I said I was going to cover what this all means on a few topics when I got home and as I start to write this it’s 6:07am and I’ve just spent a sleepless night on the bus from Phetchabun so I’ll probably just do a quick draft and finish up after I get a chance to sleep a bit.

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arrow 3 The Fallout From The Full Tilt / PokerStars Pullout

First off, I want to clear up a widespread misconception. Although the people named in the indictment are being charged with violating the UIGEA they’re also being charged with bank fraud and money laundering. Those last two are serious enough to take down Stars and Tilt if they prove to be true. People like the PPA are making flawed statements like this:

“Millions of Americans across the country today are outraged over the U.S. Department of Justice’s clear attack on internet poker. While the government’s focus may be on the companieswho operate these games, this is plain and simple a declaration of war on poker players and poker players’ freedoms. Not only are the over 10 million online poker players left without a place to play the game they enjoy, and from which many earn their livelihood, but they also haveconcerns over the availability of their funds. The PPA believes that no players’ money should be jeopardized by this prosecution.”

Yeah, that’s all good and all but they’re being charged with bank fraud and money laundering. What should the DOJ do? Let them continue to take money from US players while engaging in a alleged crime because it might inconvenience some players? What if their companies were a front for drug smuggling or human trafficking? Should poker players’ “right” to play poker trump all else?

Don’t get me wrong, I wish this hadn’t happened as much as anybody else but you don’t help the cause by trying to gloss over the fact that they’re being accused of some pretty serious crimes. Yes, it is the position of the DOJ that they were also in violation of the UIGEA and offering illegal gambling BUT the DOJ probably would have never done what it did without the money laundering and bank fraud charges. If they did what they are accused of doing, it is Full Tilt, PokerStars, and Absolute/UB who are the ones who have taken away online poker from players via their illegal actions involving money laundering and bank fraud.

The PPA and poker players should be focused on the fact that the UIGEA forced these companies into taking such drastic measures and that a fully regulated and legal online poker scheme would eliminate the need for such activities. That’s the message they should be delivering to the media and to lawmakers. You can’t just ignore that they broke a bunch of laws (allegedly) because people want to play poker.

Another widely accepted opinion I disagree with is that Stars and Tilt might be able to walk away with this with a fine. I don’t think so. They might be able to buy themselves out like Party and Anarag Dikshit did but that was for offering illegal gaming in the US prior to the UIGEA. That’s a whole separate case. Plus, again, it doesn’t take into account that neither Party or Dikshit were indicted on money laundering or bank fraud charges.

Keep in mind that the DOJ is looking for “at least $3bn in civil money laundering penalties and forfeiture from the poker companies and the defendants.” “At least” is a pretty scary word because that’s the starting bid.

Anyway, with that out of my system . . .

Affiliates

I think Jeremy Enke said it best in his blog post about what the fallout will be for affiliates. In summary, affiliates probably shouldn’t be worried about criminal charges. We aren’t payment processors and that’s what the indictments were targeting.

Obviously, this is going to hit the revenue streams of a lot of people though. But just like any other market shakeup it will produce winners and losers. Some people will adapt and some people won’t.

The biggest issue is that few sites are going to pay for US players and that is the bulk of the earnings for many affiliates. Anybody who hasn’t at least been dabbling in non US-facing traffic is going to have a bit learning curve to get over.

In the meantime, I think the biggest question is what happens if I send a player to PokerStars.eu? Does it get tracked or do I need to set up a new affiliate account? Stuff like this is happening way too fast for sites like Stars and Tilt to respond but it needs to get cleared up soon so affiliates know.

WSOP

I saw someone on 2+2 (sorry, no link as it’s buried in a 5 zillion page thread) compare the impact on the WSOP to the impact that the UIGEA had on the WSOP. In other words, little or no real impact. I disagree. When Party left the market it was months prior to the WSOP (October 2006) giving the market time to respond. And when Party left Stars and Tilt were more than happy to step in and fill the void.

But who will fill the void now? I don’t see many people having the balls to try to send 500 or 1000 US players to the WSOP Main Event. Not when people expect a hospitality suite, onsite handling by the room, etc, etc.

I also don’t think Stars or Tilt are going to be very active trying to sign up final table players like they have been in the past. In fact, I wouldn’t be surprised if they didn’t send anybody even remotely connected to the company to the WSOP. If nobody from either Stars or Tilt has been arrested or extradited by the WSOP the DOJ might just want to send a message about how serious they are by nabbing an employee to drive home the message that Stars and Tilt are finished in the US. I don’t think they can make much stick on a low level employee but it will send shivers up a few spines across the pond (and South of the border).

Players

Players are screwed. Everybody already knows how hard it was to get payments processed with US players and few operators are going to take the risk. There might be some fly by night operators thinking they can cruise under the radar but just like back in the early sports betting days you may never see a payout.

There are still a few sites like Cake and Merge that will handle US players and many US players will flock over there but I don’t necessarily think you’ll see non-US players following suit like they did when Party left the US market. I think many non-US players will gravitate towards quality and iPoker, Party, and other sites will see an increase in non-US players.

As always, even with Cake and Merge, the bottleneck is going to be payment processing. When you don’t do many payments you can fly under the radar but if players start flocking to those sites then a lot of money is going to start moving around the system and somebody is going to notice and, poof, there goes another payment option.

True professional players are going to need to leave US soil if they want to continue playing online. Thailand is great this time of year, folks.

Televised poker

Other than ESPN’s WSOP coverage look for a lot of this market to dry up too. Many of the programs we all love are what is called, advertiser funded programming (AFP). That means the online poker sites are basically funding the shows. Stars or Tilt either agrees to buy most of the advertising or pays to slap their name on it.

They may still be willing to continue this model in Europe and other markets but if they can’t sign up players from the US there’s no reason to purchase the advertising or brand the show so there won’t be much activity going on here.

Legalization

This may actually accelerate legalization and regulation of online poker. Yes, I know, I know, it’s not illegal now, blah, blah, blah. Well, guess what, the DOJ just fired a warning shot over the bow saying it is illegal so unless any of these guys wants to come to the US and fight it out in court it’s basically illegal whether a law exists or not.

And that may be what wakes up some lawmakers. When they see the magnitude of the industry and truly grasp how serious of a business this is it may influence them to act more quickly in getting a bill passed.

It may also clear the way for companies like Harrah’s or MGM to push for legalized gaming in the US now that the two biggest competitors in the poker space have effectively been banned.

It could also fire up poker players. Before it was, “Meh, as long as I have a place to play I don’t really care much whether it’s legal or not.” But now many professional players are out of a job and millions of others who enjoyed the game recreationally have had all/most of their options taken away.

On the other hand, if the allegations about money laundering and bank fraud are even remotely true it could well sink online poker in the US until people forget.

Poker news/media

I think Pot Committed says it best on this one. If you work in the poker news/media space . . . you probably don’t for much longer.

The vast majority of the poker news/media is funded by affiliate revenue the news/media sites generate. No US players means a huge cut in revenues which means . . . cutbacks.

Cashing out

Stars and Tilt have plenty of money and I’m sure they don’t want to make their problems worse by also having to deal with hundreds of thousands of players who have money tied up on the sites. They don’t need the class action lawsuits, bad press in the markets they can still operate in, and overall headache. They’ll find a way to pay out US players.

Should you keep your money on these sites? Should you cash out as soon as you can? I don’t know. I probably would cash out as soon as possible if I was a US player. They’re not going to let you play there so why leave your money there?

Stock prices

I think overall this is going to be a plus for many of the publicly traded that were forced out of the US market (or were never in it). I see Party is up nearly 11% on the news and I would assume if they can follow through and get some of these customers that will be in play as Tilt and Stars lose some of their huge liquidity advantage they could perform quite well.

Regulated Markets

This might come back and bite Tilt and Stars in the European regulated markets. Some gaming regulators might not take too kindly to indicted figures at the helm of a regulated poker site. If it does become a problem you could see people stepping away and new management coming in.

And Then . . .

But all of this is sort of the short-term view. The long-term outlook is actually quite interesting. As Kim Lund says About Time! As Kim and I have both worked for companies that had to operate with one hand tied behind our backs I think there is an overall feeling amongst the non-US facing rooms that Tilt, Stars, and UB/Absolute finally have to compete on more even footing.

And that should not be taken to mean that I’m happy any of the people have been indicted. This is merely a statement about reality of online poker since Oct 2006. If Stars, Tilt, UB/Absolute, and everyone else left the US they would have had to battle it out with Party, iPoker, and the rest of the non-US facing operators. The market would be much more even and there would be more competition. And, I believe, we would already have legalized poker in the US since Stars and Tilt wouldn’t be shipping so much money to politicians to oppose bills that don’t suit their fancy. They would have jumped on board the first chance to get back in the US regardless of the terms.

Yes, I know many people will lose their jobs. I feel for those people. Believe me, as someone who derives their income from the same pool they drink from I know I’m going to take an income hit as well.

But for five long years Party, bwin, 888, iPoker, and everyone else has been playing by the rules and every quarter they report declining poker revenues because Tilt and Stars keep pouring the high profits they’re making in the US market into other markets and driving out the competition. Believe me, there’s a lot of celebrating going on in Gibraltar and Malta right now. Not that people have been indicted but that Stars and Tilt are going to have to play by the rules like everyone else.

I don’t feel great about what is going to happen but you can certainly understand why many people are pleased to see Stars and Tilt forced to operate on the same level playing ground as they’ve had to. Though I know that doesn’t bring comfort for those who will be out of work.

I know. I’ve been there. I started at Party in Sept of 2006, the week the UIGEA was passed by Congress. And I was in Hyderabad, India on a company-wide conference call when Mitch Garber announced that they were shaving hundreds of jobs. I got lucky. Many others didn’t. And the same happened at 888 and many other companies.

The same will happen again. It might be painful for individuals but I think overall it will be good for poker. Having two sites dominate the entire industry was never good for the overall poker market. Players certainly weren’t benefitting from the economies of scale.

For all of the hundreds of millions (or even billions) Stars and Tilt hardly made a single innovation (other than Rush Poker) in the five years they owned the worldwide poker market. That’s a pretty sad record for all of the money they raked in (pun intended).

My hope is that this fast tracks legalization in the US and puts some innovative companies into the mix on a playing field that allows people to have a fair shot at competing. More competition will breed innovations that will benefit the players. Sucks for Tilt, Stars, and all of the people who have come to rely on their money to employ people but, in the end, it’s probably the best thing that could happen for poker players if you’re taking the longer term view.

As Kim Lund says:

The US market did not just die. It rebooted. CTRL. ALT. DELETE. And it will reboot much faster now. The void left by this raid is too juicy for the government not to want to taste. Tomorrow. Hopefully some of the ridiculous lobbying is now silenced and things can proceed in the quickest possible manner. Dear PPA, shut the hell up.

Sometimes you need a shakeup to move forward.

Ship It Holla Ballas!

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About Author

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.

 

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