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US Online Poker To Be Regulated?

A second draft of Harry Reid's internet poker bill began circulating Capitol Hill yesterday and it has the poker industry waiting breathlessly as the bill continues to take its form. The "Prohibition of Internet Gambling, Internet Poker Regulation and Strengthening UIGEA Act of 2010," is a bill with a monster of a title, and a piece of potential legislation with infinitely larger ramifications for poker players. It should be noted that I am not an attorney, and that the opinions of this article are just that, my interpretations of the bill and my personal opinions. It should also be noted that the bill is still being drafted, and while 2 drafts have come through, there is still likely to be many other drafts before it is enacted into law. But this is something that every poker player should have their eyes on given what it will mean for poker players in the years to come.

The bill was authored with intent to set up a licensing, regulatory and tax framework for fully legal online poker in the United States. The second draft of the bill has some significant changes, and it should be noted that the bill is still being worked on. However copies are being disseminated among members of congress today. The bill addresses a great number of concerning items including first and foremost, companies operating major online poker sites and wishing to offer online poker as an option to U.S. residents would now be required to apply for a license from a state or tribal gaming authority that has been qualified by the Commerce Department to issue licenses. The licenses granted by the Commerce Department will be issued in 5-year terms. While the prospect of having a fully legal and regulated online poker community brings great joy to U.S. Poker Players, it may come with some huge sacrifices.

Something that has drawn the largest point of concern for the current online poker community is that the bill expressly states that the initial licenses cannot be issued until at least 15 months after the bill is passed into law. This means that online poker operators such as PokerStars and Full Tilt Poker, which have offered internet poker in the U.S. prior to the issuance of this bill, would be required to immediately cease their unlicensed activities once the bill is enacted, and within 30 days, return all customer deposits. What this basically means is that if the bill passes in its current form, there would be NO legal internet poker offered in the U.S. for a period of 15 months.

There have been several penalties imposed for the sites should they choose to operate within the 15 month prohibition in violation of the new bill. The fines for the site include a 5-year prison sentencing, in addition to a $1,000,000 per day penalty for operating without a license, which makes it highly unlikely that the major online sites would continue to operate with their sites available to U.S. residents within the first 15 months of the law being enacted should it go through.

The bill makes it even more difficult for the major online sites to obtain a license as the bill includes another giant hurdle for companies wishing to gain access to the U.S. poker community. According to the bill, for a period of two years from issuance of the first license, licenses can only be issued to applicants who have either:

1) owned or operated a casino or race track
2) manufactured and supplied slot machines to casinos for at least 5 years prior to the passage of the bill.

A casino is defined as a facility that “hosts 500 or more gaming devices in one physical location pursuant to a duly authorized license issued by a state or Tribal gaming regulatory authority.” Basically, the bill has been authored to favor the U.S. Casino interests at the expense of the overseas online poker sites. While some have said that the second draft of the bill excludes this provision, it does not. What this basically means is that there could be a 39 month period in which sites like PokerStars and Full Tilt Poker would be unable to provide real-money poker games to U.S. players. There have been rumors of a loophole whereby companies like PokerStars or Full Tilt Poker could sell their companies to a casino to avoid this 2 year prohibition, however section 118(c)(2) is explicit that a license can’t issue to any person that “purchased or acquired directly through an affiliate or intermediary, in whole or in significant part” any person who owned a U.S. facing site prior to the Act. There needs to be some clarity given on whether or not this is in fact a loophole, as there could be potential partnerships with sites for land based casinos. Regardless, it still will not circumvent the 15 month period mentioned above, leaving sites like PokerStars and Full Tilt Poker shut out of the U.S. Market for at a minimum a period of 15 to 39 months.

Another key point in the bill includes an opt-in/opt-out ability given to the States and Indian Tribes which will allow licensees to operate in their jurisdiction. There are currently 35 states which do not permit live commercial poker that may opt-in, as well as the 15 current states which do allow it having the ability to opt-out. States can change their status at any time by giving 60 days notice to the Secretary of Commerce. This basically means that online poker may be offered in some states, but not in others.

The bill has a long way to go before it can even be thought about being passed. It’s not likely going to go to a floor vote in the House of Representatives and the Senate because there simply isn’t enough time left in the session, especially considering that there are so many other more pressing issues. However, it is possible that the bill could get tacked onto a “must-pass” piece of legislation in much the same way that the UIGEA was tacked onto the SAFE Port Act.

For those that remember, the SAFE Port Act, which was designed to improve U.S. port security passed in the House of Representatives by a vote of 421-2, in May 2006, and by the Senate by a vote of 98-0 in September 2006. But the UIGEA was not tacked onto the bill at that time. What happens in the U.S. legislative process is unique, in that once both houses have passed a bill, the version of that bill must be 100% identical in all respects. In most cases, that doesn’t happen because slight changes are made when the bill gets passed between the two houses. When this happens, a bicameral conference is convened to basically iron out the differences, and create a uniform version of the bill for the Senate and the House. They then submit a Conference Report back to each chamber with the final approved identical version of the bill which each chamber must pass again. That’s what happened with the SAFE Port Act, and was where the UIGEA came into play, as it was tacked on to the bottom of the SAFE Port Act by the conference. Both Houses approved the Conference Report basically as a formality, and the UIGEA was passed into law.

If Harry Reid’s internet poker bill will be passed, most likely it will be tacked onto something by the bicameral conference. At the moment the Bush tax cut extension certainly serves as the ideal piece to get it through. What this means is that we won’t likely know for certain if a tack-on is going to happen when the floor votes, but rather we’d likely discover it once the final Conference Report is submitted and approved.