caponeAfter giving it a great deal of thought, I’ve decided not to support the boycott of online poker sites that I recently recommended. I’ve come to the conclusion that the US facing poker sites have no desire to see online gaming become legal in the US. In fact, not only do they not wish for it to become legal but it would actually not be in their self-interest to see online gaming legalized.

I compare the US facing online gaming sites to Al Capone during prohibition. Obviously, I don’t think any of them are murdering thugs but the economic model is very similar. As long as things are illegal they can all but guarantee that no real competition will ever enter the market. When Party, OnGame, etc all exited the market the remaining sites experienced a financial windfall. Some sites grew by 25% – 50% overnight. No legitimate company who has any sort of real financial backing will enter the market to pose any sort of threat. Much like prohibition, the US legal environment is providing the US facing companies a license to print money.

Legalization of online gaming would only serve to open the market back up to all of the operators who previously served the US market as well as new competition in the form of well financed companys like Harrah’s. Additionally no site currently in violation of US anti-gaming laws is ever going to get a license to offer gaming in a legalized US market. You can’t thumb your nose at Uncle Sam and expect him to welcome you with open arms when the laws change.

So for the above reasons, I don’t believe that a boycott would serve any real purpose. The US facing sites are not going to lobby US lawmakers to do something that would put them out of business. That would make as much sense as Al Capone lobbying for the repeal of prohibition.

Ship It Holla Ballas!

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Bill Rini has been working in the online poker industry since 2004. He was a product manager for poker at Full Tilt and was the poker room manager at PartyPoker. Currently, Bill is the Head of Online Poker for WSOP.   Bill has been blogging about online poker since 2003 and is considered one of the leading authorities on the online poker industry.   "I like What Bill Rini said in his blog" - Doyle Brunson   "In other news, we had Bill Rini write an absolutely home run blog." Daniel Negreanu   "Industry insider Bill Rini has one of the most popular blogs in poker, with thousands of subscribers and fans regularly coming back for his universally respected insight into the industry" - Barry Carter (News editor for PokerStrategy, Co-Author: The Mental Game of Poker)

(0) Readers Comments

  1. Gene,

    I’ll have to do some additional reading but from the quick google I’ve done so far it does not appear that the Bronfman family did the actual bootlegging. Selling booze to people who illegally transported it over the border was the business they were in as it pertained to prohibition.

    Regardless, large US gaming companies will have a major say in whatever legalization and regulation occurs. They have no interest in allowing it to become an market open to anyone. In fact, there’s been some less than paranoid speculation that the bill was helped along by US gaming companies who wanted to drive potential competition from the market before lobbying for legalization. One of the beauties about regulation is that they can deny you a gaming license for a lot of reasons.

    And lastly, US facing companies are offering gaming in states where is is expressly illegal for them to do so. That’s the one nobody seems to mention. If you can sign up and play from Washington state (as only one example) you are facilitating what you know is illegal gaming. And the UIGEA makes that a federal crime now with a potential 5 year criminal penalty for each and every bet the site facilitates. The whole “we didn’t think the law applied to us” defense doesn’t pass the sniff test when the laws are clear and explicit and the company violates them anyway.

    I mean that was the only real defense many of these guys has pre-UIGEA. Hey, such and such state has a law prohibiting online gaming. Okay, but they’ve shown no real desire to enforce the law and we feel that the legal risk is minimal to us. Now the UIGEA says that the US gov is willing to back up that state law and they would more than love to bring the full weight of the US government down on you.

    Bill

  2. I don’t know if I fully agree with your Prohibition comparison. The Bronfman family made a ton of money during the 1920’s bootlegging whiskey from Canada to the US, and after Prohibition ended there were no sanctions against them or, later on, Seagrams.

    Now, the Bronfman’s didn’t go around machine-gunning people (though they did business with folks who did). Nor have the still-operating online sites committed any acts that couldn’t be forgiven by US regulators. The poker sites could say, “Hey, we love your laws, just LOVE ‘em, but we didn’t think this one applied to us. A bit vague, you see. But write something specific legalizing poker and watch us toe that line! Plus sending you billions in tax revenues”.

    I agree that the biggest obstacle to the DoJ forgiving and forgetting wouldn’t come from testy US regulators, but from lobbyists from Harrahs and other big gaming companies who would want to quickly kill the competition. Unless they were interested in just buying those sites out and saving themselves from starting a new site.

    I agree that the fact the big sites have taken no action to fight the UIGEA nor have they tried to get poker legalized is baffling…unless we agree that they DON’T want poker legalized. Which is more troubling than baffling.

    This whole situation will make for a fascinating case study for B-school students in the future. I just hope the line “even lowly bloggers were rounded up and sentenced to five years imprisonment just for writing promotional copy.”

  3. Oz,

    Well, I think this gets a bit into how UIGEA applies. The thrust of the bill was that if the gaming is illegal under state law it is now a federal crime. So, even if your position is that online gaming is legal (e.g. doesn’t fall under the wire act), you have to concede that at a minimum US facing sites offer gaming to residents of states where online gaming is expressly illegal under state law. Washtington would be an example but there are also a handful of others.

    As Chuck Humphries points out:

    The new law, therefore, only applies to online gambling operators who violate other existing state or federal anti-gambling laws. Some commentators on this aspect of the Act conclude that since there are only a handful of states that expressly ban Internet gambling, this law has not accomplished very much.

    The better view is that all of the online gambling sportsbooks, casinos and cardrooms violate existing anti-gambling laws of every one of the fifty states. This is because:

    *The gambling is legally deemed to take place simultaneously at both ends of the Internet connection.

    *Under applicable state laws these interactive online gambling Websites are deemed to be doing business in the states in which the players are located when they make a bet.

    *The general anti-gambling laws of every state criminalize the operation of unlicensed gambling like the sportsbooks, casinos and cardrooms that are covered by the new law.

    Thus, this professional form of unlicensed gambling appears to be illegal whether or not the state has adopted a specific Internet anti-gambling law.

    http://www.gambling-law-us.com/Federal-Laws/internet-gambling-ban.htm

    So even in those states where the laws are fuzzy, it’s not too difficult for them to claim that the fact that a site doesn’t have a license to offer gaming in their state makes the act of offering gaming in that state illegal.

    Like you say, only time will tell but the legal position that online poker isn’t illegal rests on some pretty narrow definitions which may or may not even have any merit. If I were a betting man, and I am , I wouldn’t be giving great odds on an online gaming company challenging these laws and coming out ahead.

  4. I guess I don’t accept your assertion that “rouge” poker sites will never get into a regulated US market. The position of the “rouge” companies is that online poker is not illegal even though the DOJ is interpreting the law that way. I’ll be the first to admit that this is a very self serving position, but until the issue is resolved legislatively or judicially, it’s a reasonable position to have.

    Having this aggressive stance against the prohibitionists isn’t going to make the “rouges” any friends in the current administration, but nothing cures political ill will like liberal applications of money, tax and otherwise. Time will tell my friend.

    -Oz-

  5. Hey Oz,

    I don’t doubt what you say is/was true before the UIGEA passed but once it passed companies were faced with a decision:

    a) Become a rogue entity

    b) Abandon the US market

    Now a company who selected B does want online gaming to become legal so it can legally re-enter the US market. A company who chose A has no interest in seeing poker become legal.

    No company who has selected A can ever, ever, ever offer legal gaming in the US. Ever. The only way onling gaming will be legal in the US is if it’s licensed and regulated. It’s amazingly unlikely that the US is going to allow companies who continued to operate in violation of US law to become licensed. So if online poker is ever made legal in the US, Stars will never get a license to offer online poker to US citizens. Even Party would be a iffy and up to how fickle US regulators are since the US gov’s position is going to be that Party was in violation of gaming laws prior to the UIGEA.

    So given those above assumptions, why would someone like Stars make a major effort to legalize online gaming in the US if it can’t enjoy any of the benefits? Harrah’s and similar companies would be the main benefactors of any such legislation and you can sure as heck bet that they’ll be lobbying hard (very hard) to make sure that a company like Stars can’t qualify for a license.

  6. You know I love you, Bill but, on this whole subject, you’re on crack.

    The owners of the nonpublic sites would like nothing more than to have legitimate dealings in the US so that they can cash out big time by going public or getting bought out by Harrah’s or whomever. I’m not saying they couldn’t have done more to prevent this catatstrophe last year, but if you’ll recall, UIGEA was considered dead in the water until about a week before it was passed.

    There’s no doubt in my mind that the sites are working diligently through the political avenues that are available to change the current legal situation. Now that the whole industry is considered illegal by the DOJ, it’s very difficult to be as open about the manoeverings taking place as the proponents of online poker would like.

    -Oz-