The Recession

States Turn to Gambling to Pay Bills

| by CEI

By Brian McGraw

Last week the Tax Foundation called attention to state initiatives to expand the lottery system. To cover lost revenues from the recession many states have turned to expanding state owned gambling and lottery services (while simultaneously cutting funding for organizations that treat gambling addicts). The most notable example was Pennsylvania, a state in which gambling had been illegal until recently, which is planning to offer wagers on the outcomes of federal, state, and local elections.

Contrast that with this article from the Financial Times covering a potential grand jury investigation into Full Tilt Poker. The Financial Times article erroneously labels online poker as illegal. This claim is highly dubious at best–and likely to be untrue, as noted here by CEI’s Michelle Minton.

Full Tilt is one of the larger Internet poker sites currently serving players in the United States. The structure of Full Tilt Poker is interesting–Chris Ferguson and Howard Lederer (two U.S. poker professionals well known to poker enthusiasts) own the Full Tilt software and license it out to a foreign company which manages and operates the service. The software itself is worth very little. The market share and popularity of these players is what attracts users to this site over others.

The Department of Justice is attempting to link Ferguson and Lederer to charges of money laundering. The charge is interesting–the company itself is obviously not laundering money though it isn’t impossible for the DoJ to provide evidence that individuals have used the service for money laundering purposes. The DoJ might be hoping that Full Tilt will settle out of court and remove itself from the U.S. market. As an aside, it is interesting to note that the Department of Justice has refrained from testing the legality of online gambling via the court system–a potential sign that even they believe courts would rule in favor of legality.

The disparity between state policy and the actions of DoJ officials is humorous, but unsurprising. States are so reliant on gambling revenue that they encourage its expansion even as the federal government seeks to limit it.

The next few months are crucial to the future of Internet gambling. The long awaited enforcement of the UIGEA is set to begin in June, while another bill to regulate Internet gambling (being touted for its ability to bring in revenue) was recently introduced to Congress.