Las Vegas casinos are still pushing for a federal online gambling law with or without an advocacy group to speak for them and last week Joe Barton reintroduced a new variation of his bill.
This time, however, the impetus for the new federal bills isn't because an election is around the corner but rather because states are preparing to legalize both online poker and online casinos and this is a last ditch attempt to create a federal bill before the floodgates open. New Jersey already passed an online gambling bill for poker and casino games and Iowa, Massachusetts and Delaware are all prepared to legalize online poker in very short time. In Nevada, the Nevada Gaming Control Board authorized Ultimate Poker to run real money poker on a trial basis and required Ultimate Poker to provide exhaustive information to the Nevada Gaming Control Board to determine whether online poker should be allowed on a permanent basis. The trial period ended 2 weeks ago and by all accounts the Nevada Gaming Control Board was pleased with the information provided to them. Tobin Prior, the CEO of Ultimate Poker released the following statement followi ng the trial period which indicates that.
"The Nevada Gaming Control Board has set regulatory requirements for online poker at the highest level. We are thrilled that our product is the first to not only meet these standards, but exceed them. Ultimate Poker gives online poker fans the game they love in an environment they can trust."
The one state that has been wavering on online poker is California. California was supposed to have online poker back in 2006 but in-fighting between the casino companies, the land-based poker rooms, the racetracks and the native American groups has stopped any legislation from being enacted. The native groups have been particularly opposed to online poker believing that the activity will cannibalize their land based casinos and jeopardize their monopoly on gambling. But recently native leaders have conceded that state sanctioned online gambling is imminent and are prepared to get on board with three provisos. First they want the right to offer poker along with the casinos; second they want to ensure that any online legislation that passes will be poker only and that any expansion of gambling (online or land-based) would continue to be the sole rights of the tribes; and third they want to be included in drafting the regulations for online poker operators in the state. Since poker play on the reserves is so insignificant in relation to craps, blackjack and slots it's not a major concession. To ensure that the state does not sell out however, the native groups want a "bad actor" clause which would prevent any companies that operated in the United States after the passing of the UIGEA from being given a license and they want to exclude any individuals that have shown bad character. This would exempt PokerStars and Full Tilt along with other offshore operators that catered to U.S. citizens after the passing of the UIGEA. The California Online Poker Association which comprises 31 state card rooms and 29 tribes has been instrumental in the shift of the native groups' position convincing the various tribes that doing nothing will cost the state over 1,300 jobs and $1.4 billion in potential revenue.
With that in mind, Barton introduced a new bill called H.R.2666, the Internet Poker Freedom Act of 2013 which keeps the same requirements as the old bill but gives the native groups the opportunity to introduce poker under their own rules.
"United States consumers would benefit from a program of Internet poker regulation which recognizes the interstate nature of the Internet, but nevertheless preserves the prerogatives of states and federally recognized Indian tribes," the bill states.
It should be noted that California Senator Roderick Wright has also introduced legislation for legalized online poker.
In light of this new position of the California tribes, the Pala Indians are looking to introduce a website to offer online poker and casino games. The site, called Pala Interactive, will be a joint venture between the Pala Band of Mission Indians and Jim Ryan, the former Bwin.Party CEO who recently left the company in light of poor earnings. Pala Interactive by all accounts plans to use Realtime Edge software, which powers the ClubWPT website. Reports suggest that the Realtime Edge software originally belonged to Excapsa and was the software used by Absolute Poker and Ultimate Bet, two companies which were involved in major cheating scandals in Kahnawake. As many will recall, Excapsa sold their software to Kahnawake chief Joe Norton but former Excapsa employees never deleted super user accounts that allowed them to see the hole cards of other players in online tournaments. When Absolute Poker and Ultimate Bet launched in Kahnawake, Scott Tom and Russ Hamilton, former Excapsa employees, used those super user accounts to cheat Absolute Poker and Ultimate Bet players out of millions of dollars in online tournaments. Norton paid $21 million in fines to the Kahnawake Gaming Commission and reimbursed all players although no one in Kahnawake was able to prosecute Tom or Hamilton for their role in the cheating. What is significant in all this is that Jim Ryan was the CEO of Excapsa when the software was sold and was also CFO of Cryptologic which licensed gaming software to numerous offshore companies that catered to the U.S. market. So how Jim Ryan passes the "bad actor" clause is a mystery. I emailed Ryan for comments but he never responded. Pala Interactive also plans to use the face of Phil Ivey as its front man and spokesperson. A tribal spokesman I met at G2E last year did agree to answer the question although he was clear it was a personal opinion and not an official comment by the Tribal Gaming Association.
"In my view Jim Ryan is excluded from the tribal exemption list since Party Gaming withdrew from the U.S. market in 2006. So they never operated in violation of U.S. law. As for Excapsa, they didn't exist after 2006 and any issues involving that company aren't our concern." The spokesperson also stated that they had no issue with Phil Ivey since he wasn't actually a shareholder of Full Tilt Poker, the same way Howard Lederer or Chris Ferguson were.
It seems from that comment that the native groups are more concerned about ensuring that PokerStars and Full Tilt are excluded than truly addressing the honesty of other individuals.
As a result, the one company that gets shafted in all of this is the Rational Group, the owners of PokerStars and Full Tilt. The company bailed out the Federal government by purchasing and assuming all the debt of Full Tilt Poker, which likely would not have folded if not for the Black Friday seizures by the Feds. The Rational group also paid a fine of over $400 million to the feds and in return did not admit to any wrongdoing. For that reason they were assured that they would not be disqualified from applying for U.S. poker licenses if and when it was legalized. But promises and reality have been two different creatures for the company. When New Jersey announced that they were going to license online gambling for Atlantic City based companies, the Rational Group purchased the failing Atlantic Club Casino to get that A.C. foothold. But, in the end, the casino pulled out of their deal because of pressure from the other casinos and the American Gaming Association, who said that the company needs to be excluded for past wrongs. Massachusetts apparently has similar wording in their bill and now California is about to put in that language too. And if Barton's bill passes, then the Rational Group will have no recourse because that bill seems to exclude them also. It's almost certain that The Rational Group will complain and may even sue the Federal government for effectively reneging on their agreement but as was the case with the Antigua complaint at the WTO, the federal government will simply say "too bad, so sad." At the same time they'll keep the money given to them by the Rational Group and may even pay back former Full Tilt customers at some point.
Aside from Barton and Wright, Peter King of New York introduced a bill to legalize poker federally and other politicians apparently are ready to introduce their bills if none of these pass. The question that must be asked, of course, is why legislators on both sides of the political spectrum seem so anxious to get an online poker bill passed when for the longest time they seemed so opposed to online gambling legalization. The answer to that lies with New Jersey.
When the rhetoric was all about poker the casino giants didn't seem too concerned but now that other casino games are on the table things have changed. For all the talk about poker over the last few years, it's the one form of gambling that has tailed off. In both the U.S. and Europe online poker has seen a significant drop in interest but online casinos are booming. And Asians (arguably the biggest growth market) love and prefer casino games. The European sites are currently using Playtech (based in the Isle of Man), Microgaming (based in the Isle of Man) and Realtime Gaming (based in Costa Rica) software and the games play like a real land-based casino both in terms of graphics and ease of use. And more importantly, they are easy to use on mobile and tablet devices, which is the fastest growing platform for gambling. The U.S. government almost certainly would want U.S. sites using Ballys, WMS, IGT and Aristocrat to power their online casinos but that won't be mandated if the bills are passed at the state level. Requiring sites to use U.S. based software companies may be possible with a federal bill. And for the Republicans it's a real concern since reports have shown that of the political contributions made by Las Vegas companies, over 95% has gone to the Republicans and less than 5% to the Democrats. So for companies like the MGM, Caesars and Ballys, they need a federal bill to stop foreign entities from entering the market and getting a head start and the Republicans need the bill to keep the Las Vegas companies happy and keep their political donations rolling in.
The one casino mogul who may not be on board with this plan is Sheldon Adelson, the President and CEO of Las Vegas Sands. Adelson has been greatly opposed to any online gambling in the United States and even went as far as building a website called stopinternetgambling.com to convince Americans and legislators that online gambling would harm the country. But Adelson's concerns are for his land-based businesses and if he can be convinced that online gambling will not harm the Venetian and other casinos he may get on board. If the other option is state run gambling with foreign companies providing the software he almost certainly will get in line.
So what's next is uncertain but all things point to a federal poker bill in the near future. There are 3 bills on the table, all with bipartisan support, and the main holdouts until now, the Indian tribes are now on board as well. The only thing necessary now is essentially crossing the i's and dotting the t's. The federal government likely will ask the states to hold off on any bills to legalize other forms of casino gaming but once the poker bill is enacted the federal government, in conjunction with the states, casino companies and U.S. software providers will work feverishly to get a bill enacted for casino wagering as well. The genie is out of the bottle, thanks to New Jersey and Nevada and it can't be put back. The federal government realizes this and thus will move swiftly to enact something which should have been available years ago. In the end poker players, casino players and the native groups will all benefit. It appears that the only loser in all this will be the Rational Group, but had they been following all the cases involving online gambling and the U.S. government in the past they should have realized that the word of the federal government when dealing with online gambling isn't worth the paper it's written on.
Read Part 1 of this story exclusively on OSGA.com by clicking here.
Contact Hartley via email at hartley[at]osga[dot]com.