Key Components To Harry Reid Draft Legislation For Online Poker in US

Written by:
C Costigan
Published on:
Online Poker Legislation in US understands that a lot of its readers are interested in knowing what Senate Majority Leader Harry Reid’s draft legislation for legalized online poker in the US will mean to them.  Specifically, will players be able to access Web card rooms over the next 15 months following word that a “blackout” period will be required in order to obtain a license for operating a legal Internet poker business in the US.

First off, it appears as if the measure will be attached to tax legislation that stands a better-than-50-percent-chance of passing, though there is still some opposition on that particular front.  Also, it needs to be emphasized that this is still a “draft bill” and amendments are likely as are exclusions in regard to current wording. 

As a reminder, current online gambling prohibition (Unlawful Internet Gaming Enforcement Act) passed into law under similar circumstances.  The UIGEA was attached to a Port Security bill. 


15-Month Blackout Period:  The Good And The Bad


"No qualified body may issue a license under this title before the date that is 15 months after the date of the enactment of this Act," said the draft of the bill. "Qualified bodies shall, to the extent practicable while meeting the requirements and standards of this title, issue multiple licenses on the date that is 15 months after the date of the enactment of this Act in order to ensure a robust and competitive market for consumers and to prevent the first licensees from gaining an unfair competitive advantage."

Prior to this week, existing online poker rooms catering to the US market such as PokerStars and Full Tilt Poker, would have been excluded from operating in the States.  This latest stipulation allows them in but they would essentially be starting from scratch come 15 months from passage of any new law (albeit they’ll have a leg up with an expansive player database and top-of-the-line software). 

They will be in direct competition with Las Vegas casinos, or maybe not depending on whether strategic alliances can be formed. 

In the back of every operators mind, however, there is no guarantee that the online poker rooms will obtain a license in the US.  The smaller sites understand that PokerStars and Full Tilt have been at the forefront of legislative efforts and will stand to benefit the most. 

Some have speculated that the new wording allows PokerStars and Full Tilt Poker to forge partnerships with the Vegas casinos as a means for allowing acquisition of software that has taken years to develop.  The Vegas casinos would also have access to thousands of already existing online poker players. 

Let us stress right now, the Las Vegas brick and mortar operators are incapable of having a perfected online poker network ready in 15 months (unless of course they’ve been working secretly on a platform over the past three years).  This can only be achieved through a strategic alliance with the likes of a PokerStars or Full Tilt Poker.  Development of a poker network from scratch is an extremely complicated and inefficient means of entering the market.

Of course, European operators like PartyPoker, who do not currently accept US players, have already begun to forge such relationships (i.e. Harrah’s).  It can be presumed also that PartyPoker still maintains a rather large US-player database from the time in which it operated in the States (pre-October 2006). 


US-Facing Online Poker Sites Would Stop Allowing Players After 30 Days


“Not later than 30 days after the date of the enactment of this Act, cease offering, accepting and providing services with respect to bets or wagers from persons located in the United States"

This does not mean that all existing online poker sites catering to US players will abide.  We want to warn our readers that there is a good chance the top two, PokerStars and Full Tilt Poker, may abide by such a requirement should it still be part of the measure when passed into law (no guarantees it will be).  Sites like Cake, Merge, Bodog and Cereus have not been as intimately involved in any type of US lobbying efforts on the federal level unlike their counterparts, PokerStars and Full Tilt Poker.  If you think PokerStars and Full Tilt Poker won’t get in the way of Cereus trying to obtain a license in the States, has a bridge to sell you. 

Because sports betting and casino games will still be prohibited in the United States, some have speculated that poker networks offering these types of products will be excluded from licensing.  PartyPoker’s parent company PartyGaming seems to be at the forefront of legislative efforts and they do offer casino games and sports betting, though not to US customers. 


Depositing and Withdrawing of Funds Should Become Easier, Faster


"A financial transaction provider shall not be held liable for engaging in a financial activity or transaction, including a payments processing activity, in connection with a bet or wager permitted by the Prohibition of Internet Gambling, Internet Poker Regulation, and Strengthening UIGEA Act of 2010 or the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.) unless the financial transaction provider has knowledge or reason to know that the financial activity or transaction was conducted in violation of either such Act or any other applicable provision of Federal or State law."

Existing sites that prefer to continue operating from offshore locations without obtaining a license from the US will likely be able to do so with fewer obstacles.  The only significant hurdle might be co-existing with the likes of strong established brands such as Harrah’s and Facebook, neither of which will be ready to operate for the next two years.  We should emphasize that MGM, Playboy and others have attempted to enter the online gambling market with little success in the past.  Playboy, in fact, failed twice.  A strong brand is no guarantee for success.

Whether banks loosen restrictions during this 15-month timeframe remains to be seen. 

At some point, sites operating within the composition of US legalization will have an advantage utilizing established payment processors like PayPal.   Whether Moneybookers or Neteller (two established industry processors) enter the US market is questionable at this time.

Sites will have to pay 20 percent of the revenue generated as a licensing fee.

"Each person who is a licensee shall be required to pay not later than 15 days after the end of each calendar month an Internet poker license fee equal to 20 percent of a licensee's Internet poker receipts for that calendar month."

This requirement alone will keep some operators from applying for a license in the United States.  Case in point, Great Britain.  Most of the major bookmakers (including William Hill and Ladbrokes) have moved their online operations offshore to avoid paying inflated taxes to the UK government. 

• The sites will report every player's winnings and losses, as required.

• Hardware for the sites that obtain a license will be located in the United States.

• Each license carries a five-year term.

One of the early heavily touted benefits of wagering with offshore/online gambling establishments during the 90’s, specifically sports betting operations, was a company’s promise “not to report taxes to any government”.

Granted, any US player would be a fool not to claim taxes on their gambling activities, but the idea of a PokerStars or Full Tilt Poker helping them along with this process by reporting to government agencies doesn’t exactly sit well with all players. 


Consequences to Targeting Players in the US Without First Obtaining a License


"Notwithstanding any other provision of law, the Secretary may assess upon a person that is required to obtain a license under this title, but fails to obtain a license under this title, a civil penalty of not more than the greater of (i) the amount of bets or wagers taken by the person from players in the United States during the period that a license was needed but not held by the person; or (ii) $1,000,000 per day that the person accepts bets or wagers from players in the United States during the period that a license was needed but not held by the person."

We can get into all the “Protectionism” aspects of this wording that go against World Trade Organization findings (the European Union as well, though they have had a tough time enforcing policy among their own members) and the fact that operators catering to US players today still must deal with the potential of fines and prosecution.  There is over a billion dollars being wagered online by US citizens today regardless of existing prohibition. 

Excluded wording from the current draft legislation, specifically as it applies to prohibiting the likes of existing US-facing Internet card rooms from obtaining a license, will make it easier for brick and mortars to acquire software from these online poker sties that continue to operate outside the framework of any new legislation in the years to come. 

For example, should the Cereus Poker Network continue to accept US customers without obtaining a license, what is to stop a Vegas casino operator like MGM (presumably licensed) from purchasing Cereus’s network and player database three years after any law has passed? 

At that point, the US government is less likely to balk once they see the amount of money coming in from this burgeoning industry. 

- Christopher Costigan, Publisher