A Few Random Thoughts About The Outcome of the Port Security Bill

As I’ve watched things unfold over the last few days and read the many, many thoughts of others on the subject, I’ve formed a few opinions of my own regarding what the fallout of this might be and it’s not pretty. I have no special or inside knowledge other than what everyone else has access to but I have been processing that information and have some thoughts I wanted to share.

First off, in examining the list of who’s staying and who’s closing up shop in the US, it becomes obvious what the main driving force is survival. It seems that Party, 888, and the other sites that have plans to close up shop in the US are doing so because they can. Those that have indicated that they will not close their doors, IMHO, are motivated by the fact that they have no tangible business without their US customers and are in a serious state of denial. Some are willing to risk becoming rogue companies because they have no other choice and simply can’t stomach the thought that they have so few options.

Does anyone seriously think Party, 888, and others are walking away from businesses that generate millions of dollars a day because they don’t want to operate in the gray area of the law? They’ve been doing that since they opened their doors. They must see exactly what I, Nolan Dalla, and others see in the wording of this bill. What this bill did was turn what was a unclear state violation into a federal violation. States have very little power to enforce anti-gaming laws, the federal government of the United States has a lot of power to enforce its laws.

As Lou Krieger notes as a follow on to a previous post, Nolan Dalla’s assessment highlights that this bill puts cross hairs on anyone involved in the business of gambling.

“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.”

Unfortunately, Nolan’s read was exactly what I took away from reading the bill. Many people have focused on the ease (or difficulty) of getting around the financial institutions portion which is fine for players but for the poker sites it makes what they do illegal and puts all their officers and employees at risk. Many of the gray areas like having a “marketing” company based in Canada are likely to become black and white issues in the eyes of an aggressive prosecutor. If you are in any way affiliated with assisting in the accepting of wagers you are likely a target of this new law. And your illegal activity begins the moment Bush signs the bill. The whole 270 day thing is about enforcement. It is still a crime the moment Bush signs the bill. So, in essence, a company could try to ride out the 270 day thing but they still could be prosecuted for their illegal activity during that 270 day window.

At this point though, everything is a bit of speculation. Neteller says it plans on a business as usual policy during the 270 waiting period but it’s entirely possible that the way the US sees it is that Neteller already knows it’s transmitting funds to gaming institutions because Neteller is a vendor to those companies. In other words, Neteller doesn’t have 270 days to figure out how to implement EFT coding. They know Party, Stars and Full Tilt are gambling rooms and since they collect so much information about users they know whether or not you’re located in the US. Funny enough, many of Neteller’s anti-fraud measures can be used against them by US courts to demonstrate that they were aware of where the user was located.

Sorry for sounding so grim but here are my predictions:

Party, 888, and several other sites have opted out of the US market. Some companies like Full Tilt and Stars are still examining the issue. Bodog and some other smaller sites have outright said they plan on offering gaming to US customers regardless of the law. As these companies get more informed legal advice they will slowly begin to realize they have no safe harbor. One by one they’ll begin to close themselves off to US customers which, for some, will basically mean going out of business entirely.

The online poker market available to the US will become a wasteland. The few companies willing to take risks will be highly questionable at best. The US will attempt to make examples out of those few rogue sites, especially during the 2008 elections as a way of firing up the conservatives. Expect some surprise extraditions and some very public prosecutions.

The online poker market, in general, will consolidate down to just a few companies. Party and the few others that have a big enough non-US player base will survive but the vast majority of rooms will go away. They’ll either be acquired for their non-US player database or for other assets that the survivors might be able to exploit.

Many hardcore US players will figure out how to get around the blocks and will continue to play. What they will find is a much smaller pool of fish to feed on and the competition for their business (e.g. reload bonuses, deposit bonuses, rakeback [what is rakeback?], etc) will be greatly diminished. Many players who are break-even or slightly profitable players will become losing players and quit playing.

Poker on television will mostly go away. Without Party, Full Tilt, UB, and Stars willing to throw up big money to sponsor these events they will become economically impossible to continue. Networks will be even more cautious about taking ads from online gambling sites than they are today which will effectively kill the market for poker shows. Same goes for magazines and other media outlets that rely heavily on advertising dollars from online gaming sites. Companies like World Poker Tour might go away entirely and the WSOP may become an ESPN sidenote as it was for most of the 1990’s.

Many blogs and websites will go away. Some only existed for the ad revenue and now they’ll become pointeless as becoming an affiliate will be less lucrative if they can only feed the sites non-US players.

Many of the poker celebs we have today will be no more. Their commercial value will tank. With less television exposure and people playing less poker they’ll simply begin to lose commercial appeal.

Yes, my predictions are not of the feel good variety. It didn’t feel good writing them. The only hope out there is a carve out for poker or a WTO decision that is honored by the US that overturns this new law. Either way, neither will happen anytime soon. Six months or longer would be the most, most, most optimal timeframe. Eventually, I think the online gaming will become legal and regulated in the US but it’s not going to happen anytime soon. Getting a gambling ban has been a six year fight and now that they’ve got poker on the ropes they’re trying to pass even more stringent laws.