By Martin Owens
HOME TO ROOST -- The chicken, the egg, and licensed online poker.
"You don't **** in the well, because maybe you want to drink out of it someday." George V Higgins, The Friends of Eddie Coyle
Philadelphia, PA (Sports Network) - A big opening has developed for online gaming in the USA, particularly online poker, but so far the response has been nowhere near as big as the opportunity. Why? Well, we could go with the usual suspects: blame it on the economy, on global warming or George W. Bush. But the guilty party is probably the very group that stands to benefit most from the expansion of I gaming in America, namely the state governments. By neglecting- in fact often refusing- to get their legal house in order, they are allowing a good opportunity for new revenue to slip away.
UIGEA opens the way
Ironically, the very law that was supposed to kill Internet gambling in America was the one that nailed open the door for permanent legalization. The Unlawful Internet Gambling Enforcement Act of 2006 is full of vague, hard-to-understand clauses. But it states one thing very clearly : Internet gambling which is licensed by competent state authorities, for use within the borders of that state, is not, repeat not, considered "unlawful Internet gambling".
The mere ability to legalize I gaming, however, was not the same thing as a good reason to do it. But that came along soon after. Following the worst financial meltdown since the Great Depression , forty-six of the Fifty States are predicted to run deficits this fiscal year, and things don't look like improving anytime soon. Add to this the fact that all attempts to interdict Internet gaming have come to essentially nothing since 1995, and that offshore sites access the US market at will, and there would seem to be a compelling case for the states to act sooner, rather than later. Why give the money away overseas, when it can be turned into jobs, tax revenue, and commercial income right here at home? Do problem and under-age gamblers need to be protected? Then for heaven?s sake set up regulated, supervised systems and protect them already!
This is especially true in regard to the game of poker. In the USA, it?s much more than a game. It?s an icon of our culture, tracing back to frontier days. American English is full of poker terms: "you bet", "blue chips", and so on. John Wayne played poker. So do pastors and grandmothers - in fact until recently there was a weekly poker game among the Honorable Justices of the US Supreme Court. All of which means that poker is probably the most acceptable online game that could be licensed. Worldwide, online poker is a market of between $12 billion and $15 billion, and American players make up about half of that.
Well, with the states? need for revenue so plain, and the online poker market so strong, why hasn't there been a rush to license it at the state level? We can understand why state authorities are hesitant. First, the politician who comes out in favor of expanding gambling is usually handing his opponents a stick to beat him with. Even when hard times have softened "moral" qualms, most legislators and regulators aren't familiar with online gaming as a business. So, notwithstanding that they'd like to bring it to their particular state, they don't know how to ask.
But why aren't the online poker operators beating the bushes and sending teams of lobbyists, or at least inquiries and feelers, into states like California, Florida, Pennsylvania, or New Jersey, all of which have shown strong interest? They don't understand our system? Then why are they eagerly pursuing China, even farther from the European laws most operators are familiar with? Why aren't the I-gaming and online poker operators trying harder to make the connection to a promising US market ?
Quite possibly because they don't feel safe here.
As long as gambling was just a back-alley vice, the old fashioned roust was an effective, if not quite Constitutional, method of suppressing it. The stated philosophy of US law, even yet, is that there is no such thing as a right to gamble. And that was stretched to mean that gamblers and gaming businesses had few rights at all.
No one has to play fair with gambling, even for the most basic element of due process, "fair warning". Simply put, if the authorities wish to forbid something, they are supposed to give you a chance to avoid offense. They must tell you what not to do, in terms that an ordinary person can understand. Except for gambling: to this day, the statute books of 16 states and the District of Columbia don't even define what "gambling" is or isn't. Apparently, like the porno prosecutions, "they know it when they see it." Or again, gaming debts are still unrecoverable at law in many states- in fact in some places anyone may sue gambling operators to take their money. Hey, they're the bad guys. Serve'em right.
But the American attitude toward gambling has shifted. Today gambling is a multi-billion dollar sector of the global entertainment industry, and forty-eight states license some form of it, increasingly depending on the revenue it brings. The problem is, US law has not caught up with the change. Only eight American states even mention the Internet in connection with gambling. The question of state law jurisdiction over gaming sites located outside the USA, has not even been seriously discussed, let alone decided. Nevertheless, "anything goes" is still the standard operating procedure when going after gambling.
The high profile arrests of gaming executives like Dick and Carruthers were as much an exercise in intimidation as legitimate law enforcement. The "settlements" squeezed out of Neteller, Yahoo and Google under threat of prosecution were made on shaky legal ground at best: the Bush Department of Justice depended on sheer administrative bulldozing to force a result that could be advertised as Smiting the Evildoers. State governments get in on the act as well, as when Kentucky?s governor moved to confiscate gaming URLS under the pretense they were "gambling equipment", or when Minnesota attempted to strong arm Verizon and AT&T to cut off state residents? access to wicked online gambling.
What goes around
But what makes good political theater to get the mean-old-lady vote is absolute poison when states try to attract legitimate business - which online gaming is, in more than eighty countries. Put yourself in the position of an online poker firm considering the US market. They say they want you, but the Yanks aren't even trying to update their laws. Is poker a gambling game? Do you really know when you are safe? Can you be sure what state (and thus Federal) laws apply to you, where, when or how? Even located overseas, you have to look out for off-the-wall legal theories and confiscations by prosecutors with political ambitions at least as strong as their ethics. And if you're like most I-gaming executives, you still worry about coming to the USA at all.
And so it's not a chicken and egg question of who will make the first overture. Instead, it?s a matter of the chickens coming home to roost. The government campaign of intimidation and overreaching against I-gaming succeeded all too well. Many online gaming operators now wonder if they'll be treated fairly, or even rationally, legalization or not. So this time it's not enough for America to change its mind. We have to change our act, too. Internet gambling, like any other business, will go where it?s welcome and stay where it?s well treated. If American states want that business, Step One should be a comprehensive overhaul of a legal structure that has become completely out of date. And this time, they need to make it clear they will play by the rules they set.
Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming and related issues, serving clients worldwide since 1998. He co-authored INTERNET GAMING LAW with Professor Nelson Rose, America's senior authority on gambling law (Mary Ann Liebert Publishers 2005, second edition just out, 2009), as well numerous other articles. He is an Associate Editor for "Gaming Law Review and Economics" magazine. Comments and inquiries welcome at to email@example.com.