THE END OF THE US ONLINE GAMBLING MARKET?

An opinionated look at what the Unlawful Internet Gambling Enforcement Act means
Many people are calling Oct. 13, 2006 Black Friday, as that was the day that President George Bush signed H.R. 4954, the Safe Port Act, into law - and in doing so, made financial transactions in the US for online gambling purposes illegal.

What?!?

   

The Safe Port Act was designed to protect American interests by increasing security at all US sea ports, as well as enabling US inspectors to screen cargo at foreign ports before it departs for US territory.

Clearly this bill is to the benefit of Americans. But in the 11th hour, Senator Bill Frist of Tennessee, a future failed US presidential candidate, managed to get additional legislation attached to the Safe Port Act - legislation which made it illegal to process financial transactions for the purposes of online gambling.

This additional legislation, the Unlawful Internet Gambling Enforcement Act (UIGEA), specifies a punishment of up to 5 years imprisonment, and/or fines, for any "person engaged in the business of betting or wagering" who knowingly accepts a financial instrument for the purpose of "unlawful Internet gambling". Sneakily attached to the Safe Port Act, and passed by members of Congress, most of who knew little or nothing about the UIGEA, this legislation became law - coincidentally on Friday the 13th - when Bush put pen to paper.

The entire online gambling community reacted with an unusual amount of hysteria and confusion, as operators scrambled to get out of the way of an Act even they knew little about - and on Black Monday Oct. 3rd, investors wiped US$7 billion off the value of those online gambling operations unfortunate enough to be listed on the London Stock Exchange.

Is this goodbye to the US online gambling market? Shall we shed a tear for the end of an era, and the beginning of what some people are calling Prohibition Act II?

In my not-so-humble, personal, non-legal opinion, I don't think you should mothball your lucky rabbit's foot just yet.

You see, the UIGEA was so clumsily, hastily put together that it is highly doubtful that the Fed, given 270 days to provide instruction to financial institutions on how to block gambling transactions, will ever be able to meet their deadline. On top of that, Swiss cheese would probably have provided a better defense against online gambling.

The bill makes it illegal for online gambling operators to accept financial transactions. It doesn't make it illegal for them to offer the games. It doesn't make it illegal for them to market to US players. And, to be frank, it's not in the least bit clear what "unlawful Internet gambling" is defined as.

According to the Act, "The term 'unlawful Internet gambling' means to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received or otherwise made."

The key definition of "bet or wager" as described in the Act is "the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person will receive something of value in the event of a certain outcome" - and then in further descriptions goes on to attempt to clarify a number of inclusions and exclusions from the definition - for example, lotteries are specifically included, but fantasy contests under certain circumstances are excluded. Poker, bingo, and casino games are NOT specifically mentioned in the definition - and thus these games are left open to interpretation under the definitions of "game subject to chance" - itself not clarified.

When it comes to poker, many proponents argue that poker is more skill than chance. Being a small-time, losing poker player myself, I will agree that chance plays a big role - but ultimately it is the skill and knowledge of the player which predominates in the game of poker - you cannot win a hand with good cards alone if you are unskilled and up against better players whose cards may or may not be good. The Poker Players Alliance is obviously upset about this legislation but undoubtedly will look to experts in the legal, math and poker fields to produce the evidence that poker is not a game of chance - and there's a good chance they will find an opening here.

Casino games? A bit tougher here to claim that more skill is involved than chance - but past Federal precedent seems to indicate that playing at an online casino does not constitute a bet or wager as defined by the Wire Act - and there may be some salvation and hope that, as no Federal or State laws (except in a few states) cover online gambling, that offering these games will not be seen as "unlawful Internet gambling" by the Federal courts.

Bingo? Unlike casino gaming, which is strictly regulated by each state, Bingo is almost surely in a grey area - probably every state has bingo games going on in many cities and towns. Not only that, I'll bet you can find a Bingo set for yourself and your kids at any Toys 'R Us, Walmart, or even the local Chinatown. It would be totally hypocritical for any government to take action against such a well-loved family game...

So, just what the heck does "unlawful Internet gambling" cover?

Basically, it amounts to this - if your state does not have any laws against online gambling, it will be highly debatable as to whether online gambling is covered under the definition of "unlawful Internet gambling" - with the exception of sports betting, which is covered by the Federal Wire Act.

And, as most American have known for years, it is quite difficult, if not impossible, to fund online gambling with credit cards as they have specifically coded transactions with the 7995 code which indicates a purchase of chips for gambling. ACH does not have such coding, and besides, the great majority of ACH transactions go through a third-party financial transaction processor - which, by the way, is specifically EXCLUDED under the definition of "business of betting or wagering".

So what has changed since Black Friday the 13th of October?

If you're a sports bettor, nothing. Sport betting has always been considered illegal by virtue of the Wire Act.

For all other online gaming - nothing, unless you're in a state with specific online gambling regulations.

Unfortunately, the major change is in the availability of operations which accept US bets. Many of them had indisputable reasons for their exit - such as public shareholders that they have to report to. Many of them took legal advice from their attorneys, who may or may NOT have any experience in US law, gaming law, or both. And undoubtedly many of them simply what lemmings do - jump off cliffs in a mass suicide bid.

How advisable were the actions of these operators?

I personally find it hard to lump all of them into the same category because there are so many different factors which led to their decisions to exit all, or part, of the US market. I do, however, wish that many of them had a little bit more intestinal fortitude and waited and worked together as a WHOLE instead of many small parts to determine what the best course of action was - I am firm in my belief that it was this sudden disintegration of the industry that ultimately led to Armageddon.

What disappoints me most as a member of the online gambling industry is that these operators, who gather at numerous events throughout the year, are all chummy with each other, crash each other's parties, hit on their colleagues, and ultimately, like a flock of birds, stick very close to each other, scattered like rats when someone dropped a stink bomb, each concerned only for themselves. Very little interaction took place between those friends once as close as lovebirds, unless it took place over the phones. Where it should have been a case of "We stand united", it instead turned out to be a case of "each to its own".

But never ye mind. The UIGEA is a temporary setback. Some operations will continue as usual. Others will devise new strategies to allow them to return to the US market with a stronger legal footing. The lovebirds will start singing in unison again.

It's early days yet. There is other legislation which will seek to undertake studies of the online gambling industry and its affect on US citizens and land-based casinos. There are also likely to be many problems which will render the UIGEA unenforceable, according to many gaming legal experts.

Consider it a temporary blip on the radar, or maybe an electricity outage. This industry is far from being brought to its knees by the UIGEA.

In a couple of years, we'll be welcoming Mr Ordinary Citizen Frist back into our ranks. You can make certain of that.

 
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