Analysis: Online Gambling Ban is a Step Backward, Not Forward

Authored by Jay Baage on October 2, 2006 - 10:55am.

Over the weekend, Republican legislators successfully slipped an online gambling prohibition amendment into a port security bill that leaders of the U.S. Senate and the House of Representatives agreed to pass. After being in the works for over 10 years, the legislation is now expected to be approved and signed into law by President Bush effective within two weeks. A general ban on online gambling is a bad idea and will adversely affect the US Economy in general and the media industry in particular.

DMW’s Weekend Read this past weekend was about the hypocritical legal issues surrounding online gambling in the US and the closer relationship between the gambling industry and the media industry, especially when it comes to poker. (If you haven’t already, you can read it here). Just two days after we published the story, news hit the wires about the passing of the online gambling prohibition bill, which has been strongly advocated by Senate Republican Majority Leader Bill Frist, and Republican Senator Jon Kyl (pictured above).

"The enforcement provision provided by this bill will go a long way to stop these illegal online operations," Kyl said about the anti-gambling action, which essentially revises U.S. criminal codes under the Wire Act of 1961 by prohibiting all forms of electronic payments and credit transactions for Internet wagering.

Internet gambling has been illegal since the inception of the Internet, but there has been no way to enforce it,'' Representative James Leach, an Iowa Republican, said Sept. 30. By making it “illegal to use a financial instrument to settle an Internet wager,'' Congress is “putting responsibility on the financial community,” Leach said.

Simply put, gamblers are not allowed to use credit cards and online gambling houses are prohibited from accepting credit cards, checks or electronic fund transfers to handle wager transactions. The act also requires that the U.S. Department of the Treasury issue regulations requiring financial institutions to block transactions in connection with Internet gaming within nine months.

The basic reasoning behind this legislation is that companies that run offshore gambling sites, with large numbers of US-based customers, may be involved in other illegal criminal activities. And unlike legal gambling businesses in the country, the government receives no tax revenues from such offshore operations.

My Take: Clearly, if the government is concerned about tax revenue, they should legalize Internet gambling and tax it. Studies show that there is $3.3 billion in tax revenue alone that could be raised annually via legalization and regulation in the US. These funds could in turn be used to effectively combat the negative effects of gambling such as addiction, which is another major concern of interest groups against the legalization of online gambling.

If the government is going to ban online gambling altogether, why not also ban the buying and selling of securities online, E-bay and all other forms of e-commerce? Will the federal government next be in the business of protecting irresponsible individuals from themselves by instituting daily credit card usage caps? One can only assume that lobbyists for the online gambling industry in general and poker in particular have been doing a horrible job in Washington. How can they be losing the public perception game when millions and millions of US residents so pervasively use the Internet, while their tastes for casual forms of gambling, like state lotteries and sports wagering, continue to increase? Clearly the general opinion on this topic in the US Senate is grossly out of step with that of their constituents.

PartyGaming's Stock Takes a Beating

PartyGaming is among more than 2,000 offshore companies operating poker and sports-betting websites, and is the world's biggest Internet poker property. The company will now have to stop taking wagers from its 900,000 American players. No one knows exactly what this will mean for the company in the long term, but the shocking news of the US ban sank the stock on the London Stock Exchange, as it lost as much as 62 percent of its value during Monday’s trading, according to Bloomberg.

“This development is a significant setback for our company, our shareholders, our players and our industry,” PartyGaming Chief Executive Officer Mitch Garber said in a statement.

It is also a setback for the media industry as a whole, when trying to serve the interests of the 70 million Americans who enjoy playing Poker going forwards.

For example, the poker industry has grown as broadly televised events including the World Series of Poker encourage more people to play games such as Texas Hold'em online. According to research company Christensen Capital Advisors, online poker grew to a $1 billion business in 2004 from $90 million in 2002. How much all poker and gambling related media accounts for is anyone’s guess, but it is not pocket change.

If It is Illegal, Will They Stop Playing?

The bottom line question is - will this law stop Americans from gambling? Maybe a few will to begin with. But, undoubtedly, people will find a way to continue to play poker online, illegally if necessary.

Poker fans in the US are already talking about a new era of prohibition similar to the 1930s, with the Poker Players Alliance, with its 75,000 members, claiming the law will "push poker underground, essentially creating online speakeasies”.

In an official statement, Michael Bolcerek, President of the Poker Players Alliance, tries to give his members some hope:

”We continue to demand that poker receive separate treatment from other forms of gaming. It is a game of skill, where performance is merited, and a community game, where the house is not your competition. These are real and significant differences. Our desire is to achieve the same type of exemption from legislation that other interests have received (Horseracing, Lotteries, and Fantasy Sports). We will continue to push forward to obtain this separate treatment when Congress comes back from the elections and into the next legislative session. Between now and when the new bill becomes effective (3 to 9 months) poker has an opportunity to achieve the same exemption. This is our most immediate short-term goal.”

Related Links:
Weekend Read: Poker Brings the Media and Gambling Industries Closer
Poll: When will online gambling be essentially legal in the US?
Poll: The US Government's prohibition of online gambling is...?
Buzz Watch: World Series of Poker is Multiplatform and Hot!
http://www.telecomweb.com/tnd/19555.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6BTLrSohXn0
http://www.pokerplayersalliance.org
http://www.pokerplayersalliance.org/alerts/Poker_Players_Alliance_Action_Plan_Oct._1.pdf

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Comments

poker ban

Submitted by a.duncan (not verified) on October 2, 2006 - 1:00pm.

WOW! The American Government is now telling it's People how they can and cannot spend it's personal money. They can gamble online on Horse racing, the Stock Market and State lotteries. They cannot gamble on poker. (which takes more skill than the "can gamble" options). For sure, your Senators and congressmen are too young to have experienced the disasterous consequences of the Liquor Prohibition. (imagine that group without a drink). Regardless, thier "personal belief" legislation will be justified, as usual. But it is best you heed and obey....cause BIG BROTHER is watching.

Ridiculous Bill

Submitted by Marcus Abram (not verified) on October 5, 2006 - 7:11am.

Betting on Horses ok but betting on a poker hand not ok? Poker is less of a gamble than betting on which horse is the fastest. Poker is a skill game, not a gamble, and some poeple do pay taxes on the money they make from it. Don't punish everyone just to help some people from losing their money, its their own choice. How can the giovernment step into this and not other things? It isnt fair. How can you weigh which form of gambling is ok and which isnt? Its ok to go to a casino and win money (which most people still dont claim on their taxes if they win a few hundred dollars) but its not ok to do it from your own home? Its more convienent, it saves gas money among other things. For peopole with gambling problems, it is not going to be hard to find a casino to gamble at, not at all. This bill does absolutely nothing except ruin the business that so many compaines have put some much time an effort to make profitable. Too many people are being negatively effected from this. Still a free country??