The US Regulation of Online Poker - Impact on the Euros

This is a cross post from a blog I read that sums it up really well. So thanks to The F-Train for breaking down the new bill. It's a really interesting news.

Cliff notes: US is fucked and looks to have no online poker for the next 2 years, Euros will be pretty much alone on Stars/FTP for the next 2 years. Euro sites with sportsbooks in the distant future will still be Euro-only (e.g. iPoker, Will Hill) and by the looks of things for the next 3 years Euros and US won't be playing in the same games together. Although this looks very unfortunate for my American colleagues, it looks like the games will get a lot softer. I will be interested to see if and how some people will get around the rules if they can.

Here we go again. A new version of Harry Reid's internet poker bill, the "Prohibition of Internet Gambling, Internet Poker Regulation, and Strengthening UIGEA Act of 2010" (what a mouthful!), started making the rounds on Capitol Hill yesterday. Thanks to Kevin Mathers, I was able to get a look at it this morning to see what (if anything) had changed.

Unfortunately, because of wildly divergent formatting, and the fact that this version of the bill is MUCH more "fleshed out" than the first version, getting a blackline of the two versions proved exceedingly difficult. So if I miss any major differences, that's the primary reason why. 

My summary of the original version of the bill is available here.

On to the highlights of the new version:

* Let's get the bad news out of the way first. Contrary to previous reports, this version retains the two-year exclusion for operators who have not owned or controlled a casino or race track for a minimum of 5 years prior to their application. [Sec. 104(f)(2) and (3)] That means that sites like Full Tilt and PokerStars would be excluded from the market for 2 years after the first license is issued. 

[EDITED TO ADD: Some seem to think that Sec. 104(f)(2)(B) might allow a site like Stars to sell itself to MGM and therefore become an applicant "owned or controlled by" a casino in operation for 5 years. On its face, that might be possible although I highly doubt it's what's intended.

The reason I doubt it -- Sec. 118(c)(2) is explicit that a license can't issue to any person that "purchased or acquired, directly or through an affiliate or intermediary, in whole or in significant part" any person who owned a U.S.-facing site prior to the Act. My only question about 118(c)(2) is if it's supposed to apply to ANY U.S.-facing site, or only those U.S.-facing sites that refuse to wind down as required under the "One bone..." paragraph described below.]

* The 15-month total blackout period on issuing *any* license still applies. [Sec. 118] No qualifying body can issue a license until 15 months after passage of the Act. That means that no operator could legally offer internet poker in the U.S. for those 15 months, and sites like Full Tilt and PokerStars would be shut out for 39 months.

* The U.S. player pool continues to have to be segregated from the rest of the world for at least 3 years after the first license is issued.

* One bone for Full Tilt and PokerStars: they would have 30 days to cease offering poker in the U.S. after passage of the Act, and 2 years to return all customer deposits. [Sec. 118(b)] The first version of the bill was much harsher, requiring immediate cessation of poker and 30 days to return deposits. Sites that are currently operating in the U.S. are required to comply with those provisions as a condition for eventual licensing.

["Paper sales" paragraph deleted and replaced by italics above!]

* There are now provisions at Sec. 104(k) to guide the determination of whether or not something is "internet poker" -- something that's rather key for legislation that seeks to limit online gambling to only internet poker. The determination is left to the qualified body that issued the license. So, for example, if Nevada issues a license to WSOP.com, Nevada would determine what constitutes "internet poker" in all states in which WSOP.com operates (presumably, all states that have opted in and those states which haven't opted out).

Could we see instances where certain games aren't offered in certain states? I'm thinking of the specific example of razz, which (as far as I know), is not an allowed game in New Jersey. If someone applied for a license from a state like that, would they not be allowed to offer certain games? Obviously operators would then favor making applications for a license from the state with the most comprehensive definition of "internet poker".

* It appears there is now the potential for a 5-year prison term, in addition to the $1,000,000 per-day penalty, for operating without a license. [Sec. 103(b), Sec. 104(m)(1)(D)] Those of you who thought that Full Tilt and PokerStars might remain in the States anyway (in the 15-month total blackout period) should think again. Not only that, but...

* A few changes to the licensing fee: first, it appears previous confusion in the definition of "internet poker receipts" has been cleared up. That term now means, essentially, the rake. The licensing fee is 20% of the rake.

More importantly, anyone who operates an internet poker facility WITHOUT a license is subject to a 50% "licensing fee". The bill is explicit that this fee in no way limits the liability of the operator under *any* other provision of the bill. So, if Stars or Tilt were to remain in the U.S., not only would they be subject to $1,000,000 per-day penalties and potentially 5 years in prison (for the executives), but they'd also have to pay 50% of the rake they received to the IRS.

My good buddy Shamus questions how this can be enforced if the sites, executives and servers are all located offshore. It's a good question. I'm not sure, but I suspect that, if a regulatory and licensing scheme were put into place, the US would exert some diplomatic pressure on places like England (Stars) and Ireland (Tilt) to bring those operators into line. In any event, Stars seems to pride itself on always operating within the law. Operating without a license would be expressly illegal under this bill.

* One aspect of the bill I didn't discuss during Round 1: to be automatically designated a "qualified body", for licensing purposes, a gaming regulatory board has to have been a gaming regulator for 5 years prior to enactment of the Act, and has to have been responsible for regulating at least 5% of total United States casino gaming revenue for at least 3 out of those 5 years. I don't know how gaming revenue breaks down nationwide but I would suspect this gives Nevada and New Jersey a leg up over the rest of the nation. 

The reason why that's important is because other state gaming boards that want to be able to issue licenses have to apply to the Commerce Secretary, but only after all the final regulations under the Act have been issued.

Not only that, but sites that were U.S.-facing prior to the Act could only apply for a license through the automatic qualified bodies -- i.e., Nevada and New Jersey. Would existing casinos apply pressure to NGC / NJCCC to shut out those formerly U.S.-facing operators...?

* The opt-in / opt-out provisions for states and tribes remain. [Sec. 108] They appear to be largely unchanged. States wishing to opt-in or opt-out have until December 31, 2011 to make that determination. After that, their status can be changed on 60 days notice to the Secretary of Commerce.

* The concept of "cheating" is greatly expanded in this version. Cheating in the first version was largely limited to the use of "cheating devices". In the new draft, there's an outright prohibition on "knowingly violating, attempting to violate, or assisting another in violating the rules of play established by the licensee for the purpose of obtaining prohibited or unfair advantage in any game authorized under this title". [Sec. 113(a)] The use of bots is also expressly prohibited in the new version. [Sec. 113(b)(2)] 

* Conviction under Sec. 113 for cheating entails two possible penalties: a permanent ban from playing internet poker, and a criminal penalty consisting of a fine and/or up to 2 years in prison.

That's all I've got for now but I'll continue to study this version of the bill and any new version that emerges. What does everyone else think?