Home > Blog Post > Some facts about online poker: Everyone used to be a winner.

Some facts about online poker: Everyone used to be a winner.

Online Poker used to be an enterprise where everyone came out a winner. Now, only the U.S. Government stands to gain.

Online poker in the U.S. is basically gone.  That’s a fact.

It’s taken me a little more than a week now (8 days to be exact) to really come to acceptance with what’s taken place in the online poker industry and come to grips with the realities that are smacking online poker players in the face.  There are two basic facts that I’ve had to accept in the last week.  The first fact is that it’s become abundantly clear that the U.S. Government hates American poker players and is telling us to just go screw ourselves.  The second fact is that it’s going to be a long time before we’re playing poker online again, if we ever get to do it again on a reputable site, and that the only real winner in this whole fiasco is the ego of the U.S. Government and the anti-poker playing crowds.

It bothers me a great deal that there are no victims in the last five years of activities by online poker sites and the banks.  While the claims of Bank Fraud, Money Laundering, and shady practices of funneling money are disturbing, it’s obvious that they’re also not hurting anyone.  They’re simply going about their business in the only way that they could because of a stupid piece of legislation that got added onto the Port Security Act at the last hour in 2006.  It was completely bone-headed law.  There is just no other way around it.  It couldn’t stand on its own, so they tacked on the bill to a “must pass” piece of legislation and it slipped through under the noses of politicians en route to creating a huge mess of the poker industry.  But now that it’s finally being enforced (some 5 years later), the enforcement affects tens of thousands of U.S. poker players (those that make their living off of it, and those that play it recreationally), banks that lose out on hundreds of millions of dollars in fees which the Government was getting tax money from, and the end of countless other opportunities for U.S. players and poker players and advocates.

It’s time to give up on the argument that online poker is a legal or illegal game.  That argument is clear and as such PokerStars/Full Tilt/Absolute/UB didn’t violate the UIGEA because they were playing a legal game or illegal game.   That little tiff is just a small blip in this whole thing.  It’s painfully obvious and clearly evident that playing poker is NOT illegal in the eyes of the law.  I can drive 30 minutes south and play at any of the casino’s that are off the 5 freeway in Los Angeles, or an hour north and hit the Indian Casino, or 4 ½ hours North East and sit down in Las Vegas and play.  So we’re not debating whether or not poker is a legal game here.   It’s clear that it is.

But when it comes to the charges that the DOJ are pressing for action on, I can’t help but think that this is going to take a long time because they want these companies to come clean on Bank Fraud and Money Laundering, which carry bigger penalties both in jail time and financial penalties.  The online sites will absolutely fight those charges tooth and nail, and they won’t want to come to a settlement on them because admitting any form of guilt (as would be the case in a settlement) would very likely mean losing the ability to gain a license in the U.S. if and when the Government enacts legislation regulating online play.  But those charges are going to be tough to dodge, and we’ll likely see this process tied up for years in court, and most likely without the presence of the overseas named defendants, who won’t get extradited to the U.S. on charges of illegal gambling when that very activity is licensed and regulated in the country which they reside.  It just makes no sense.

Abandoning all of this for a moment, let’s for a second take a look at the parties that are victimized by their “illegal operations” of the last five years and see who the winners and losers are from the dealings of the alleged illegal activities.  We can look at the four parties that were involved and thus affected by the alleged illegal activities to see who was really so wronged that action needed to be served here.

  1. The Poker Players

If you’re an online poker player, were you victimized by being allowed to play online poker as a hobby or as a profession?  The short answer is no.  While you could make the argument that players that lost their money playing were victimized, that argument goes out the window when they didn’t have their money stolen from them.  Losing players made the conscious decision to play poker knowing full well that if they won, they stood the chance to gain hundreds, thousands, and in some cases millions of dollars for themselves.  The fact that they lost had nothing to do with the sites that processed fees for rake on their play.  If a player lost his/her balance of deposited funds, it was to other players playing the game.  That’s the risk of playing poker.  And for the players that won that money, it’s hard to say that they were victimized by the sites.  I mean, if you make a few million dollars playing a game, I think that people make an assumption that you’re kind of like people named Alex Rodriguez, Lebron James, and Peyton Manning….not Al Capone, Anthony “Fat Tony” Salerno, or Tony Soprano.   The winning poker players of online poker, and the regular Joe’s that made a living from their poker winnings only became losers in this deal when the DOJ shut down the sites and took away their means of earning that income.  Now, we’ll have to wait and see if and when they’ll regain that ability to reenter the workforce to earn a living doing what they love.

2. The Banks

Were the banks victimized by the illegal activities? Absolutely not.  The banks were big winners here as they made hundreds of millions of dollars by processing these bank transactions in fee’s that they were receiving back from the online sites upon deposits and by the players upon withdrawals.  The deposit fees were typically paid in rakeback by the sites, meaning that the sites would pay the transaction fees of the banks from the future profits on the site. This meant that when a player deposited funds, 100% of their deposit made it to the site, and the site was the only party at risk.  On withdrawals, the banks would again collect fees for processing the funds, but this time they would collect them from the players.  But the amounts were disclosed to the players so they knew that they wouldn’t be able to receive 100% of their withdrawals without paying that processing fee.  These were huge sums of money for limited work and participation given the sheer volume of transactions they were handling.  They were serving as an intermediary to get money on and off the site, and making money for their work.  These profits would hit the banks bottom line and they could hold onto them and collect interest on their money, and then pay the U.S. Government taxes on their earnings.  However, the transactions that they were processing were in violation of a terrible law passed in 2006, where the UIGEA prevents banks from doing these types of deals with illegal gambling operations. The actions taken here needs to be addressed, and I’ll get back to this in a bit.

3. The online poker sites

The biggest winners in this entire process were clearly the sites which gained access to the billions in revenue from generating the rake by operating these sites, and getting players to play there.  They’re clearly not a loser or a victim in these transactions, and the reality is that online poker is 100% legal, licensed, and regulated in the countries that they exist and for every country on this planet that doesn’t go by the acronym of U.S.A.    But the fact remains, the online poker companies were operating a business that they were profiting from.  The players knowingly and willingly deposited their funds and paid the fees as the online sites simply made money from the already known rake fees.  It wasn’t as if they duped the players.  Everything was above the board as far as the players were concerned.  The DOJ, well…I’ll address that later.

4. The U.S. Government

Perhaps the second biggest winner in this was the U.S. Government who was getting their money in a round-about way.   But apparently, they weren’t getting enough because they’re the only enterprise which isn’t getting their billions in tax revenue directly from the sites, and felt the need to blow this process up.  Because the UIGEA really chased these online sites to foreign countries, they can’t really tax them.  That’s a job for the countries in which the businesses reside and a benefit for those countries that have welcomed those organizations.  In fact, you can make the argument that the U.S. Government still came out a winner when you look at all the tax abiding poker players that paid their taxes on their winnings, the banks that paid their taxes from the profits of their transaction fees, and all of the taxes created from the businesses that created opportunities here in the U.S. through the poker media, live tournament series’ (check the NAPT for all the money created last year alone), television advertising for Disney/ESPN, and on and on.  The Government got a huge piece of the pie through taxes, but they didn’t get as much as they’d like because they couldn’t get their act together and license and regulate the gaming.  So the “big impact” was actually more of just an ego thing and the fact that the Government was getting ENOUGH of the money in their eyes.  Their B.S. law that they passed in 2006 wasn’t being followed by the banks and the sites, and the DOJ had to make the Government look good by going after the big bucks that their legislative branch had failed to get a piece of.

The UIGEA is an utterly ridiculous law, and everyone really knows it.  The fact that poker is NOT an illegal game is very clear, but the UIGEA never dealt with that issue.  It only dealt with the payment processing aspect and made it illegal for the banks to process transactions for illegal gambling operations.  Online poker doesn’t fit that bill, but because VISA and Mastercard coded their transactions as “Gambling” transactions, they disallowed easy transfers to the sites.  So when the banks and the sites allegedly collaborated on a way to get creative in processing the transactions, that’s where things got murky.  If the allegations in the indictment are true, and they created a bunch of illegitimate sites for companies that never existed to process the transactions and intentionally circumvent the bad law, then that’s something that should be looked at and punished.  I have no problem with them paying a penalty for that.  But leave the sites up for crying out loud.  Shutting them down helps no one.

The trouble is, and the biggest problem that I have here, is that there are no real victims in these allegations of illegal activity.   During the course of actions prior to the shut down of the sites, everyone was coming out a winner here.  The Government was getting their taxes, and the players weren’t getting ripped off.  Then banks and the sites were making tons of money.  Who is the loser there?

But in the fallout from the indictment, the impact is felt like a hammer on a skull to everyone but the U.S. Government . The DOJ is going to go through millions of U.S. tax dollars to fight to prove their point, and get these guys to admit to these charges, and if they settle, then they’ll get a large chunk of change from these companies.  But by that time, there will likely be a whole new regime of new politicians in office, the U.S. poker industry will have all but completely dissolved, and everyone will come out a loser here.

Regulating online poker is still years away at a minimum.  In the meantime, it means that anyone who lives in the U.S. and made their living off of online poker, well….you’re joining the ranks of the large percentage of American’s that qualify as being unemployed.  Good luck finding a job in that isn’t in your industry.  Give thanks to the ego of the U.S. Government that won big time in this deal.  They don’t have to pay your unemployment, and they’re making money hand over fist with the penalties that they’ll collect.  And you the player, well, the Government says you can go screw yourself because your country doesn’t care about you.

That’s a fact.

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