of the United States have received enough good and bad new this year to last a lifetime.

First, Nevada regulators approved a partnership between Caesars and 888. Steve Wynn announced he would work with PokerStars in the hopes of setting up, to accept American players. The District of Columbia legalized online gaming, including poker.

Then, on Black Friday, the Department of Justice indicted the principals of the three biggest poker companies still taking bets from the U.S., seized millions of dollars and their dot-com names worldwide, and filed a civil suit asking for billions more. Recently, the DoJ amended the suit to include allegations that Full Tilt defrauded players out of hundreds of millions of dollars.

Of course, no matter what the DoJ does, it cannot stop the press toward legalization. The states are desperate for revenue and cannot get any help from the federal government, with the Republicans controlling the House of Representatives. So, they are looking at more legal gambling, as a painless tax. Internet poker is almost the only form not already allowed in many states.

Online poker is coming, on a state-by-state basis. So, who will be the winners?

The decision on 888 shows that at least some states would be willing to license operators who had voluntarily pulled out of the American market. Publicly traded companies like Party Gaming and 888 left the U.S. after the Unlawful Internet Gambling Enforcement Act was passed in 2006.

The DoJ had indicated it wanted to prosecute anyone who ever took poker bets from Americans, even if they had stopped. Yet both the Nevada Gambling Control Board and the Nevada Gaming Commission declared 888 suitable to do business with one of its largest licensees.

The decision by Wynn was even more startling, because PokerStars was still taking bets from residents of the U.S. at the time. It was also significant because Wynn had been absolutely opposed to all Internet gambling only a few years ago, and his major focus is on Asia. If an operator as smart as Steve Wynn thinks now is the time to push for legalizing online poker, then now might very well be the time.

The two major arguments against licensing a company that took poker bets is that it was involved in illegal gambling, which gives it an unfair advantage through customer lists and brand name recognition.

These arguments seemed to win the day when wide-open licensing was under consideration in France. Lawmakers at first said no company which took bets from residents of France could get a license. Then they proposed an official “time out.” Operators would only be able to apply for a license after removing themselves completely from the French market for 18 months.

In the end, French authorities were won over by the counter-argument: It was unclear whether non-French operators could be prosecuted under European Union law.

More importantly, French gaming regulators and operators became convinced they needed the experience and expertise of the largest Internet gaming companies.

So, France decided on what amounts to a general amnesty.

This echoes the decision made in the early 1950s by Nevada regulators that they would ignore convictions for illegal gambling by applicants for the first state licenses. Reasoning that since all casino gambling was illegal in the U.S., only criminals had experience running casinos.

The second state to legalize casinos, New Jersey, felt the market would take care of the problem. They reasoned, correctly, that dealer schools would open up and experienced operators would come from other parts of the world.

It is difficult to predict who will win. Will there be a general amnesty, à la France, or will the door be slammed shut on everyone who might have been involved in even technically illegal gambling, as in New Jersey?

Even operators who used to take poker bets from U.S. have lost name recognition. So, they are trying to buy it. PartyGaming-bwin bought the World Poker Tour, and 888 is now with Caesars, which also owns the World Series of Poker.

On the other hand,International Game Technology, one of the largest manufacturers of slot machines, paid about $115 million for Entraction Holding AB of Stockholm, Sweden. Entraction has one of the world's largest online poker networks and is one of the leading suppliers to the industry. Most importantly, it had never taken bets from the U.S., and will thus not cause IGT any problems with its dozens of regulators. But it is completely unknown to Americans.

So, if there is general amnesty, the winners will be companies like PartyGaming and Caesars. But, if regulators refuse to license anyone who ever took online poker bets from the U.S., the winners will be companies like IGT.

© Copyright 2015, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose.

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