Off Shore Gaming Association

Mainstream media seems to have gotten into the Internet gambling arena with reports abounding about the ‘victory’ for Barney Frank, et al. in Wednesday’s advancement of H.R. 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act. There has been extensive press on the passage of this bill out of the House Financial Services Committee with headlines that blare “Online Gambling Could Become Legal” and “House Panel Passes Measure to Legalize Some Internet Gambling”.

Whoa there! This bill is far from passing anything except for a committee vote. Though this is a serious step in the right direction towards legalizing and regulating online gambling, this small victory is like a win in April for a MLB team. There are still many games to be played and many battles to be won for H.R. 2267. There will be many hurdles and many more hearings before H.R. 2267 becomes anything more than ‘Barney Frank’s gambling bill’.

The biggest thing that shows the road ahead is long and winding was from the vote on Wednesday was when Frank mentioned, when questioned, that he would like to position his bill alongside a bill that outlines what taxes and revenues his Internet gambling bill may generate. Frank, the chairman of the House Financial Services Committee, said that he would not be moving H.R. 2267 forward unless it is “married to a revenue bill”! Frank is referring to Rep. Jim McDermott’s Interenet gambling ‘Internet gambling tax’ bill, H.R. 2268. However, while Frank’s billl has significant support with 70 co-sponsors, McDermott’s revenue-generating legislation has only 5 co-sponsors and has not seen any movement since it was introuced alongside Frank’s bill last year.

Most likely H.R. 2268 will head down the same path as H.R. 2267 with a series of hearings, followed by a vote. But, this will not happen until after the Congressional recess, which lasts until Labor Day. By September candidates up for re-election will be busy trying to keep their jobs and will most likely have little time or enthusiasm for any forms of gambling. The really unfortunate news is that if nothing is done with this bill before the end of 2010, Internet gambling will be shelved and a new Congress will have to take up the issue all over again – from square one.

But the biggest problem I see with Barney Frank’s bill moving forward is that even if the bill does get a full House vote and passes, it will then have to go to the Senate, where Sen. Menendez from New Jersey has his own ideas on Internet gambling. He introduced S.1597, the Internet Poker and Game of Skill Regulation, Consumer Protection, and Enforcement Act of 2009, in August of ’09 and his bill has fallen flat, with no co-sponsors and no movement. It figures that Frank’s bill and Menedez’ bill would have to find some common ground before the Senate would vote. The chances of all of this happening in the last 4 months of 2010 are an extreme long shot, not even worthy of a $1 wager.

Still, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, introduced by Frank back in May of 2009 has made significant headway towards becoming law. The fact that seven Republicans saw the light and said ‘aye’ with bipartisan spirit, is a fantastic step. That the bill passed through committee overwhelmingly with a 41-22 Yes vote is outstanding. After getting shot down in a tie vote around this time last year, the two-thirds margin shows that lobbyists and common sense and maybe a bit of greed for government coffers are beginning to take hold.

We will keep our eyes and ears to the ground on this piece of legislation but I doubt that we will see much from H.R. 2267 again this year. However, I am very confident that Barney Frank will introduce similar legislation in 2011. Hopefully, Franks 2011 version of the ‘Internet gambling bill’ will include the amendments added this week. Such a bill would get immediate bi-partisan support and whiz through the phases of bureaucracy that took H.R 2267 fifteen months to navigate. One thing is for sure, the issue of Internet gambling is here to stay. For 2010? The recent press and attention that Internet gambling is getting could not have come at a better time. After all, football season is right around the corner.

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In the United States, big issues sometimes polarize the people and their lawmakers. Slavery was perhaps the biggest debate with no center and caused a civil war. One of the most recent issues where there is no middle ground is abortion. But to see what transpired in the most recent House hearings on Internet gambling and several previous hearings, one would think that lawmakers are deciding another life and death issue. Apparently, when it comes to gambling on the Internet, there is no midpoint, some lawmakers are all in favor and other continue to think this form of gambling is like smoking crack.

Wednesday’s hearing on Barney Frank’s bill, H.R. 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, started a little late and Chairman Frank rushed through opening statements to get to witnesses. However, there was enough time for Alabama Representative Spencer Bachus (R) to ask “why we would open gambling up to every Blackberry . . . and Ipad.” He added, “How does raking in cash from Internet gambling addicts differ from taking a cut from the heroin sold to drug addicts?”

Now that is some polarizing rhetoric.

Testimony included arguments from both sides of the table. Poker pro Annie Duke, propped up by the Poker Players Alliance, was excellent this time (she had testified in 2008). She must have read my previous BLOG entry because this time around she stressed consumer protection. Players “want to play on sites licensed in the United States, which will provide even greater consumer protections for the player,“ Duke testified. She added “The UIGEA does not keep a single child off an internet gaming site, nor does it provide any protections for problem gamblers or mechanisms to prevent fraud and abuse – it only regulates the banks, not those who operate the games. It is quite candidly a law that appears to be more about burying government’s head in the sand than it is about government providing its citizenry with sensible public policy. H.R. 2267 corrects this untenable posture and puts us in the greatest position to protect consumers and vulnerable populations.” Well said and about time!

Mr. Ed Williams spoke on behalf of the Credit Union National Association and was very eye-opening on what the banks are being forced to do to comply with the UIGEA. “We have handful of transactions that come through and we block all of them because we don’t know which are legal or illegal. He was simply stating that in order to comply that most financial institutions will choose to block all transactions that even appear to be Internet gambling related.

The Honorable Lynn Malerba, Tribal Chairwoman, Mohegan Tribe of Connecticut spoke in favor of H.R. 2267. She mentioned that the Mohegan Tribe had joined forces with other Indian tribes around the country to work with Barney Frank so that “all tribes” can get the benefits of Internet gambling. Unfortunately, she was also the target of Calfornia Rep. Joe Bacca (D). He lambasted her implying that currently the Tribal Nations in the U.S. pay no taxes on the money their casinos generate. She said that is not true and added that the Mohegan Sun pays 25% or its revenue to the state and if possible, she she would prefer the 2% tax in H.R.2267. Bacca claimed that eventually Indian tribes would lose their sovereignty! However, Malerba retorted that she is not fearful of either losing jobs or losing their sovereignty.

Michael K. Fagan, Law Enforcement/Anti-Terrorism Consultant, who was a former prosecutor in St. Louis, railed the entire concept of Internet gambling. He believes that Internet operators will engage in predatory behavior. He wanted to know how the online operator could tell if the player was high or drunk. He took a few softballs from Rep. Bachus and attempted to hit them out of the park citing child behavior that those playing MMOG games would now lose real money instead of virtual points, that identities would be stolen and that most likely it would be the end of civilization as we know it.

One of the big argument that opponents of Internet gambling use time and again in these hearings (Wednesday’s was no different) is that the current prohibition protects our children. I think that Rep. Frank said it best when he said that ‘ the poor children here are being used by people who don’t like gambling.”

Perhaps the best part of the hearing was when Rep. Bachus pulled out a giant picture, so big he had trouble holding it up, showing the headquarters for the Safe and Secure Internet Gambling Initiative. It was a picture of a UPS store in Washington, D.C. Rep Frank hit the gavel, making him put it away quickly. Hilarious.

But there is nothing funny about this debate. The sides are so diametrically opposed that there appears to be no middle ground; no compromise in sight. The bill is scheduled for markup (changes) on July 27. Unfortunately, it does not appear that Rep. Frank and others will ever be able to include enough alterations to H.R. 2267 to ever get the other side to see the light.

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SB 1485, the California Online Poker Law Enforcement Compliance and Consumer Protection Act, did die in committee this past week and most pundits are reporting its death as a serious blow to Internet poker in California. But, the reality is that though the bill might be dead, it is far from 6 feet under.

The 1 hour and 18 minute hearing was called by Governmental Organization Committee Chair Senator Roderick D. Wright (D-25), who desperately wants to make Internet poker a reality in California. However, after seeing the opposing views of tribal gaming, current California land-based cardrooms and others, he decided to pull the bill, for now. Evident in his opening remarks Wright mentioned that, “We still have more work to do”.

The charismatic Wright made several emphatic statements at the outset of the hearing. “The world isn’t standing still while we figure out what to do” and “The longer we wait, the more difficult it will be to get that business back.” He is obviously right. The online poker world continues to chug along.

Overall, I got the feeling from watching the proceedings that this was not a question of if there is going to be Intrastate Internet poker in California, but when it will start. In fact, I am 100% confident that this was not the end of SB 1485, but that this bill is

the beginning

of online poker in California.

After several Senators got their chance to chime in on the legislation, the panel took comments from the floor. Every single speaker was supportive of the bill except for the Reverend James B. Butler from the California Commission Against the Expansion of Gambling (CCAGE). No shocker there. He was given a large amount of time and even got into a little back and forth with the Chair, who had obviously spent a good deal of time reviewing problem gambling. In response to the Reverend Butler, Wright said, “I can manage the downside of gambling better on the Internet”, than brick and mortar casinos can.

Unfortunately, even though all but one speaker supported the bill, they all had a “but” in their responses. Irish bookmaking giant Paddy Power was again present and emphasized current operators (no shock there). So did the Poker Players Alliance and the Poker Voters of America, who think that players should have a bigger choice than the three licenses that are being proposed.

Senator Wright acknowledged that there may be an issue of liquidity, which has doomed many an Internet poker room. Liquidity refers to the amount of players that are registered and play on a regular basis. He also added that due to the size of the state and the estimated number of gamblers that California is one of only a handful of states (including New York and New Jersey) that would have enough players on their own to host the games. He thinks that in the future the Federal government may allow smaller states’ players to wager across state lines for the sake of liquidity, adding that it “behooves” California to get in “first”.

No one could contest, Wright has done his homework. He even figured out that perhaps it was not in the best interested of California to keep it all within the state, correctly mentioning not all of California lies within the Pacific Time Zone. Therefore, a player signing on at 5AM might not find much of a poker game. He was hinting that in a truly competitive environment California players could be playing against players from England or Russia, if a license was given to an existing global operator.

And ultimately, California may find that that is the solution. How many players are going to suspend play in their existing accounts at Full Tilt or Poker Stars to try the California game? Legislators are shooting for 50% of the existing market. But, these and other current poker giants have zero chance at getting into the game. The legislation will have an article written into it where any operator who has taken bets from U.S. citizens post-UIGEA will NOT be allowed to get a California license. This bill would mark the end of the game for current operators who allow U.S. players.

But, this bill and the political rhetoric make it ‘Game On’ for California. There is no doubt about it, Californians will be getting their Internet Poker. Not in 2010 and maybe not in 2011, but Senator Wright is proving he is a very resourceful and smart guy. Not only has he done his homework, he made SB 1485 an Urgency Bill, so that it may be continually amended. And it certainly will be, until they “get it right” and the citizens of California are playing poker, LEGALLY, on the Internet.

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A funny thing happened on the way to the sportsbook this week. I got excited about soccer, err . . . futbol. And it wasn’t because of the dramatic U.S. victory in the 91st minute. It was because the sportsbook I was headed to was not in Las Vegas, but in Latin America. Apparently, this World Cup thing is HUGE in the rest of the world.

From the moment I got off the plane in Panama, there were signs of the World Cup. People from all walks of life were wearing jerseys from soccer teams around the world. Brazil and Spain appeared to be very popular ones smattered with England, Mexico and Portugal. On the way to the airport, I asked the taxi driver about World Cup fever.

“Oh Ches. De World Cup is berry big down here.” But, Panama does not have a team in the tournament, I remarked. “Every body picks dare team or where dare grandfadders and modders come from”, I was told. Apparently, his team is Brazil, which looks like a solid pick.

Upon arriving at the hotel, all of the employees were all wearing the same colored shirt – orange - for the Dutch squad. Apparently, the parent company that owns the hotel is Dutch. Then it’s off to the hotel bar, where four extra 40 inch flat screens were sitting on tables for all to watch. As one English-speaking local told me, “At my little local bar, there are 6 brand-new plasmas. It’s not that big a place, it’s like there is plasma overload in there.”

On one trip around Panama City in the afternoon, I noticed far less traffic in what is normally a congested area. I was told by that taxi driver that, “everyone is watching futbol.” So, with all of this, and the next several days of soccer, soccer and more soccer, I have been converted. A 0-0 tie really can be exciting. And watching the English bemoan their team and the French cry in their wine, the World Cup has become quite exciting for this American.

And, I am not the only one. Handle is up throughout Latin America and Caribbean sportsbooks. Industry giant Bodog told us that, “We are seeing great action through the first matches of the World Cup. The handle is comparable to an NFL Sunday regular season game.” Sill, 5Dimes is seeing even more wagers than that! “Action is about double what we expected. We expected similar action to a typical NFL Monday night football game. We’re getting double that”, the top man at 5D told us.

One reason for the exceptional handle might be in the outcomes of some of the early games where a number of soccer ‘giants’ went down. 5Dimes added that “this World Cup has exceeded expectations to this point.” And this is only destined to increase.

The belief offshore (and a valid one) is that the handle in the next round will even larger, as bettors get a better grasp on who is playing well, Bodog expects the 2nd round wagering to be “comparable to an NFL first round playoff game.”

Of course, some games will get more bets then others depending on the teams playing, just like in the NFL. But powerhouse countries like Spain, Brazil and Germany will see a good deal of action. And of course, for sportsbooks that service the American market, they can expect to see a ton of bets on the U.S. But, book who have an international clientele, like Bodog, with Canadian, European and South American clients, will get wagers on both teams and thus balance the action.

So have American bettors embraced the World Cup? Yes, is the definitive answer. And for books that take U.S. bets, with clients who have new affinity for soccer betting, GOOOAAAL is the word of the month.

On a side note, in the U.S. the ESPN announcers really do not do the sport justice. International commentators really get into the match. You can have a beer in your hand, turned away from the bar, and hear when it is time to watch the flat screen. The excitement builds in the announcer and the viewers, all waiting to hear the afore mentioned scream of GOOOAAAL! Great stuff, but not on a TV set in America.

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In 2006 the United States Congress decided to make the U.S. Financial system the enforcement for Internet gambling with the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA). But, the new law would not be put into effect until the rules that the banks would be forced to follow were finalized. They were finally supposed to be implemented by December of last year, but Rep. Barney Frank and the House Finance Committee were able to block the implementation, at least for another 6 months. Well, six months is up and June 1 is the new date for banks and payment processors to block all transactions associated with ‘illegal online gambling’.

One of the biggest sticking points for Frank and the banks was what constitutes a payment to an ‘illegal’ online gambling operator. After all, no one in this administration or any previous ones has been able to actually define what that ‘illegal online gambling’ is, and thus banks and payment processors really do not know which transactions to block. The fear amongst Frank and his legislative buddies was not only the cost to financial institutions (always a biggie when you have the ear of the banking lobbyists), but the fear that any suspected transactions, including legitimate ones, would be denied.

The OSGA has been getting swamped with inquiries as to what would happen come June 1. We have been telling players since the passage of the UIGEA, that the movement of money for the purposes of gambling online, except for U.S.-based horse racing sites and lotteries, is illegal because of the 2006 law. We also have spoken with online gaming companies worldwide who tell repetitive horror stories, usually involving getting money back to players in the States. In reality, the banks are already doing more due diligence on ‘suspected’ transactions. We have reported on many companies that process money back to U.S. players which have been shut down and had funds confiscated for several years. As it turns out, the effects of this law have already been felt, and it’s not yet June.

Last week we got a disturbing report that a player had his debit card shut down by his local bank. Apparently, he had made several deposits with an online gaming operation located off of U.S. soil. These transactions were identified as illegal and his debit card was shut down, I guess so that he could make no further deposits with it. This is quite alarming, as it was not the transactions that were blocked, it was the players debit card that was shut down. His account remained open, but his card was shut down.

This may be an example of the frustration that the banks are going to have with ambiguous rules and regulations. Unfortunately for everyone, the UIGEA makes financial institutions police, judge and executioner. They will simply block first and ask questions later. In New Hampshire and North Dakota, overblocking led to denial of legal online lottery purchases several years ago. The blocking of legitimate transaction is one of the biggest arguments against the ambiguous UIGEA. Yet, who can blame the banking system? They will be fined if they process money to/from an Internet gambling house, even if they just missed a check or debit.

It is important to keep in mind that the UIGEA was not written to go after any player sending money offshore or receiving payouts from gaming companies. Instead, it enforces steep penalties on financial institutions for allowing ‘illegal Internet gambling’ transactions to occur.

The same player continued to have bad luck at his bank. The same week as the debit card incident, he went to the bank to deposit a check he had received for a payout from the same book. The bank claimed that the check was bad, and was looking for additional information. Instead the customer checked with the book, found out that the check was indeed good and simply asked the bank to redeposit it. Of course, the check cleared. And of course . . . once it did . . . the player opened an account at another bank.

This player’s story and his particular bank may be an isolated incident, or this case may be the tip of the iceberg. No one can be 100% sure. But this one occurrence should show players at Internet sportsbooks, casinos and poker rooms, that these regulations are making a real impact, implemented or not. Though we believe that the online gaming companies that service U.S. players are always one step ahead of the long arm of U.S. law, you can never be too safe with your money. Players should take care with how they are sending and receiving money and now, more than ever, keep an eye on balances.

If you have had a problem with your bank and the UIGEA regulations, please add your comments below.

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On Wednesday the U.S. House Ways and Means Committee held a hearing on Senator Jim McDermott’s (D., Wash.), latest revision of an online gambling tax bill introduced in 2009, H.R.2268. For over a year this bill has sat around while Internet gambling grows and state and federal coffers dwindle. The hearing engaged much of the same rhetoric that we have heard since the passage of the UIGEA in 2006, but this discussion was more spirited than many Federal hearings, perhaps, because this one was focused on the money.

And Big Money is what was being discussed. How ‘bout $42 billion over ten years! That is the figure that was thrown out early by Rep. Barney Frank (D-MA), who had to leave almost immediately after his testimony to take care of slightly more important national issues, like legislation designed to boost bank lending to small businesses. 40-plus billion is a huge number and is predicated on McDermott’s complex tax scheme involving operators paying a 2 percent tax on customer deposits, a one-quarter percent tax on wagers and the tax generated from gamblers who would now pay on their winnings in the form of a 1099 at the end of the year from their favorite online casino.

A good deal time was spent exploring the deposit tax. Several senators could not fathom that there would be a tax when making a deposit. They likened this as to a tax when a consumer ‘walks into Sears to buy a refrigerator with $1000 in their pocket’ and is taxed, whether a purchase is made or not. This line of archaic thinking came from multiple sources at the hearing. Finally towards the end of the hearing McDermott brought some sense to the argument noting that gamblers are not the ‘type of people’ to leave their money in the account. “That money to be deposited will be gambled”, said McDermott.

Even though this was supposed to be a hearing on the tax bill, it quickly turned into the usual point-counterpoint on the rewards/evils of online gambling. Opinions were all over the place with some legislators hitting on points that seemed to have nothing to do with the taxation of Internet gambling. Job creation, problem gambling, and the who, what and when of regulation were discussed. Advocates made legitimate arguments while opponents brought up much of the tired commentary that led to the current prohibitions.

Once again Rep. Bob Goodlatte (R-VA), architect of the 2006 Unlawful Internet Gaming Enforcement Act (UIGEA), brought up the suicide of a constituent. Though these stories are sad, the constant reminder of them brings to mind Tipper Gore saying that heavy metal music and Ozzy Osbourne prompted kids to kill themselves and others in the 80s. Rep. Wally Herger (R-Calif.) wanted to know at the outset why there was “even a hearing being held” when 317 legislators voted for the UIGEA. He did not reveal that the UIGEA was attached in the 11th hour to a homeland security bill that was pretty much a slam-dunk for passage.

Clearly Herger is obviously an opponent, as is Goodlatte, who spent a good deal of time being grilled by regulation advocates including, Rep. Charles B. Rangel (D-NY) and Rep. Earl Blumenauer (D-OR). However, Goodlatte takes a unique approach when being questioned. When asked, he punts and allows State’s rights to play defense for him. The questioning of Goodlatte went something like this. Q: Bingo. Goodlatte: States rights. Q: Poker. G: State rights. I think if it were up to Bob Goodlatte, we would have no Federal Laws, the states should be able to regulate every aspect of life.

There are clearly lines being drawn between supporters of Internet gambling and those that think the current prohibition is the best way for the country to go. Rep. Blumenauer commented that after the UIGEA legislation “people are still playing” and Rep. Linda T. Sanchez (D-CA) said that we are doing nothing more than “taxing what is already going on offshore”. Rep. Shelley Berkely (D-NV) added in that she supports legislation and regulation, but cannot give the OK to this tax bill. I guess Las Vegas thinks they pay enough taxes already. There was talk of limiting funding to political campaigns via gambling proceeds and whether the IRS will need more people and what about the Tribal Nations and their gambling? Clearly this is going to take some time . . .

Here are a couple of my favorite quotes from the two and half hour hearing.

Danny Davis, (D-IL) (neutral): “I think freedom of choice is a real concept.”
Sanchez, (D-CA) (for): “Today we are talking about a revenue stream.”
Earl Pomeroy, (D-ND) (against): “We can’t gamble our way back to a balanced budget.”

These three quotes are a microcosm of the realization that Federal legislation for Internet gambling is still a long way away from any type of resolution. The two sides are so far apart they cannot even get together on the most important aspect of legalization and regulation, at least as far as the government is concerned – how to collect the money. As long as legislators like Bob Goodlatte keep bringing up letters from States Attorney Generals and the sports leagues and the FBI and is allowed to put them into the record (again and again) then the road is long and uphill for legalization in the U.S. In the meantime, U.S. gamblers keep playing, offshore companies continue to benefit and the American consumer is the one who loses.

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