Could Congress Legalize Online Poker?

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Hyungwon Kang / Reuters

If you’re among the thousands of poker players irritated by last Friday’s crackdown on three Internet poker sites–and in the interest of disclosure, I am–the first person you should blame is Bill Frist. In October 2006, the former Senate Majority Leader was mulling a presidential run and eager to curry favor with social conservatives. So he tucked a provision to enforce online gambling laws—the Unlawful Internet Gambling Enforcement Act (UIGEA)—into “must-pass” port-security legislation, virtually ensuring its enactment.

The act didn’t specify that online poker was illegal; no federal statute prohibits poker players from wagering money over their computers. Rather, it shored up the enforcement of laws governing financial transactions related to illegal gambling, restricting poker sites’ ability to process deposits and withdrawals. That was enough to drive PartyPoker, then the biggest online-poker site, out of the U.S. market. Other sites never stopped hosting games, including the three implicated in the DOJ indictment: PokerStars, Full Tilt Poker and Absolute Poker. The indictment and accompanying civil suit accuses them of financial malfeasance, including bank and wire fraud, and money laundering. According to U.S. attorney Preet Bharara, the sites, which are based abroad, disguised the source of players’ payments, masking deposits and withdrawals as transactions with fake flower shops and pet-supply stores, or e-commerce websites hawking golf clubs and bikes. (You can read the indictment here.)

The DOJ suit could define the contours of the legal landscape for online poker in a way the UIGEA never really did. “In those three words – unlawful Internet gambling — lies the rub: There is no federal definition of it. There has never been,” argues John Pappas, executive director of the Poker Players’ Alliance, a DC-based lobbying group.

Pappas is looking to the source of this mess for a solution. The PPA’s timing is good. As Congress squabbles over how to slash the bloated federal budget in a bad economy, a multibillion-dollar industry is banging on doors around Capitol Hill, begging to provide a new stream of revenue. “There aren’t too many people going to Congress saying, ‘License and regulate us—we want to be taxed,” says Pappas. The three sites named in the indictment fielded $16 billion in wagers last year.

The PPA has been active on Capitol Hill since 2005, and vaulted to prominence in the wake of the UIGEA’s passage. It counts 1.2 million members, rents a booth at CPAC and spent $1.8 million on lobbying expenditures in 2010. Since its founding, its PAC has doled out $285,000 to members of Congress, Pappas says. “The PPA has argued as an organization for a long time, and tried to let the poker community know, that the status quo was probably not tenable,” he says. “Either legislatively or legally, someone was going to try to restrict their right to play even further. That’s why we wanted to see a regulatory system established where the U.S. government was issuing the licenses and making this clearly legal.”

It’s unclear how deep his support runs in Congress, but Pappas has allies on both sides of the aisle. During December’s lame-duck session, Majority Leader Harry Reid of Nevada pushed legislation to legalize online poker, though critics griped it would primarily benefit the gaming industry, which gave Reid some $300,000 in 2009-10, according to the Center for Responsive Politics. Last month, Massachusetts Democrat Barney Frank and California Republican John Campbell introduced a bill to license and regulate Internet gambling. It remains in committee. “What an incredible waste of resources,” Frank told The Hill last week, blasting the DOJ for “protecting the public from the scourge of inside straights” when it could be reaping a windfall from an industry volunteering to cough up billions of dollars per year–from the cost of licenses, corporate taxes from repatriating sites that fled abroad and players’ income taxes.

As the outcry over the indictment reverberates through the poker community, Congress can expect to feel the effects. Dick Loveland of Antrim, N.H., trekked to a town hall last night in nearby Hillsborough to question his congressman, Republican Charlie Bass, about the DOJ crackdown. Loveland’s 36-year-old son has been an online poker pro for six years, since the start-up company that employed him went bust. During that time, Loveland says, his son has paid several hundred thousand dollars in income tax on his winnings from live and online tournaments. Bass was in Congress when the Safe Port Act passed in 2006, but he “wasn’t up on it,” Loveland says – neither the fashion in which it passed, nor last weekend’s DOJ indictment. “He said he had a personal thing against gambling.” In a state with the motto “Live Free or Die,” Bass may find that won’t fly with some of his constituents–particularly when they realize how much the decision to restrict personal choice is costing them.

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