Assessing the New Law: A Dark Day for Online Poker

by Lou on October 2, 2006

The poker world has been rife with speculation regarding the ramifications of the Unlawful Internet Gambling Enforcement Act of 2006, and what it might mean for you, me, and other online poker players, as well as for the industry itself.

In order to review developments as objectively as possible, I believe it is necessary to examine this state of affairs from two perspectives. The first is the law itself. The second is the response to the law by major online poker sites and other businesses involved in the online poker industry.

Looking at the Law
Please do not construe this as a legal opinion. I am not an attorney. These are simply my insights into this law and my take on what appears to be transpiring in the poker community.

This law does not criminalize your behavior as a poker player
As a player, this bill does not criminalize your behavior. The law places the onus on the US banking industry and other payment processors to stop funding online gaming sites. The act is aimed squarely at precluding anyone handling financial transactions related to online gaming. It is designed to stop banks from allowing customers to send funds to offshore gaming sites. It also criminalizes those who accept funds for the purpose of gambling.

This law does not modify the Wire Act of 1961

This law does not include language that would modify the 1961 Wire Act to include online gambling, although the bill passed in the House of Representatives earlier this year did contain that language. As a result, online gaming is still a legally gray area, no more — and no less — illegal today than it was before this law was passed.

A 270 day period to develop regulations and procedures
Once President Bush signs this into law, there will be a 270 day period during which enforcement procedures will be designed. This is a common process at the Federal level: Congress enacts a law and those designed to enforce it are charged with designing procedures to implement the intent of Congress.

The banks don’t like it and that might be some small help
The banking industry is opposed to what they see as burdensome requirements regarding payments to online gambling sites. Because the banking industry is likely to be consulted during the regulation writing period because they will play a major role in the act’s implementation, they are likely to argue for requirements they can meet, and which do not impose an overwhelming financial burden on them. That’s probably good for us.

Expect legal challenges
You can expect a number of legal challenges to the Act. It seems to fly in the face of the World Trade Organization’s ruling in a trade dispute brought by the tiny Caribbean nation of Antigua and Barbuda. However, the US government has ignored WTO rulings related to online gaming in the past, and is unlikely to change their posture now.

Looking at Initial Reactions to the Law
As of today, the industry leader, Party Poker, issued a statement saying that they will refuse to take wagers from US, although play money games will be available to those residing in the United States. PokerStars has not made a decision yet, but I will assume they will take a similar course of action soon.

Will Neteller stay or go?
Financial intermediaries, such as Neteller, might choose to opt out of the American market. They have not issued any indication as to what course they will chart. If Neteller decides to forego the US market, there are other payment intermediaries who would probably relish the opportunity to fill that void.

Nolan Dalla was right; I was wrong
Earlier today, Nolan Dalla wrote: “I expect this to have a ripple affect across the entire industry. Most of the larger poker sites and likely offshore sportsbooks as well, will be forced to block wagers from US residents. Otherwise, all operators/employees are subject to arrest and prosecution if they enter US territory. Those here and elsewhere who have stated this new law “only applies to financial transactions” have a narrow and tragically misguided view of the legislation. It essentially makes any employee or agent of the offshore site a criminal under US law — UNLESS they block transactions from US residents.”

Quite frankly, I never assumed that the leading sites would comply with the legislation and turn their back on the enormous customer base here in the US. I assumed they would continue to serve the cyber gaming market from jurisdictions where online gaming is legal and regulated — in essence, I assumed they would thumb their noses at this law. Instead, it appears they will comply. Nolan was right and I was wrong, and in my opinion, their reaction to this law might ultimately be a more difficult issue to overcome than the law itself.

While players could easily find work-arounds in order to fund gaming accounts regardless of the regulations that are finally set in place to enable this law’s enforcement, it becomes a Pyrrhic victory for the clever player if he is able to fund an online account but cannot find an online game where he is permitted to play.

Jobs will be lost; investors will take a major hit
Because this legislation is aimed at anyone “in the business of betting,” any site that promotes online gaming, including rakeback and affiliate sites — and even “informational” sites — might fall within the law’s scope. This could have a huge economic impact, affecting numerous websites with thousands of jobs lost in the process.
The economic impacts of this law are already being felt, as some of the large public sites have seen their share prices plummet, and many investors are poorer as a result.

In this hypocritical legislation, fantasy sprots and online lotteries win; everyone else loses
Fantasy sport sites and state lotteries are the winners, despite the fact that they too are involved in online gaming. Fantasy sports sites are OK as long as they do not have their scoring systems based on a team’s performance or point spread, but on the statistical performance of player groups. If poker could be constructed as a fantasy sport, it might find itself outside the scope of this law. However, it would no longer be poker, and no longer appealing to many players.

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