Will We Have Federal or State Run Online Poker Anytime Soon?

by Lou on December 13, 2010

Making sense of the chances that Senate Majority Leader Harry Reid’s proposal to legalize and tax online poker may become law this year seems an impossible task, given the almost daily activities regarding whether this bill be part of a spending package that would be approved prior to Congress adjourning for the year.

If Reid is unable to get this bill passed in 2010, chances for its passage are slimmer in 2011 because Reid will no longer be Senate Majority Leader, and won’t be able to exert any weight in the Senate.

The incoming Republican controlled House of Representatives is not likely to look favorably on internet gaming if a December 1 letter sent to Senate Minority Leader Mitch McConnell by Representatives Spencer Bachus of Alabama—who will chair the House Financial Services Committee next year, when he moves into Barney Frank’s old job—Dave Camp of Michigan, and Lamar Smith of Tennessee is any indication.

Among other things, the letter said, “Creating a federal right to gamble that has never existed in our country’s history and imposing an unprecedented new tax regime on such activity require careful deliberation, not back- room deals.”

This is a stunning departure from what I learned in civics classes.  The right to gamble is not a one granted to the Federal government.  And when it’s not the province of the Feds, it’s a state’s right.  And in the absence of state prohibitions against gambling, we the people can gamble all we like.

The idea that we have to go hat in hand to Congress to beg for our right to play poker goes against the very framework of our freedoms as individuals, so while the logic of Bachus and friends is seriously flawed, the power they wield is very real.

Since Bachus, Camp, and Smith are all in line to chair committees with jurisdiction over online gambling when Republicans take control of the House in January, things look pretty bleak for legalized online poker if a deal can’t be done by the end of 2010.

In this session’s eleventh hour, Harry Reid it trying to insert provisions that would legalize and regulate online poker into the compromise package negotiated by President Obama and the Republicans. Reid, of course, was against the legalization of online poker in the past, but that was before the American Gaming Association—the industry group that represents the major land-based casinos in Nevada, and are sizable contributors to Reid’s campaign’s—decided they wanted in on the online gaming action.

Reid, who can follow the money as well as most elected officials, flip-flopped on the issue, and went from being an online gaming detractor to its champion—eager to use his Senate leadership to repay casino interests that helped him win a hard-fought reelection this past November.

Meanwhile, in the event that the Federal government doesn’t seize ownership of online gaming regulation, a variety of states are looking to get into the act via legislation that would create intrastate online gaming in their jurisdictions.

California Senator Rod Wright introduced SB45, a reworked version of his previous bill that would allow the California Gambling Control Commission to contract with three “hub operators,” who would provide online poker in California.

California State Senator Lou Correa also introduced an online poker bill, this one on behalf of the California Online Poker Association, a group including tribes that are among the largest gaming providers in the state.

On the other side of the country, New Jersey hopes to become the first state to offer instate online gambling.  They hope to beat California, Maryland, and Florida in the race to legalized intrastate gaming. They see this as a way to help the struggling Atlantic City casino industry, which has been hit hard by the double whammy of the economy and competition from newly legalized casino gaming in the neighboring states of Delaware and Pennsylvania.

While intranet gaming will probably be viable in large states, the story in smaller states is not as rosy. Poker is one of the only industries in which the customer and the product are identical, which is another way of saying that if you don’t have a sufficiency of customers in your poker room, you don’t have much of a product to offer players who drop by in search of a game.

A California online casino will have no trouble building a customer base and will be able to offer a plethora of cash games and tournaments at a variety of limits within the state.  But smaller states won’t have a critical mass of players to offer much besides one or two tables during the prime time evening hours.  Some of the empty states, such as Wyoming and Vermont, probably won’t have enough players to get a game going regardless of what they might want to do.

While intranet gaming in populous states looks like it can succeed, smaller states will be left out of the loop. But even getting to the kind of consensus needed to move these bills forward in large states is fraught with pitfalls.  In California you have some tribes favoring online gaming while others oppose it. When the tribes are as split on an issue like this, it becomes a difficult sell in California’s legislature, since most state legislators relay extensively on tribal donations for their campaigns, and no one wants to run afoul of major benefactors.

My guess is that Harry Reid’s efforts to move legislation through Congress will fail and that New Jersey will be the first state to offer online gaming.   A success in the Garden State will motivate other states to get in on the action within their borders, so I’d expect to see a couple of states offering intranet gaming within the next year.

As for the Feds getting in on the act by taxing and regulating online gaming, I’m not counting on it anytime soon—despite the promise of a much needed revenue stream.  Politicians don’t usually kill the goose that lays the golden egg, but it looks like they’re well on their way to doing so this time.

I’m interested in your opinions, so let me know your views on this issue.

{ 1 comment }

LoFlow December 14, 2010 at 2:52 am

What if the lower populated state’s could find a way to lure out of state resident’s to their online casino’s. Or does a California resident have to play in a California site? Either way, it’s gonna be a huge three weeks!!!!!

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