Gambling Industry Writes Harry Reid’s Online Gambling Bill

For the last several years I’ve been saying that there will be no legalized gambling in the US that doesn’t get a stamp of approval from the existing gambling industry and if it does get that stamp the brick and mortar gambling industry is going to do everything within its power to make sure that the existing online poker sites don’t have a hope in hell of ever being able to effectively compete in the US market.

Oh, many 2+2 pundits have argued otherwise and plenty of people have opined about how gambling giants like Harrah’s might embrace online operators like PokerStars and Full Tilt but it’s mostly wishful thinking.

I haven’t really bothered to read the actual bill since it’s only a draft but based on the analysis of F-Train and Pokerati, both of whom I consider to be very realistic analysts, I can only conclude that the US brick and mortar gambling industry pretty much wrote the bill and gave it to Harry Reid to submit. Here’s why:

The first license cannot be issued until at least 15 months after the bill is passed into law. “Rogue” operators (operators like PokerStars and Full Tilt that have offered internet poker in the U.S. prior to passage of the bill), as a condition of eventual licensing, would be required to immediately cease unlicensed activities upon enactment of the bill and, within 30 days, return all customer deposits. — F-Tain

I have to laugh a bit because this is almost EXACTLY what I said would happen. The brick and mortar gambling industry want a clean slate. They don’t want to have to compete with Stars or Tilt on an uneven playing field as it exists today. Making them pull out of the US market for 15 months serves no real purpose other than to get the taste of Stars and Tilt out of poker player’s mouths while the brick and mortar industry ramps up their offerings.

It also means starving Tilt and Stars of hundreds of millions of dollars a year. At Party’s peak, just before the UIGEA was passed, they were pulling in close to $1 billion a year in revenue. Of course, some of that was sports, casino, and other gambling but I think it’s safe to assume that four years down the road and with a much bigger market base that Poker Stars is pulling down at least a billion a year. Even if they’ve diversified their operations to 50% influence from the US market that’s $625 million in revenue that Stars would be stepping away from. Even Warren Buffet would consider that a considerable amount of money.

In the draft version Gambling Compliance saw, the first US online poker operators could not get their licenses for at least 15 months. After the 15 month period, there would be a 2 yr period where the US Department of Commerce could decide if they even wanted to open up the market to include those beyond established US gaming entities. – Pokerati

See the trend here? Not only do the brick and mortar casinos get a fast pass to licensing, a 15 month cooling off period to get the memories of their competitors out of the public’s minds, but the US Department of Commerce could simply decide that it isn’t really necessary to grant any further licenses. That’s a total freezeout of the existing online poker operators. So the eventual block-out could be 3 years and 3 months. For someone like Stars that could be as much as $1.625 billion in lost revenues!

Spoiler! Bill wants “beef up enforcement” of UIGEA by requiring Financial Crimes Enforcement Network to submit a blacklist of “unlicensed Internet gaming enterprises” to the US Secretary of the Treasury. Wasn’t this supposed to be an anti-UIGEA bill? – Pokerati

Sorry, my good amigos at Pokerati, but once you’ve cornered the market legally you want to make sure those pesky illegal operators can’t poach in your backyard. So even if Stars and Tilt read the bill and give it a big middle-finger and continue to try to operate in the US illegally they’ll be facing a much more difficult environment.

Again, this is exactly what I’ve been saying for a long time. It doesn’t do the brick and mortar gambling industry any good to legalize online gambling and not have a way to keep out the undesirables (competition). But on the surface they have to make it appear as if the market is completely open as long as you follow the rules. The problem is that they’re going to make the rules so hard to follow for the existing online poker sites that they simply will not be able to or if they do they’ll be so handicapped that they might as well be starting from scratch.

The U.S. player pool of licensed Internet poker operators would be segregated from the rest of the world for at least three years from the date the first license is issued. After three years, the Commerce Department can determine to allow commingling of the U.S. player pool with players from other jurisdictions where online poker is not illegal.

So Harrah’s locks out foreign operators for 3 years but can apply for licenses in France, Italy, and elsewhere and compete in Stars and Tilt’s backyard. This is truly a masterpiece for the brick and mortar gambling industry. It’s basically a death sentence for Stars and Tilt. Their dominance in Europe and the rest of the world is predicated on them being able to use higher player lifetime values of US players and the enormous market size of the US player base to finance money losing enterprises elsewhere. In many countries their efforts would not be viable businesses.

Other online poker operators have been complaining for years that Stars and Tilt have driven up the customer acquisition costs so high that it’s negative ROI to operate in some countries. Stars and Tilt being without the liquidity and the cash reserves to flood the market with cash and advertising changes the entire playing field for European (and other) operators.

And my guess is that the multinational gambling operators like Harrah’s will be right there to step in and fill the gap. They’ll turn Stars and Tilt’s model on it’s head and be the one using US generated revenue to squeeze Stars and Tilt out of the European and other markets. And then once the 3 year period is up, they’ll be able to pool their liquidity with their international operations and offer an unprecedented level of liquidity to the rest of the world.

Like other gambling bills before it this one may bite the dust but make no mistakes about it, no gambling bill will pass in the US that gives Stars and Tilt a level playing field. If this bill doesn’t pass or gets watered down in committee you can rest assured that one way or another the brick and mortar gambling industry will do everything in its power to keep Stars and Tilt (or anybody else) from having a fair shot.

10 thoughts on “Gambling Industry Writes Harry Reid’s Online Gambling Bill”

  1. Add to this – I think Party is in a good position to fight Stars/Tilt when US market shuts off for these two companies 🙂

  2. Nice one bill!

    15 month waiting period is put in place to kill Stars/Tilt.

    Even if they survive players run on the bank for cashouts – there are huge operational expenses that need to be paid for 15 months and the France/Italy/Rest of the world revenue wouldn’t be sufficient to maintain these costs.

  3. Damn Bill, you make an excellent point I hadn’t considered, namely — existing operators won’t be able to give the middle finger to the US because they’re going to wind up on the DOJ’s black list of unlicensed operators, which is going to make moving money on and off the sites incredibly difficult.

  4. I would just like to point out that this analysis is already out of date. We have been receiving rumors on 2p2 that the 2 year waiting period has been struck from the bill and all operators will be up and running at the same time after the 15 month blackout. Stars and Full Tilt will be in at the same exact time Harrah’s is.

  5. Thanks for the analysis.

    Another matter to consider is that the large operators can easily kill off any U.S. upstarts by using agents to deposit and withdraw funds from a smaller site, who’ll then owe a 20% tax on the amount they could never pay. And thus, without any real domestic competition either, this bill could be a double blow to US players, imo.

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