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The Tricks & Treats of USA Online Poker

Ahhhh, the summer. It’s the season of barbecues on the beach, baseball with the kids, and the smell of humidity filling the car as the family piles in after a day at the pool. Summer is a time for Sun; Fun; Surf.

And I for one could NOT be happier that it’s over.

With the Fall season in full swing, we are finally rid of all the distractions that keep us away from the online poker tables. As the virtual cards fly and Halloween approaches, it’s time to take stock of the three biggest issues facing the US online poker industry today.

Will these issues become “Tricks or Treats” for US online poker players in the future? That remains to be seen. Ultimately, the outcomes of these issues may well depend on how proactive online poker advocates are in shaping the contours of the industry in a new, regulated, environment.

Issue #1: Will the Federal Wire Act Rise from the Dead?

Trick: A New Federal Prohibition on Online Gaming

Despite currently being legal in Nevada, Delaware, and New Jersey, it remains an open question if online gaming will even continue to be allowed at a federal level.

Currently, the nascent industry relies on a narrow, controversial, reinterpretation of the Interstate Wire Act of 1961 by the Department of Justice (DOJ) that limited the scope of the federal prohibition on non-land based gambling to sports betting across state lines. This left the legality of other forms of online gambling open to the prerogatives of the individual state governments.

That is all set to change, however, if Senator Lindsay Graham, R-S.C., Representative Jason Chaffetz, R-U.T., and their allies have their way.

In March, Senator Graham and Representative Chaffetz introduced bills S. 2159 and H.R. 4301, respectively, referred to as “The Restoration of America’s Wire Act.” This legislation would amend the Interstate Wire Act of 1961, changing the current language prohibiting “the placing of bets or wagers on any sporting event or contest” to simply “the placing of any bet or wager.” This would create a blanket prohibition of online gambling that would be binding on all state legislatures.

Although the bill has seen little action to this date, that could change very quickly.

With the whole House of Representatives up for reelection this November, the nation will be governed for approximately two months by a “lame-duck” congress. It was just such a congress that attached the UIGEA to the SAFE Port Act during a midnight session in 2006, killing an online gaming industry that was in the throes of huge popularity and profitability.

They say those who forget the past are doomed to repeat it. The question must be asked: “Is the online gaming industry living on borrowed time?”

Treat: The Sovereign Right to Find New Things to Tax Shall be Jealously Guarded

There is good reason to believe that this time will be different. Just follow the money.

Although well below projections, iGaming in NJ has brought in nearly $100,000,000 (that’s 8 zeros, for those of you counting at home) for the state to tax in 2014 alone. Compare that to the $0.00 figure that off-shore online gaming was bringing into state coffers in 2006 and you can see why states are lining up to tell the federal government to back off their new cash cow:

A statement by the National Conference of State Legislators in April of 2014 said that congress should “respect the sovereignty of states” and let them decide if they wish to offer online gaming within their borders or not.

The Pennsylvania state legislature passed a resolution “Urging the congress of the United States to defeat S. 2159 and H.R. 4301, which prohibit states from authorizing and conducting Internet gaming.”

These counterbalances to the anti-iGaming lobby do make it much harder to envision a fly-by-night prohibition occurring this time around.

Issue #2: Will you be able to Share your Candy Haul with Friends?

Treat: Inter-State Player Pools Set to Roll Out in 2015

The twenty percent spike in traffic during the 2014 WSOP in Nevada gave empirical proof to the notion that the profitability of an online card room is directly related to the number of players that have access to it.

That is why it’s so encouraging for the industry to see that Nevada and Delaware are planning to combine their player pools in 2015. This joint venture between the two states will be the first time legal interstate online poker is offered in the US since 2006.

The success of this model (and there is no reason to believe it won’t be a success) will hopefully go a long way towards shattering the taboo against interstate iGaming. Once the model is a proven revenue generator, other state governments can be expected to want in on the action, and the industry can look forward to significantly expanding upon it in the coming years.

Trick: New Jersey and California Remain on the Sidelines

The logical next step in the development of a truly nationwide US player pool in the regulated market would be the addition of New Jersey and California. That’s why it’s troubling to see that there is little talk about joining this new interstate model coming out of either state.

In New Jersey, the attention span of lawmakers on gaming/gambling issues seems to be entirely devoted to challenging a federal ban on sports betting. Although New Jersey Governor Chris Christie publicly stated that he has “spoken” to Nevada Governor Brian Sandoval about an interstate agreement, there have been little or no concrete developments on the subject.

In California, how the pie will be divvied up between the state itself and the Native American tribes within its borders has shown little sign of being resolved in the near future. However, even if that issue is resolved there remains the question of how California’s law prohibiting percentage-based rake would be integrated into an interstate player pool.

Issue #3: Will the Hype turn PokerStars Into a Pumpkin?

Treat: The Entry of PokerStars into the US iGaming market could solve the Awareness Problem

It’s no secret that the recent acquisition by the Amaya corporation of the PokerStars brand was done with eyes towards a reentry into the US iGaming market.

Recently, New Jersey State Senator Raymond Lesniak took to Twitter to express his frustration that PokerStars has not already been fast-tracked for entry into the state. In California, the potential for PokerStars to dominate any iGaming market it enters has been the unspoken subject actually fueling the heated debate over California’s “Bad Actor Clause.”

All of this stems from the assumption that brand recognition remains high for the world’s largest online poker site.

Trick: Can one Company Really Lift an Entire Industry?

It’s still an open question what the entry of PokerStars into the US iGaming market will mean for the industry as a whole.

PokerStars will be competitive. What is unknown is if they can enlarge the pie of iGaming revenue being generated or simply capture parts of the existing market. Significant investments are already being made by major players in the industry such as Bwin, which recently signed a multi-year sponsorship deal with the Philadelphia 76ers and New Jersey Devils sports franchises.

Whether or not the PokerStars brand is powerful enough to grow the customer base of the iGaming industry beyond the big sponsorship dollars already being spent remains to be seen.

 

 

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Bradley Chalupski

Bradley Chalupski made his first deposit onto an online poker site in 2009 and has been paying rake and following the poker scene ever since. He received his J.D. from the Seton Hall University School of Law in 2010.

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