FULL TILT POKER BLOG

#119 – Adventures in the Law, Part II – Rep. Barney Frank’s Internet Gaming Bill

Posted by Editor | Filed under IGREA, Poker and the Law, Poker Players Alliance, Representative Barney Frank, UIGEA

This morning, April 26, 2007, Representative Barney Frank (D-Mass.) proposed legislation that could drastically alter the outlook for the future of online poker. His proposed H.R. 2046 “The Internet Gambling Regulation and Enforcement Act of 2007” (‘IGREA’) is the latest in what will be an ongoing series of fights that will redefine online poker. The details of what he has proposed and the shifting lineup of supporters and opponents underscores for the importance of paying attention and keeping current.

LANDSCAPE

Just to remind you, this is the landscape: (1) the UIGEA became law last October and is awaiting regulations that may (or may not) clarify whether online poker is affected; (2) there have been rumors that someone in Congress may propose repealing the UIGEA (some thought that was what Rep. Frank going to do); (3) there have been rumors that someone in Congress may propose further laws affecting online gaming, which may have an impact on online poker (Frank’s bill is one of those, but there may be more); (4) the criminal cases against NeTeller’s founders and some online sports betting operators; (5) the World Trade Organization’s case against the U.S.; (6) a future legal Armageddon between the U.S. government and an online poker site for violating UIGEA and the Wire Act; and (7) state laws affecting the ability to play poker live or online.

IGREA

Representative Frank, Chairman of the House Financial Services Committee (Frank, a Democrat in the House since 1980, runs an extremely powerful House Committee, so you politicos owe thanks to the effort that shifted political control of the House from the Republicans to the Democrats, the party in power, proposed a system of licensing operators of online gaming sites. Under IGREA, “No person shall engage in the business of Internet betting or wagering in the United States without license issued by the Director [of the Financial Crimes Enforcement Network]”. Licensing will require financial statements, documentation, and “a certification that the applicant agrees to be subject to United States jurisdiction and all applicable United States laws relating to Internet gambling activities.”

The licensing will involve review of financial condition, business experience and history of legal compliance, and a background check of the principals. Those licensed will then have to establish “appropriate safeguards” to keep minors from betting, make sure the revenuers get their cut, prevent money laundering and fraud, and combat compulsive gambling.

No one knows exactly what that “appropriate safeguards” consist of, though this will occupy a lot of people for a long time if this bill passes. But this is the cost of business, so if, for example, you make money playing online and don’t pay taxes on it, you’re going to find your online site and the U.S. Treasury Department are suddenly nice and cozy. But that kind of scam was bound to end, so get used to it; online gambling will never get the blessing of the U.S. government unless it can collect taxes.

According to some news reports, Rep. Shelley Berkley (D-Nev.) will propose a bill that has the federal government studying online gambling for a year.

And the NFL gets what it wants: no one can be licensed if they allow betting on a sport in a league that “opts out” of having its betting licensed this way.

Frank promises to hold hearings in June. If he holds them in Vegas, he’ll find a large, appreciative gallery, though it will consist mostly of players who have busted out of that day’s World Series event.

WHO LIKES IT/WHO DOESN’T

The Poker Players Alliance immediately spoke out in favor of Rep. Frank’s bill. If you look at the PPA’s web site, though, you’ll see a piece from earlier in the week titled “Frank bill would repeal ’06 Internet gaming crackdown.” Obviously, anyone looking for a repeal of the UIGEA is going to be disappointed. But the PPA is right to be in favor. Its members want to play poker online and licensing promotes that. Maybe if you were a principal of an online site, you wouldn’t be so happy. Perhaps you worry about getting licensed, or subjecting your operations to U.S. jurisdiction, or competing with the online site Steve Wynn or Sheldon Adelson or Harrah’s or MGM Mirage can whip up.

So the online sites are not necessarily expected to embrace this. Stock analysts covering the European public companies engaged in online gaming believe this will favor U.S. land-based casinos. In addition, an outright repeal of the UIGEA would settle things once and for all. IGREA creates uncertainty over whether current online operators will get licensed. The initial reaction of the stock market was negative. Partygaming and the other public companies took a hit, as they probably had built into their price the expectation that Rep. Frank was going to propose a repeal.

I have a hunch that the requirement in the law that licensees agree to submit to U.S. jurisdiction will be a problem. Until now (excepting the big problem of UIGEA), the online sites have been allowed to have their cake and eat it too. They have been able to blame the U.S. government for making it difficult for them to do business above-board, but at the same time have been able to avoid U.S. taxes and regulations (which would probably be a lot more stringent than what passes for oversight in most of the countries in which they are licensed). They’ve been able to hide their customer-account information, too, effectively helping customers evade tax liability.

The Vegas mega-gaming companies are probably pleased by this development. The American Gaming Association is considered a very powerful lobby and it had, before 2006, hopped on the bandwagon with the bible-belters to kick online gaming in the back. In the last legislative go-round, however, the AGA shifted its official position to “neutral.” To people who look for symbols and portents, that signaled a recognition that online gaming (including online poker but a bunch of different activities, too) was big business and they’d like to get it, at the top. I wouldn’t be surprised, if this law passed or the UIGEA was repealed or clearly limited in its application to exclude online poker, if you saw some very quick arranged marriages between online poker sites and companies like Harrah’s, MGM Mirage, Sands (which owns Venetian), and Wynn.

The casino companies have looked at this closely enough to see online poker compliments, rather than competes, with their casinos. And the databases of the online poker sites, to a company like MGM Mirage, are the stuff dreams are made of: who likes to gamble, how much they gamble, how much they are willing to lose, the financial resources they are willing to link to gambling. The online sites have this for MILLIONS of people. There are synergies up the wazoo, which is, after all, the best place to get synergies.

The sports betting sites, who were much more centrally the targets of the UIGEA than online poker, probably hate this bill. As far as they are concerned, the NFL is still writing this country’s laws, and they are still the bad guys.

Oh, and the people who got UIGEA passed on the first place, of course, are crapping their pants and foaming at the mouth.

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