US authorities’ pursuit of online gambling companies over the past five years might have been made for TV.
There’s been the midnight detention of a FTSE chairman at New York’s JF Kennedy airport as well as the seizure of domain names and closure of websites by the FBI. And this month, Preet Bharara, Manhattan’s top government prosecutor and a man with an eye for headlines, provided the script for a whole episode by accusing Full Tilt Poker, an online poker company with operations on the outskirts of Dublin, of being a Ponzi scheme – something Full Tilt’s lawyers reject.
But even before memories of Bernie Madoff were dredged up, 2011 was proving the most significant year for online gambling in the US since Congress passed the Unlawful Internet Gaming Enforcement Act in 2006. The Act made it illegal for banks and credit card companies to process payments from online gambling companies. Cue a rapid exodus of foreign operators, including PartyGaming and SportingBet, both of which had thriving businesses here.
Then, on April 15 this year, Bharara moved in to hoover up the three biggest companies still offering online poker in the US. Full Tilt, Costa Rica-based Absolute Poker and PokerStars, headquartered in the Isle of Man, were charged with money laundering, bank fraud and illegal gambling.
The history of US gambling has just a handful of turning points – moral and religious objections rooted in American history ensured that. Nevada’s decision to legalise casinos in 1931; the opening of the first state lottery in New Hampshire in 1964; and New Jersey’s move, 12 years later, to allow casinos in Atlantic City.
April 15 was christened “Black Friday” by some in the industry, and may yet prove an addition to these defining moments. But as lawyers were readying charges last April, officials in a different corner of the US capital were preparing an announcement that may yet challenge the claim that April 15 has and signal a very different future for the multi-billion dollar industry.
On April 13, the District of Columbia became the first jurisdiction in the US to legalise online poker. Experts say that under a loophole in the 2006 law, states or jurisdictions can offer online gambling as long as it’s within their own borders. Why would DC do it? It needs the money. Those who object to DC’s move and its possible spread now face two formidable foes: the internet and the holes drilled in states’ coffers by the financial crisis.
“There’s a tremendous push within various state governments to create revenue,” says Stuart Slotnick, a lawyer who helped SportingBet negotiate a settlement with US authorities. That’s not to say that online poker players or potential operators should uncork the champagne. Even if momentum for change is building, some remain sceptical that Congress will act. The last two years have seen at least three bills stumble. “This is not about forcing people to strengthen the windscreen wipers on their cars or something like that,” says one industry executive. “This is about trying to spread gambling.”
Indeed, most observers agree that if internet gambling is going to be legalised, it will be on a state by state basis and start with poker. For its defenders, poker has always been exempt from the 2006 law, which defines gambling as an activity predominantly determined by luck. Poker’s key ingredient is skill, they claim.
As is often the case, looking at what companies are doing may offer the most reliable guide of what’s next. In March, casino magnate Steve Wynn struck an alliance with PokerStars to push for the regulation of online gambling. While Wynn pulled the tie-up when PokerStars was charged, it indicated that US casino operators may see online gambling as less of a threat to their established casino businesses and more of an opportunity.
It’s less clear what legalising it would mean for foreign companies. Mr Slotnick says they’ll have an advantage because they have the technology and the experience of running such businesses. But it feels hard to believe the US casino companies won’t be favourites to carve up the market.
Either way, in an industry with few key points in its history, the next couple of years look poised to provide another.
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