Politics

Good News Gamblers, Online Poker Going Mainstream

| by Reason Foundation

Two developments last week suggest that online poker is moving closer to legalization in the United States. On Thursday the Nevada Gaming Commission approved a partnership between Caesars Entertainment, which owns more than 50 casinos around the world and runs the World Series of Poker, and 888 Holdings, a British company that operates online casinos and poker rooms.

The initial focus of the partnership will be Caesars-brand gambling sites in the U.K. and free sites in other jurisdictions. But it is notable that Nevada regulators were not deterred by the fact that 888 used to serve the U.S. market—illegally, in the eyes of the federal government—and stopped taking bets from Americans only after passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006.

On the same day that the gaming commission approved the Caesars/888 deal, Wynn Resorts announced a partnership with PokerStars, a privately held company that continues to welcome American players and is therefore, according to the Justice Department, a criminal enterprise. In fact, prosecutors such as U.S. Attorney Preet Bharara maintain that merely helping companies like PokerStars process payments is a crime that can send you to prison for the rest of your life. But where the Justice Department sees felonies, Wynn Resorts CEO Steve Wynn sees a business opportunity:

One of the first goals of his merger is to seek passage of federal legislation that will regulate Internet gambling.

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"We are convinced that the lack of regulation of Internet gaming within the US must change," Steve Wynn, chief executive officer of Wynn Resorts, said in a statement. "We must recognize that this activity is occurring and that law enforcement does not have the tools to stop it.... It is time that the thousands of jobs created by this business and the potentially significant tax dollars come home to the U.S."

The ultimate plan for the new alliance is to create a joint venture between the two companies, called PokerStarsWynn.com, that will provide online poker in the U.S. This ia a bold new direction for the Vegas-based casinos which had, until recently, looked at online poker as their sworn enemy and had worked hard to thwart efforts to legalize and regulate internet poker in the U.S.

Caesars also wants online poker legalized at the federal level. But in the meantime, it opposes state legalization, including a bill that is now being considered in Nevada and a bill vetoed last month by New Jersey Gov. Chris Christie. Although online poker (unlike sports betting) is arguably prohibited by federal law only to the extent that it is prohibited by state law, Caesars thinks a federal approach offers greater legal clarity and a less complex regulatory environment.

If they do legalize online poker, legislators will have to decide how to treat companies that already take bets from Americans (or did so prior to the UIGEA). A bill proposed last year by Senate Majority Leader Harry Reid (D-Nev.) would have discriminated against such companies by making it more difficult for them to obtain licenses. By contrast, notes gambling law expert I. Nelson Rose, Nevada's legalization bill "would expressly prohibit denying a license to an operator who is now taking online poker bets from the U.S."

I don't think it's fair or wise to punish foreign-based onlike poker companies with a track record of satsifying American consumers, which seems like an easy excuse for protectionism. At the same time, it is not exactly fair that people like Neteller's founders and Daniel Tzvetkoff of Intabill can be arrested and threatened with prison simply for helping those companies take bets from Americans—transactions that may be considered perfectly legitimate by the time Tzvetkoff gets out of prison.

I considered the fallout from the UIGEA in a 2008 Reason article.