Black Friday: Breakdown of events and where we go from here

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Lawrence Walters is the managing partner of the Walters Law Group, a boutique firm nearOrlando, Fla., that specializes in online issues, including Internet gaming. Visit his website at gameattorneys.com. In 2006 he helped Ante Up make sense of the Unlawful Internet Gambling Enforcement Act and now he’s back to give his views on Black Friday and what it all means.

When you joined us in 2006, you said Internet poker as we know it was gone. After a few months, however, the online sites found workarounds and since then, it’s largely been business as usual. But is it safe to say the actions of Black Friday are a far more serious of a threat to online poker than the UIGEA was? Well, the UIGEA when it was passed was merely just a threat to enforcement. It provided the Department of Justice with the tools to go after the online poker industry. But Black Friday’s developments show the DOJ is finally interested in actually pursuing some of these operators for gambling violations and enforcing the UIGEA. Oddly enough, the UIGEA since it was passed in 2006 hasn’t been enforced against online poker establishments. So it’s taken quite some time for the government to put together a case.

While PokerStars and FullTilt have shut off access to U.S. players, there are still online poker sites serving them. Do you think action is likely to be taken against those sites, and should players be concerned about playing on them? The players have always faced a risk of potential seizure of their funds or interruption of the flow of money. That’s kind of a cost of business that everybody has to realize that they’re in the United States and placing bets with an online gambling establishment. The U.S. says online gambling is illegal. Whether it is or it isn’t is something the courts will decide, possibly in this case, possibly in future cases. . . .

As far as other sites being prosecuted that’s a possibility. … We know there are several investigations of payment processors occurring at the federal level and some of those may involve other online gaming sites, other online poker sites. . . . I would not be surprised to learn there are other big names, possibly small names that are going to be the subject of the same kind of seizure and prosecution.

Do our readers and listeners face legal problems from having played or deposited money? I can tell you from a practical standpoint it’s unlikely the players have anything to worry about. Certainly there are theories under which the players could be prosecuted, you know, conspiracy, aiding and abetting and some of these accomplice liability statutes would allow the government to pursue the players as facilitators of online gambling or something like that. But from a practical matter the government has bigger fish to fry.

They’re not interested in pursuing somebody in their basement making $10 bets on poker hands. That’s not what the federal statutes were designed to do. . . . It’s good to be cautious, but for the average player I don’t think there’s a whole lot to worry about.

One of the charges alleges “operation of an illegal gambling business.” This one likely has people most confused because there doesn’t seem to be any law that speaks to this. Is that correct? I can tell you there are going to be some defenses to this indictment. This is not a slam-dunk on these counts for the federal government. . . . Now they have to prove their case, beyond a reasonable doubt. And they have to justify all these charges and explain to a federal judge if they’ve gone too far. I can tell you there’s no federal law that prohibits online poker.

So therefore the government is very careful in dancing around this issue in the indictments. They don’t specifically cite a federal law that prohibits online poker activities. Instead they rely on this illegal gambling business statute and the UIGEA, both of which require that some separate independent law prohibit the gambling activity at issue. Federal law doesn’t prohibit online poker, so what they have to do is rely on state law.

Both the UIGEA and the Illegal Gambling Business Act, such in 1955, are what I call pass-through laws. They allow state law to form the basis for federal violation. But here what we’re talking about amazingly is holding a foreign legal and licensed online poker operator in another country (that’s operating consistent with the laws of its host jurisdiction) responsible for a misdemeanor New York gambling statute that has nothing to do with online gambling.

The New York state laws referenced as the basis for making online poker illegal talk about prohibiting gambling in general and the promotion of gambling in general. These are misdemeanor statutes. They do not relate to online gambling.

New York is not one of the states that passed an online gambling prohibition like a number of other states have. This indictment, at least a large part of it, may stand or fall based on the ability of the U.S. government to hold a foreign operator responsible for compliances with a New York misdemeanor statute. There are going to be problems there.

Certainly it sounds like the indictments alleging bank fraud and money laundering are the most damning, if proved to be true. In my view this case stands or falls based on the bank fraud and misrepresentation allegations. The gambling counts and the money laundering counts are all dependent on whether online poker is illegal, and that’s really an open question, very debatable, very dubious.

But when you start talking about misrepresentation, lying to banks, misrepresenting the source of banking transactions, you start getting into federal banking regulations. There are potential problems there. We don’t know if any of these allegations are true. So far they’re just allegations. But to the extent that there is any meat on the bone with these allegations, then that could form a potential problem for the defendants. The federal banking fraud laws are fairly broad. … Let’s say online poker is ultimately legal and you can’t use the state laws to prohibit it, then what they are really accused of doing is calling these transactions one legal activity instead of another. So it would be tantamount to telling the bank I’m really selling golf balls when I was selling jewelry. Well, so what? If they’re both legal transactions where’s the damage? Who’s the victim? How is anybody hurt by this?

There could be issues that are intertwined with legality of the underlying gambling activity even with the bank fraud counts. And certainly with the money laundering counts. They talk about disguising the nature or identity of the gambling transactions as the basis for money laundering. Well if the underlying activity is not illegal the money laundering counts don’t stick because you have to have (in addition to disguising the nature of the transaction) some underlying illegal activity. So a lot is going to depend on whether Internet gambling in the form of online poker is actually illegal and whether these state statutes can be applied in such a way as to justify as a violation of federal law.

A BRICK AND MORTAR P.O.V.

By Elliott Schecter, Downstream Casino Poker Room Manager

As someone who runs a brick-and-mortar poker room, I would be expected to be ecstatic that the U.S. Department of Justice has eliminated, at least temporarily, a healthy portion of my competition. Most of my colleagues believe there will be an uptick in business in the short term and continued growth in the long term as Internet players convert to casino poker. I wholeheartedly disagree with that notion. I believe the absence of a thriving online poker industry in the United States is harmful to the American casino poker industry, short and long term.

Let’s break down the components of the argument that led to that conclusion. Consider what online poker rooms supply in terms of product and price. The formats and opportunities are substantially more varied and different than that of casinos; six-handed max and heads-up games; 5-, 6-, 7-, 8- and 10-game rotations, Rush Poker), and of course, the ability to play as many games as one’s lack of attention span will facilitate. All of these formats are offered at micro, mini, low, medium, high and nosebleed stakes for cash games and tournaments. Also, there are various forms of sit-n-go tournaments and double-or-nothing tournaments offered at all buy-in levels. These are games and stakes generally not found in B&M poker rooms and not because those of us that run these establishments don’t want to offer them.

Cash Games: When it comes to the multigame rotations, these players generally are hard to round up and seat at one location. When these games finally are spread in a B&M cardroom, they usually run without a list then run short-handed before breaking. Also, these multiway games last a precious few hours more often than not. The infrequent existence of these games starts the vicious cycle; the game never starts because not enough people want to play and not enough people get on the list because the game never starts. The ability to list players from every time zone on the planet has overcome this vicious cycle.

As for six-handed max no-limit hold’em games and heads-up games of various forms, there are many reasons why these aren’t viable in a casino. Without discussing the expected revenue per square foot of poker room real estate that my colleagues and I need to generate to keep our rooms open and our paychecks being issued, let’s try to understand the perspectives of the players, dealers and brush personnel.

When players walk into a room and see short-handed tables or heads-up games going, they reasonably and correctly inquire as to why the available spots aren’t being filled from the list. These must be spread on full-size tables because in poker room managers’ conversations with general managers, we can’t justify the permanent or temporary installation of special six-handed or heads-up tables for very infrequent games.

For dealers, these games present them with the very definition of a lose-lose situation. First, a significant portion of pots in these games are won uncontested preflop, which usually results in no tokes. Second, because of all these quick wins, the dealers find themselves working quite a bit harder and getting out many more hands per hour. The result is they are dealing more hands than ever for quite a bit less compensation, the classic morale killer that I always try to avoid.

Tournaments: Multitable events, SNGs, double-or-nothings, you name it, are offered at all stakes. The main attraction is the value presented to the players based on the size of the fields. The World Series notwithstanding, no B&M room can offer the field size, value, variety and payouts of the tournaments that can be found online. With many tournaments starting at all times on any given day, online players have plenty of choices and will always find large fields at affordable prices, all because of the virtually unlimited tables and capacity available to the online cardrooms.

In other words, and this is based upon the fact that dealers, equipment, and especially, casino square footage are all finite, B&M casinos basically can only offer tournaments of smaller fields that cost the players more to play in regardless of buy-in price. The necessity of poker rooms to adjust tournament entry fees so the average revenue per table hour in tournaments is at least somewhat comparable to that of cash games has enabled the online tournaments to offer a better value. After the first few tables, a poker tournament that takes up a good portion of the square footage in a poker room metamorphoses from loss leader to staple offering, and the prices (entry fees) charged and revenue produced must reflect that.

People play solely online for a number of reasons:
• There’s no legal casino gaming in their geographic area.
• They’re not of legal age to participate in available B&M casino gaming.
• They play at stakes so small or, much less often, so large, that the B&M casinos don’t offer these games.
• The ability to play on more than one table at a time.
Multitabling allows a player to extract an edge many more times per hour and usually with a lot less bankroll at risk. Like any investor, a poker player putting one’s bankroll to use in a fashion that affords lowered risk and steady, elevated returns would be acting in a reasonable and rational way. There’s just no way casinos can offer an experience or product similar to multitabling.

Conclusion: Considering online poker sites and brick-and-mortar poker rooms offer vastly different products, one must deduce that online players orphaned without a supply will not necessarily demand what the B&M poker rooms have to offer. Also, it is reasonable to assume those playing in both venues will not have enough time in the day to appreciably raise our head counts and game hours in the B&M poker rooms.

Furthermore, with the elimination of advertising and sponsorship dollars causing the possible shuttering of poker print publications, and the curtailing of poker broadcasts leading to far less coverage of our game and industry, the expansion of the player base and of the game might slow or reverse. To paraphrase Jay Wiles, the poker room manager at WinStar World Casino: If something is good for poker it is good for all of us in the business. As for me, I’ve yet to figure out how what happened on April 15 was good at all for the American casino poker industry.