Since the inception of online gambling nearly two decades ago, there are always big stories, every year. This past year saw the advent of legal online gambling in the U.S. (finally) and the end to a one-time industry leading sportsbook. Hartley Henderson lists his Top 10 Gambling stories of the year. This is Part 1 of two, check back for the rest of his list!

2013 Gambling Year in Review – Top 10 stories Part 1

1. Legal Online Gambling comes to the United States.

Even though laws were passed last year which would legalize online gambling in New Jersey, Delaware and Nevada there was some skepticism as to whether online gambling would ever really come to the U.S. any time soon. Campaigns to stop online gambling were started by some Congressmen and Senators as well as high profile individuals like Sheldon Adelson and even New Jersey Governor Chris Christie seemed uncertain if he was in favor of supporting the online gambling bill which he signed. Don't forget that Christie originally vetoed the New Jersey gambling bill which had passed the Assembly there prior to him being voted in as Governor and he only agreed to support it if various concessions were made, specifically a requirement that licensees have an Atlantic City physical presence, that deposits be made in Atlantic City or at an agent thereof and that all betting take place on Atlantic City servers. Numerous companies that didn't have an Atlantic City presence tried aimlessly to acquire one and Caesars was still pushing for a federal law in place of a New Jersey online gambling state sanctioned one, although they were one of the first to go online with Caesarscasino.com. As the New Jersey start date grew closer it was evident that online gambling would indeed take place in New Jersey and on November 26th several sites, including Caesars Casino, Ultimate Casino and Party Poker New Jersey, went live. Other sites went up shortly thereafter and by all accounts online gambling has been a great success for the month the sites have been operating. There have been a few issues including problems with geo-location which negated some New Jersey residents from signing up for sites like Tropicanacasino.com as well as the refusal by some credit card companies to process transactions for online gambling but those issues are minor and can be overcome. To date just over 100,000 New Jersey residents have signed up to online gambling sites.

While New Jersey was the biggest news relating to legal online gambling in the United States it was notable that Delaware and Nevada also legalized online gambling. Nevada introduced online poker with a beta of Station Casino's site UltimatePoker.com and a lack of any issues convinced the state to allow other sites to go forward as well. Caesar's site WSOP.com launched shortly thereafter and took virtually no time to surpass Ultimate Poker in players despite the fact that Ultimate Poker launched earlier. Players have cited better software, better brand recognition and a better loyalty program as the reason they chose WSOP.com. It can be expected that WSOP.com will continue to pull away from UltimatePoker.com in the quest for online poker superiority in the state. It should be noted that less than 300 people have been playing online poker at its peak for either site.

Several states are closely monitoring the continued success of Delaware, Nevada and New Jersey since they are interested in state sanctioned online gambling as well. To date California, Massachusetts, Hawaii, Illinois, Iowa, Mississippi, Pennsylvania and Texas have online gambling bills on the table while Oklahoma, Michigan, Maryland and Washington have introduced legislation regarding online gambling as well. It's not inconceivable that at some point every U.S. State except Utah will at least consider offering online gambling.

2. PokerStars owners are snubbed in New Jersey:

While companies like Caesars, Station Casinos, Trump and MGM are set to make a big stand in New Jersey, the same can't be said for Rational Group, which owns PokerStars and Full Tilt Poker. Last year, the Rational Group bailed out the DoJ by purchasing the defunct Full Tilt Poker for a ridiculous amount of money while also paying a hefty fine to the U.S. government and agreeing to pay back U.S. and non U.S. customers that were owed money by Full Tilt. The benefit to the Rational Group of doling out over $700 million was unclear until it became known that the purchase would also dissolve them of any wrongdoing, thereby allowing them to apply for a license when online gambling was legalized in the U.S. Without question the Rational Group had New Jersey in mind when making the deal. This was confirmed when the Rational Group offered to buy the Atlantic Club Casino at the end of 2012 for an estimated $50 million to meet New Jersey's requirement that online operators must have a physical presence in Atlantic City. The casino itself was of no use to the company although they agreed to keep it going as part of the agreement. The Rational Group apparently paid installments of around $11 million from December 2012 to April 2013 which allowed the Atlantic Club Casino to continue operating but at the end of April the Atlantic Club announced that the Rational Group missed a deadline and hence defaulted on their opportunity to purchase the casino. The Atlantic Club also said it had no intentions of returning the $11 million. Eric Hollreiser, Rational Group's media spokesman, stated that there was an agreement in place which should have extended the deadline and that the only reason the deal was reneged on by the Atlantic Club was because the American Gaming Association was adamant that the Rational Group should not be allowed to operate in New Jersey due to past wrongs. The AGA also stated that giving them a license would "would dramatically undermine public confidence in gaming regulation and could cripple the industry's public image." Naturally companies that are represented by the AGA agreed.

The deal must have had the Rational Group feeling that they were dealt a bad hand, since they only agreed to purchase the worthless Full Tilt Poker from the DoJ and pay the fine on the provision of immunity from further persecution. So the decision by Atlantic Club not to proceed as a result of AGA's statement and the inaction by the DoJ to intercede on their behalf was likely seen as bad faith on the $700 million deal with the DoJ.  As for whether the backing out of the deal was in the best interest of the Atlantic Club Casino, the answer is clearly no. The casino shut its doors on December 20th and sold off the land to Caesars and the gaming tables and slots to Tropicana Atlantic City Corp. All employees that would have been retained under the PokerStars agreement are now looking for work.

Harltey posted several columns regarding Poker Stars. One of the most read was PokerStars' Past Shouldn't Preclude Them from Obtaining a Gambling License

3.  New Jersey and the PASPA challenge.

A few years back I wrote that all gambling changes would go through New Jersey and now it seems quite prophetic. Most states are looking at New Jersey's success over the next year with regards to online gambling before deciding how to proceed and any chance of overturning the 1992 Professional and Amateur Sports Protection Act (PASPA) wrests with the state as well. A few years back New Jersey Senator Ray Lesniak teamed up with iMEGA to challenge the legality of PASPA claiming that it violates numerous sections of the U.S. Charter. In particular it discriminates against 46 states since it allows only 4 states (Nevada, Delaware, Montana and Oregon) to offer sports betting. In fact when the law was passed, the Attorney General at the time stressed that he was concerned it violated the constitution. Nevertheless, the bill passed and New Jersey, which was given the option to opt-in to offering sports betting, chose at the time not to.  Two decades later, with the economy in shambles and horse racing reeling, they need sports betting to survive. The attitude towards gambling in the U.S. was becoming more relaxed, so New Jersey decided it did indeed want to offer sports betting and the answer by the DoJ and the sports leagues has been "too bad." Chris Christie called for a referendum on the issue and after it passed by a 2/3 margin he went on the offensive to get the law changed.  He lost his challenge in 2 lower courts but in the 3rd Circuit Court of Appeals, Justice Vanaskie issued a dissent. In his ruling Vanaskie stated that gambling has always been a state issue and that the federal government had no business introducing a law (PASPA) that was a state's decision. He also believed that the decision to maintain PASPA despite New Jersey's referendum violates the principles of federalism and that the law was indeed unfair. Needless to say the other two judges disagreed suggesting that it wasn't their job to decide on the fairness of a bill and they weren't prepared to overturn a law that was passed legally in Congress. Nevertheless all 3 judges did point out that there was a precedent where the Supreme Court has overturned a federal statute.

This comment clearly punted the ball to the U.S. Supreme Court and Christie picked up the ball announcing that he would be taking the case to the highest court. No doubt he is also looking for other states to join him in the fight (since other states have indicated they would like to introduce sports betting as well) although he is prepared to have New Jersey fight it alone if need be. As to whether he can win the case, two lawyers and one industry expert I spoke to suggested it is possible if they play it right. If New Jersey challenges the law on fairness they probably won't win, but if they use the issue of federalism and state's rights as the main focus for their appeal the Supreme Court justices may feel obligated to hear the case, particularly the issue of state's rights in the era of Obamacare is such a hot topic. And if the Supreme Court does agree to hear the case on the merits of the law, it is hard to see the judges not ruling that the law is indeed discriminatory and unconstitutional.

Hartley praised Chris Christie for his aggressive stance on PASPA. Read the story, Christie Deserves Credit for Challenging PASPA, here.

4.  The end of WSEX and the coinciding suicide of Steve Schillinger

World Sports Exchange (WSEX) was one of the pioneers in the offshore industry. Started by a group of Pacific Stock Exchange traders, in 1997 WSEX introduced a way to bet on sports the same way one plays the stock market. People bought "shares" of a contestant at a given price and could then hold them until the end of the game or tournament or sell them when the price got right - similar to a stock market. The idea was revolutionary (before the days of Betfair and Betdaq) and transformed the way many people bet on sports. Instead of betting before the game many people chose to buy shares of teams or contestants in game and traded them throughout the match. WSEX was a top rated book by all watchdog sites and received an Elite rating by OSGA. The company made headlines in 1999 when Janet Reno, the Attorney General at the time, issued warrants against several individuals including the owners of WSEX. Jay Cohen decided to return to the U.S. and fight the charges only to lose and spend time in jail. WSEX was also instrumental in convincing Antigua to challenge the United States by claiming the U.S. were violating a WTO agreement which required them to allow gambling services from foreign jurisdictions.

Things went well for WSEX until 2006 when the UIGEA passed and more specifically when NETeller stopped processing transactions to American customers. The company started to have difficulty processing transactions and turned to new processors, many that were less than honest. Consequently WSEX often saw money they sent to those processors disappear into thin air. For that reason along with others including a failed internal poker site, a failed fantasy site and a partnership with a player to player site, WSEX began to face financial difficulties. Around 2009 withdrawals became very slow (often taking months). The company withdrew their Antiguan license for a cheaper Cyprus based one and the company's high ratings dropped like a stone. The company sought new investors but they were unable to turn things around and the end was inevitable. In April WSEX stopped updating lines and on April 20 WSEX closed its doors for good. Two days later it was reported that Steve Schillinger, one of the founders of the site had taken his own life with a shotgun. According to sources close to WSEX, Schillinger took the loss of the company very hard and stated he could not live knowing that people who deposited funds in good faith would not be paid back.

Read Hartley's hearfelt Piece on the passing of an industry poioneer, Steve Shillinger here.

5.  The decision by Antigua to finally use the decision given to them by the WTO.

There was much excitement in the offshore gambling world in 2005 when Antigua won their WTO challenge against the United States which required the U.S. to allow gambling services from other jurisdictions but that excitement was toned down in 2007 when the amount awarded by the WTO only $21 million per year – the amount the WTO reckoned Antigua could have made if the U.S. allowed them to offer horse racing from the U.S.  Nevertheless, the amount was significant when the WTO ruled that Antigua could apply the award by ignoring the TRIPS (intellectual property) agreement which is what Antigua asked for.  With that ruling Antigua was able to sell copyright protected movies, software and music for a fraction of the cost, which Antigua hoped would force companies like Sony, Microsoft and Disney along with the RIAA and MPAA to demand that the U.S. settle with Antigua.  That never happened, however and Antigua sat on the award given to them. The U.S. steadfastly refused to sit down with Antigua to work out an agreement both sides could live with and in fact warned Antigua not to use the decision given to them or else they could face repercussions. Many in the industry including myself encouraged Antigua to call the USTR's bluff and immediately start offering the copyrighted materials for pennies a copy but they failed to do so. Talking with Antigua's attorney Mark Mendel it was clear that Antigua was worried about retribution by the U.S. targeting its tourism industry plus they had hoped that cooler heads would prevail and that something could be worked out diplomatically. Of course the U.S. continued to ignore Antigua and the WTO ruling and at the beginning of 2013 Antigua announced that it would be using the TRIPS agreement given to them. The thought was that by Christmas of 2013 Antigua would have flooded the U.S. market with extremely cheap copies of iTunes music, DVDs and Microsoft Office products but to date no site has ever officially launched. The U.S. told Antigua's government that if they were to move forward with their threat it would hurt the ongoing discussions (of which there were really none) and Antigua seems to have backed off.

The question that I and many in the industry wonder is whether it is really significant now even if they go through with the award.  After all, most offshore gambling companies have left Antigua for greener pastures, the industry in Antigua is all but dead and legal online gambling is starting to occur throughout the U.S. If the United States indeed tells Antigua to go ahead and offer their products to U.S. citizens (although it's highly unlikely), how many new signups will occur? It's doubtful any banks will deal with Antigua even if they are sanctioned by the U.S. government so payments will continue to be an issue and if Americans can gamble online legally in the United States why would they bother to use a foreign site? In essence this is like a parent telling their child at the beginning of the year to smarten up and obey or else they'll have their video game rights taken from them and then on December 30th saying "ok you lost those rights for the rest of the year." Sure it may invoke a bit of upset but the real benefits which would have occurred had the punishment been carried out months before when the threat was most relevant are all but lost. It will be interesting to see how this plays out from here although it's safe to say that Antigua's gambling economy will never be what it once was regardless of how the U.S. reacts should Antigua indeed carry out the decision given to them.

The mosr recent article about the Antigua and it's use of TRIPS can be viewed at: http://www.osga.com/online_gaming_articles.php?Antigua-s-platform-for-suspension-of-U.S.-intellectual-property-rights-is-too-little-too-late.-12842 !

Check back soon for Part 2 of Hartley Henderson's 2013 Gambling Year in Review.