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Gambling in the Gray

The unregulated world of online poker may have to go legit or go bust
Michael Kaplan
From the Print Edition:
Paul Giamatti, January/February 2011

(continued from page 1)

During a recent trip to Las Vegas, I had lunch with a professional poker-playing friend of mine. He buys into some of the highest stakes games online—games in which six-figure pots raise few eyebrows—and he’s managed to put together a seven-figure bankroll for his trouble. Talk shifted to the possibility of online poker being legalized, and I suggested that it’s a turn of events he must be salivating for. Once poker is legalized in America, money is more easily transferred into accounts and the stigma of violating the law is gone. At that point, there should be lots of new players (i.e., bad players) and the games would get juicier for my friend. Or so one would assume.

He shrugged and said, “I think I like it the way it is now. At my level, I’m not sure that the influx of new players will make up for the money that is lost through taxes and stuff.”

At the time, I assumed he was referring to taxes that would need to be paid on winnings in a totally regulated environment, where 1099s are filed and the IRS receives your profit/loss statement. I still figure that there was some of that to his response. But the bigger point probably revolved around heavy taxes that the sites would have to pay—and the costs that would invariably get passed onto players via increased rakes.

The reality of what happens with legalization can be seen through the turns of events in places like France, where online poker recently went legit. “Everybody wants to run an honest business and nobody wants to be a criminal, but the cost difference between playing an onshore site [one that is legal and pays French taxes] and playing an offshore site is 30 percent,” says Warwick Bartlett, a London-based gaming consultant who has worked with firms such as Ladbroke’s and William Hill. Hinting that some players prefer to tolerate shadier operators in exchange for keeping more of their money, Bartlett also points out that there are issues of liquidity. “People always go to where they can find a wide range of games. Nobody wants to sit around waiting online.” French players responded to the increased rakes by staging virtual sit-ins: Signing onto sites, occupying seats at tables and sitting out hands.

At low to medium stakes, financial drawbacks may be compensated by a flood of neophytes who play badly and lose enough to offset the inflated rake. The larger issue is the possibility that your favorite site won’t even get licensed. At least that is how it will go if Haig Papaian gets his way. Chairman of the Commerce Casino, located near Los Angeles and ranking among the top live poker venues on the West Coast, he resolutely believes that sites currently doing business in the United States are breaking the law.

For that reason, he says, they should not be allowed to participate in what may be a gold rush of new business for operators that ultimately get licensed. “Why reward people who are snubbing their noses at the U.S. government?” he asks. “We would not allow Al Capone into the liquor industry. After all that we have gone through to get and keep our casino license, we should have an opportunity to get some of the online business.”

Professional poker player Andy Bloch—who is in the fairly unique position of being both an attorney and an original member of Team Full Tilt, the site’s elite group of sponsored poker pros—wants to see it legalized even though he acknowledges the possibility of things going Papaian’s way. In spite of that, he fears, the downside of keeping poker unregulated could be more odious. “Some people are of the opinion that it would be better if the status quo continues,” Bloch says. “But the problem is that you don’t know if the government will pass new laws against online poker or pursue the existing laws more aggressively. Who knows what will happen? I prefer some sanity and stability and clarity in the legal environment.”

Lee Rousso can relate. He resides in a state where the very act of playing online poker is completely illegal. In 2006, Washington’s state legislature passed a law that makes it a felony to play poker online. “Nobody has been prosecuted yet,” acknowledges Rousso. “But they have knocked on some doors. Poker players here are pretty upset, and some people who play for a living have actually left the state. Most people are law abiding and they don’t want to be hassled.”

An attorney who likes to play poker, but is adamantly uninterested in being a criminal, Rousso responded by doing what he does best. He took his concerns to the courts. “I filed a suit against the state, to try overturning the law,” says Rousso, maintaining that Washington’s clampdown is rooted in a desire to protect tribal casino interests. “This past September, I lost my lawsuit for the third time, and that seems to be the end of it. I could take my case to the Supreme Court, but I don’t expect to do it.”
In the wake of Rousso striking out, PokerStars pulled away from Washington state, meaning that the site will reject business that originates there. Full Tilt did the same. UltimateBet (aka, UB), however, continues to accept business from the Evergreen State. It’s reminiscent of what happened seven years ago, when the UIGEA kicked in. At the time, the publicly traded PartyPoker, which ranked with Tilt and Stars among the top sites in America, did not want to risk doing anything that could be perceived as skirting the law. A $300 million fine was paid by PartyPoker to the U.S. government. The site shut down its U.S. operation, and, in the process, voluntarily forfeited millions in future profits.

It is easy to believe that PartyPoker was motivated by a desire to stay in the good graces of American regulators, preparing for the day when online poker gets green-lit by the government here. It’s also easy to imagine that executives who work for sites that chose to continue doing business in America view the decision as independent of whatever new legislation comes down the pike. “Leaving America hurt PartyPoker,” admits Paul Leggett, chief operations officer of Blanca Games, which owns and operates UB. “But does that mean that UB, PokerStars and Full Tilt should be shut out? Maybe a large fine and back taxes will be an option.”

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Comments   1 comment(s)

Alan Fuller March 15, 2011 4:27pm ET

The assertion that these sites are unregulated is false; all are based in countries that have laws in place to protect the players (to some degree). Also, the stigma of poker, a skill game, compared to the respectable, hit-by-lightning type odds of government run lotteries reeks of self-serving greed and political spin. By all means regulate and tax it but on a level playing field. The casinos are 10 years behind most big sites in terms of experience in a very different market place and should not be gifted a monopoly on an industry they have done everything to suppress. As it is, thank god I don't live in the state where a 5/10 cent poker game is regarded to be as dangerous as a knife fight.

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