The federal government vs. online poker

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Looking for some quiet work time a few weeks ago, I popped open the laptop at a workstation in a local public library. A few minutes later, a lady sat down at the table next to me, and set up two rather large laptops. I was curious, but dutifully kept to my own business of research and writing.

About two hours later, though, returning from a brief break, I glanced at her dual screens. She was playing online poker on one machine, while watching an episode of ABC’s “Castle” (by the way, an excellent show that includes an occasional poker game among writers) on the other computer. I admired her multi-tasking abilities, while being a bit envious of her schedule.

But the schedules of an estimated 10 million online poker players in the U.S. were notably freed up on April 15 when the U.S. Department of Justice brought charges of bank fraud, money laundering and illegal gambling against eleven defendants, including the founders of the three largest Internet poker companies doing business in the United States — PokerStars, Full Tilt Poker, and Absolute Poker. Five Internet domain sites were seized, and restraining orders were issued against more than 75 bank accounts used by the poker firms and their payment processors.

Bottom line: the federal government raided and shutdown online poker.

This was by far the biggest attack launched by government against such sites, and therefore, effectively against the millions of Americans who play Internet poker.

Alfonse D’Amato, the former U.S. senator from New York and current chairman of the Poker Players Alliance (PPA), responded, “On behalf of the millions of poker players across the country, we are shocked at the action taken by the U.S. Department of Justice today against online poker companies and will continue to fight for Americans’ right to participate in the game they enjoy. Online poker is not a crime and should not be treated as such.”

Doyle Brunson, ten-time World Series of Poker champion, was quoted by PokerNewsDaily.com observing, “The DoJ must not have anything much to do.”

Radley Balko, a senior editor at the free-market Reason magazine, added, “Good to know where the DoJ’s priorities lie. In this case, it’s preventing millions of people from consensually wagering money in online card games, an exchange that causes no harm to anyone else.”

Why the crackdown on Internet poker?

In 2006, Congress passed and President George W. Bush (R) signed into law the SAFE Port Act. This legislation was meant to boost the security of U.S. ports, but in a parliamentary move, it wound up including the unrelated Unlawful Internet Gambling Enforcement Act. The UIGEA prohibits financial institutions from processing transactions, such as credit cards, checks and fund transfers, related to online gambling.

Poker players and operators of online poker sites counter that poker is a game that involves skill, and therefore is not gambling.

At the same time, of course, the PPA and others have been lobbying to overturn the UIGEA. For example, the PPA recently praised U.S. Reps. John Campbell (R-CA) and Barney Frank (D-MA), ranking member of the House Financial Services Committee, for introducing the Internet Gambling Regulation, Consumer Protection and Enforcement Act (H.R. 1174). The bill would establish federal licensing and regulation of online gaming.

In addition, various states, including Florida, Nevada, Iowa and California, are considering intrastate online gaming, under the assumption that the federal government’s reach only covers interstate transactions. New Jersey’s state legislature actually passed an intrastate online gaming bill, but it was vetoed by Governor Chris Christie (R) in early March. And the District of Columbia city council passed a budget last year allowing the city’s lottery to run an online poker site.

State lawmakers and the D.C. city council, of course, see potential revenues from allowing such online gaming, with the government’s cut (i.e., taxes) aiding efforts to close budget deficits and/or increase spending.

But rather than trying to cash in, the Department of Justice is looking to undercut the poker business. After the DoJ revealed its charges, deals recently announced between casino operators and online poker sites — such as a partnership between Wynn Resorts and PokerStars, and another between Full Tilt and Fertitta Interactive (formed by owners of Station Casinos) — were abandoned. In addition, ESPN said it was dropping poker programming and advertising after the indictments were disclosed given the sponsorship roles of online poker sites.

The PPA, which claims more than one million members, urged poker players to speak out against the DoJ’s actions by contacting their members of Congress and the White House.

Indeed, could there be some political fallout from these DoJ charges? The New York Times concluded a report by pointing out that the online poker sites “have stopped taking bets from players in the United States, generating a wave of resentment from millions of players who turned to the games, many several times a day.” Keep in mind this is President Barack Obama’s Justice Department that took away online poker from millions of poker-playing Americans.

Could a pro-poker presidential candidate emerge to tap into this resentment? At the very least, online poker players have a clear reason to bet against Obama in November 2012.

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council, can be reached at rkeating@sbecouncil.org. His new book is titled Warrior Monk: A Pastor Stephen Grant Novel.