Legal Real Money Poker Coming Soon ?

One of the largest business firms recently released a Report on Online Gambling’s outlook for 2015 . You can find the full document here.

RealMoneyPoker.org extensively studied the report, researched the legal landscape in the USA and abroad, and compiled all findings into the article below (information current as of 01/23/2012) to shed light on the question : How is the current political climate affecting the future prospect of legal real money poker ? RealMoneyPoker.org provides its personal forecast, and clearly outlines all dependencies. First, let’s provide some background.

Recent Context I : Reversal of Stance on Wire Act

For years now, the United States Department of Justice (DOJ) has staunchly maintained that any form of internet gambling, intrastate or otherwise, is absolutely prohibited by the Wire Act of 1961. This stance gave the government an unequivocal, unarguable posture that infuriated American online poker players from coast to coast.

However, a memorandum dated September 20, 2011 signed by Assistant Attorney General of the Criminal Division, Virginia A. Seitz, completely reverses the DOJs position that the Wire Act applies to any type of gaming except sports betting. This sudden volte-face came in response to inquiries made by two US Senators and two state lotteries concerning the applicability of the Wire Act to intrastate internet sales of lottery tickets.

The DOJ memo, stating that the Wire Act applied only to sports betting, was deliberately released December 23, 2011, to attenuate media exposure of the implications of the September memorandum. Most poignant to the online gaming industry is the fact that, based on the new stance of the DOJ, US states may now, at their own discretion, license intrastate internet wagering on any gambling product, with the sole exception of sports betting.

Recent Context II : Proposal for a Strengthened UIGEA

Whereas the Wire Act reversal, which lifted DOJ regulations against non-sports betting intrastate internet gambling for the express purpose of allowing state lotteries the right to sell lottery tickets online to residents of that state, the Barton bill seeks to authorize and license internet poker within states and tribal reservations where land-based gambling is legally regulated. Title I of the Barton bill focuses on prohibitions on unlicensed internet gambling and internet poker consumer protection to ensure proper licensing and consumer safety within the US, while Title II – ‘Strengthening the UIGEA’ proposes new sections and amendments to the UIGEA.

One of two proposed additions to the existing UIGEA is to answer the concerns of financial institutions regarding the UIGEA’s failure to clearly define the term “unlawful internet gambling”. UIGEA Section 5368(a), as proposed by Title II of the Barton bill, would clearly state that financial transaction providers are not liable for conducting the transfer of funds connected with bets or wagers permitted under Title I of the Barton bill or the Interstate Horseracing Act of 1978 (IHA). Financial institutions would only be held responsible for transactions in which the processor had prior knowledge that the activity was in violation of the Barton bill, IHA or any other relevant legal provision by the federal or state government.

In response to the understandable need for the financial industry to be aware of known unlawful internet gambling enterprises, the Barton bill also proposes UIGEA section 5369. This addition requires the Director of Financial Crimes Enforcement Network to maintain a list, updated at least every 60 days, and provide said list to The Secretary of the Treasury. This list of online gaming operations known to be in violation of any federal or state law would include the names of all people who have a monetary stake in the unlicensed internet gambling venture – including owners, co-owners, managers, supervisors, and investors – as well as all web addresses known to be operated by the organization.

Thus, financial transaction providers will have access to the list of known unlawful internet gaming operations, and may protect themselves from liability by refusing to provide services to any person or enterprise on the list.

The Barton bill’s proposed amendment to section 5364 of the UIGEA removes the Board of Governors of the Federal Reserve System and the US Attorney General from the position of overseeing regulatory action, making The Secretary of the Treasury the sole authority for the regulation of internet gambling. The Secretary of the Treasury would be required to make any necessary amendments the regulations laid out in the UIGEA to resolve any conflicts with Title I of the Barton Bill within 180 days of enactment of the Barton bill, as well as prescribe the regulations prerequisite to actualize the proposed sections 5368 and 5369 of the UIGEA.

In short, the proposals outlined in Title II of the Barton bill seek to strengthen the UIGEA by appointing a single office, The Secretary of the State, as the sole regulatory authority; and by assuaging the concerns of financial institutions with a clear, up-to-date list of all internet gambling entities known to be operating outside the confines of US law.

Case Study : Regulation in Europe

Many European leaders have seen the necessity to regulate, license and tax the rapidly growing multibillion dollar industry that online gambling has become. The need to protect consumers from fraudulent gaming sites, as well as protect the local economy, has prompted reaction from most of the member states of the European Union; whether it be to completely ban online gaming within the region, or to legislate provisions for licensed online gaming within the country’s own borders.

While the implementation of closed-border online gambling laws seemed the most efficient way for a growing number of European nations to allow their citizens to participate in legalized internet gambling as a legitimate, taxable business, doing so goes against the EU law requiring services to move unrestricted between Member States. The European Court Justice ruled in 2010 that EU countries had the right to ban offshore online gaming sites for the protection of consumers and to combat the potential for fraud.

These conflicting EU laws have severely complicated the issue for both the leaders of EU nations, and online gaming operators seeking to set up legitimately licensed gaming sites within the EU. Member States who have sought to regulate online gaming within their borders, and ban all operators outside of their nation, have faced legal action from the European Commission in an effort to open legal internet gambling to all markets within the European Union. The confusion brought about by conflicting EU laws has prompted many EU governments to consider following the UK’s lead in this matter.

The UK accounts for the largest legal internet gaming market in the world. Establishing licensing and regulation for online gambling in 2005, the UK government also allows players residing in the UK to legally access online gaming sites licensed and regulated by a select number of offshore territories approved by the UK. This approach would allow EU nations to negotiate amongst themselves to open a bilateral gaming market.

However, many of the offshore territories on the UK’s “white list” – such as Malta and Gibraltar – pay significantly lower taxes on their gross revenues from UK players. For this reason, the UK is considering a revision of their legislation obligating operators to apply for licensing in the UK, thus consolidating all of the UK market to the same tax rate.

Italy’s closed-border internet gaming market, initially legalized in 2007, has flourished with the legalization of online tournament poker (skill games) in 2008, and online casinos and cash game poker in 2011. Online casinos and cash games have rapidly begun to dominate the Italian online gaming market, pushing Italy closer to over-taking the UK’s appellation as the largest legal online gaming market.

Italian legislators have approved online gaming licenses issued within Italy, and have gone so far as to block Italian residents from accessing online gaming sites that are not licensed and regulated by the Italian government, for example Bet365.com Italia. This is precisely the type of closed-border market that has drawn the wrath of the European Commission, who ruled in 2010 that Italy was in violation of EU laws concerning free access, and that Italy could not regulate and license online gambling operators if foreign companies were at a disadvantage to acquiring a license.

Legislation proposed by both Greece and Germany in 2011 was outright rejected by the European Commission primarily due to the provisions that gave each respective country an unfair advantage within their local market over foreign operators. While these issues have held up the process of legalizing online gaming in Greece, the Greek government and the European Commission have since come to an agreement allowing Greece to proceed with a legalized internet gaming market that is open to all EU countries. However, online gambling is still banned in Germany (except horse racing), though attempts to force German ISPs to block online gaming sites has been consistently batted down as not being the responsibility of the Internet Service Provider to regulate web content.

Another issue of disagreement is whether to tax the consumer directly based on their wagers (stake tax), or the operators earnings with a gross profits tax (GPT). Taxing the consumer directly has proven to significantly dissuade consumer participation in online wagering, as was the case when France (see pokerargentreel.fr) introduced licensed gaming in 2010 with a stake tax. The growth of the French online gambling market was much slower than projected due primarily to the stake tax, which tended to spur consumers in the direction of offshore operations.

The Spanish Gambling Act features a slightly more complex taxed based on GPT. Operators would pay gaming duties either on the gross gaming revenue, in which the prizes would be subtracted from the total wagers to attain the gross revenue figure; or on the total amount of wagers. The percentage and class of tax (revenue vs. wagers) is dependent upon which type of gaming the profits where acquired, and varies between 15% to 25%.

In addition to Spain-based online gambling entities, Spain is also inviting internet gaming operators throughout the European Economic Area (all of the EU Member States, as well as Iceland – an EU candidate country – Liechtenstein and Norway), to apply for a license to offer services to consumers in Spain. Both the comparatively low GPT and compliance with EU laws concerning international services bode well for the Spanish market.

Many other countries in the EU have begun the process of forming legislation to license and regulate online gambling. The Netherlands is moving forward with plans to implement regulation by 2013, and Switzerland is currently revising their Gambling Act. The European Commission has approved Denmark’s Gaming Duties Act after a delay created by disagreements on the tax rates proposed by Denmark.

Regulated online gambling is now available in Belgium, though surrounded with controversy over the restrictive legislation. Similar to the “list” proposal in the US, Belgium has implemented a “black list” of sites not licensed by the Belgium Gaming Commission, which are to be blocked by Belgian ISPs. Belgians caught wagering at blacklisted online gaming sites are subject to criminal penalties.

OUTLOOK

oulook for 2012 real money poker

2012 Election and Potential for Political Climate to Impact Legislation

Major political elections can have an enormous impact on any legislative bill that is still in the works. Presidential, Senate, and State Representative campaigns and elections invariably slow the legislative process in the US as the most urgent national issues – the economy, national security and education – dominate the political debates.

There are both pessimistic and optimistic views of the upcoming changes to Congress and the Presidential office. There is much concern in the online poker community about the retirement of Congressman Barney Frank (D-Mass), one of the most charismatic driving forces behind the legalization and regulation of internet poker in the US.

Some believe that without Frank’s guidance in the matter, the Barton bill may linger indefinitely in the committee revision phase, or never be approved by a majority vote in the House of Representatives, let alone the Senate. Others see his retirement as an opportunity for Barney Frank to call in favors to see that the bill is completed and passed through both houses of Congress before the end of the year.

While the topic of regulating online poker is far from the minds of most US voters and presidential candidates, once the Barton bill has finally garnered the approval of the House of Representatives and the Senate, ultimately the final decision will come down to the office of the elected president. The issue of legalizing online poker has not been addressed in the current presidential campaigns, however, it is possible to gauge the likeliness of each to pass a well provisioned bill for US regulations, or to veto it outright on moral or political grounds.

Looking first at the current administration, President Barak Obama – running for re-election – stated during his campaign for the Democratic party’s presidential nominee for the 2008 election that he would support a study regarding the feasibility of regulating online gambling in the US. Since the Barton bill has yet to reach his desk, and far more pressing matters have weighed on the Obama administration in the course of his presidency, it is no wonder he has not commented on the issue further.

A poker player himself, one could deduce that moral issues would not influence a decision by President Barak Obama when examining a bill to legalize online gaming in the US, and prohibit unlicensed operations both within and outside of the US. Consumer protection, economic impact, and the viability of executing the provisions outlined in the bill would be the most likely determining factors for President Barak Obama if he were in the position to approve or veto the legislation.

Of the candidates campaigning for the GOP nomination, certain approval to online gambling legislation would come from Congressman Ron Paul (R-Tex). Not only are Rep. Ron Paul’s political views more Libertarian than Republican, he is also one of 26 co-sponsors of the Barton bill.

Potentially on the opposite side of the issue is former Pennsylvania Senator, Rick Santorum. A social conservative, Santorum would most likely veto any legislation that legalized online gambling in any capacity.

Former Speaker of the House, Newt Gingrich, is another candidate for the Republican nomination predicted to veto online gambling legislation, but for political rather than social or moral issues. Controversial casino mogul Sheldon Adelson – fiercely opposed to online gambling in the US, and long-time friend of Newt Gingrich – wrote a $5 million dollar check to the pro-Gingrich “super PAC” Winning Our Future.

The online poker legislation wild-card is Former Massachusetts Governor, Mitt Romney. Despite the fact that he is a Mormon, Mitt Romney showed that he is a betting man when Romney extended a $10,000 bet to former opponent, Texas Governor Rick Perry, in a live televised debate. However, when asked about his stance on legalized online gambling, Romney vowed to look into the subject and return with a stance on the issue before the Iowa caucuses. Unfortunately, that didn’t happen.

Thus, it is reasonable to deduce that, should Gingrich or Santorum win the Republican nomination and the Presidential election, the Barton bill will be vetoed despite the best efforts of the Congressmen who support it, and those they represent. Republican front-runner Mitt Romney’s lack of a stance on the issue leaves too much uncertainty to lean toward a positive prediction.

However, if Ron Paul happens to win the election in spite of the current poll trends, legalized and regulated online poker in the US is virtually guaranteed within his 4-year term. The re-election of President Obama would also bode well for a comprehensive legislation of online poker, if such reaches his desk within his term.

Intra-State VS Federal Legislation Prediction

The reversal of the Department of Justice’s interpretation of the Wire Act has sent several US States already looking into the viability of legalized online poker, scrambling to be the first to begin accepting licensing applications for intra-state online gambling operations. Nevada leads the race, despite opposition from a small number of land-casino moguls who have not yet developed the software necessary to compete in the new industry.

New Jersey Governor Chris Christie envisions the state as an “epicenter” of the online gambling industry, and is ambitiously pushing to beat Nevada to the actualization of providing real money online poker within the state. California has also found renewed vigor in the effort to legislate intra-state online poker, and Iowa is currently in the planning phase. Though Washington D.C. was the first jurisdiction to officially legalize online gambling, controversy over Council Member Michael Brown’s position as a lobbyist for a law firm that represents clients in the online gaming field has slowed the actual implementation of real money online games.

The enthusiasm of this handful of states embracing the prospect of online gambling is causing much concern for those who recognize the need for blanket federal regulation. Senate Majority Leader Harry Reid, a former Nevada Gaming Commission chairman, sees the push for intra-state internet gaming as an incentive to focus on moving forward with a federal bill to establish a national framework thereby avoiding regulatory laws that would conflict when states are ready to venture forth into interstate online gambling operations.

Once states have established closed-border internet gambling legislation, the next inevitable step will be to connect their operations with other like-minded states – and possibly off-shore operations – in order to expand the player pool. States such as Iowa do not expect to see a large enough revenue from regulated intra-state online poker, however, the Iowa government is driven by the necessity to protect its resident online poker players from fraudulent internet gaming sites, as well as the potential for greater revenue with the implementation of interstate online poker agreements with California, Nevada, New Jersey and Washington D.C.

Looking to the widely varied laws throughout the European Union Member States, it is clear that a federal legislation framework would greatly simplify the transition from intrastate to interstate online gaming. Despite broad recognition of the need for federal legislation in the US, states are moving forward with their own regulatory laws much more quickly than Congress.

It is a near certainty that several states will establish fully regulated intrastate online poker markets before a federal bill ever reaches the House of Representatives for a vote. However, intrastate regulations will further twist the spur of urgency on the side of congress to establish federal legislation, thereby allaying legal confusion when states make the inexorable shift to interstate licensing.

What’s Happening in Nevada

In June 2011, Nevada Governor Brian Sandoval signed Assembly Bill 258, allowing the Nevada Gaming Commission to begin adopting internet gaming regulations and granting licenses to casinos in anticipation of the fateful day the federal government would pass the bill that approved legalized internet gaming in the US. The DOJ memorandum stating that the Wire Act applied only to sports-betting provided exactly what the state needed to regulate intrastate online gaming.

Unfortunately, anticipating that federal approval would come from the slow process of passing legislation rather than a sudden reinterpretation of the Wire Act, not all casinos made preparations to take the leap into the online poker market so soon. One such casino mogul is Sheldon Adelson, aforementioned multi-million dollar contributor to the pro-Gingrich super-PAC.

While Las Vegas Sands Chairman Sheldon Adelson argues that he is morally opposed to internet gambling on the basis that it is nearly impossible to prevent under-age players from depositing in online poker games, Adelson has also expressed concerns that the internet gambling industry is not profitable enough to be sustainable over time. It has been speculated that Adelson’s contempt for the online gaming industry is a direct result of the Las Vegas Sands being slower to produce an online poker software product.

Adelson’s pessimism, however, is not shared by many casino owners. Plenty of Nevada’s land-based casinos are in the process of securing licenses to open their operations to the online market. Currently, the Nevada Gaming Control Board is only accepting and reviewing online poker license applications from brick-and-mortar casinos within the state, which have not yet been passed on to the Nevada Gaming Commission for approval.

Nevada’s state regulators are presently fine-tuning the standards laid out by the initial legislative and regulatory framework. All signs and actions point optimistically toward Nevada being the first US state to emerge successfully into the online poker market; thus paving the way for the future of licensed, regulated internet gambling in the United States.