Should California legalize and regulate online poker, or should it remain illegal? To comment on this issue, please use our forum.
In the time it takes you to read this sentence, several hundred thousand people in the United States will have played a hand of poker. They are not gathered around green felt tables in casinos with live dealers and real cards. This vast number of players is online right now, on offshore websites playing at virtual tables, with virtual dealers. They play games including draw, hold-em, stud and Omaha.
The Internet facilitates the play, but all players are real people sitting in front of their computers. And all those people are breaking the law while sending their money offshore.
Internet poker, unlike blackjack, is a "non-banked" game with players playing against each other, not the casino. One player wins every hand; the dealer, or casino, never wins. The company running the game has no stake in the game other than to collect from 50 cents to $2 from every pot, just as in a live casino.
That may not seem like a lot of money, but some websites attract more than 200,000 players at any given time. On a recent weekday afternoon, the two largest poker sites had 420,000 active users. They both accept bets from U.S. players. At a conservative rate of 50 hands per hour per table, with more than 50,000 tables in play, the revenue to the website operator adds up very, very quickly.
In 1995 there were only 24 Internet gambling sites available. By 2006 that number had increased to more than 2,500 sites, including at least 532 offering Internet poker. A quick Google search for the term "internet poker" reveals just how easy it is to play poker on the Internet. A 2009 study by H2 Gaming Capital showed 10.9 million people in the United States play poker using the Internet. Nearly 2 million of those people live in California.
This is all occurring in spite of the fact that it is actually illegal to play poker on the Internet in the United States.
Before 2006, the business of poker was booming. The World Series of Poker was shown on ESPN and proved to be immensely popular. The tournament went from 300 players to more than 8,000 players in just a few years. Capitalizing on the popularity, Internet poker sites sprang up by the dozens. Poker was a growth industry in the United States.
Then, in the midst of the boom, in 2006 Congress passed and President George W. Bush signed the Unregulated Internet Gaming Enforcement Act, which banned Internet gambling. The law contained a few very limited exceptions, one being for intrastate Internet poker. This means if it is authorized by a state and the players and the Internet server are located in the same state, Internet poker is legal. So far no state has taken advantage of that exception.
While the law makes Internet poker illegal in the United States, it did nothing to actually stop Internet poker from being offered to or played by U.S. citizens. The practical effect was to eliminate all U.S.-based Internet poker operators and all that taxable revenue.
After the federal law passed, Internet poker operators either 1) obeyed the intent of the law, withdrew from the U.S. market and stopped accepting bets from U.S. players, or 2) moved their operations offshore to more friendly jurisdictions and out of reach of the U.S. government.
The largest Internet poker company in the world at the time the law was passed withdrew from the U.S. market and immediately lost its position as the No. 1 online poker website. Currently the two biggest Internet poker companies in the world, as measured both by number of players and by revenue, ignore the ban and continue to offer poker to U.S. citizens. The United States is clearly a huge and active market.
While the ban is all but totally ineffective, the negative impacts of the federal law are significant.
It has resulted in a giant wealth transfer from the United States to companies located in places including Gibraltar, the Isle of Man, Aruba and the Kahnawakee Indian reservation in Canada.
The United States is home to five to six times as many players as the next highest country – England has 1.9 million players. But the United States is home to exactly zero Internet poker companies. The amount of money being taken out of the United States by overseas operators is in the billions. This is not the amount being wagered, it's the fees charged for facilitating the games.
Understanding the extent to which Internet poker is currently played, where it is played, how much money is at stake and the statutory policies impacting Internet poker in the United States is vital to any policy deliberations regarding legalization. It is important not to create a false dichotomy between legal and illegal. It is a question of where the gaming will take place, not if it will take place.
California is currently considering legislation that would create a legal, intrastate, Internet poker system. The benefits of such a system are multiple: protecting players, preventing underage gambling, preventing problem gambling, bringing back revenue that is now going to illegal, offshore operations, and creating a system that mitigates many problems with the current system.
By definition, all illegal, offshore sites lack any legal protections for U.S. players should anything go wrong. While some sites operate as if they were being regulated by U.S. standards, the vast majority escape the scrutiny necessary to assure a safe, honest place to play. A legal system with rigorous oversight by the Department of Justice would help prevent cheating, unscrupulous operators, fraud and theft of private financial information.
The issue of underage gambling also is better addressed by creating a legalized, regulated system. There is ample technology available to provide a very high level of protection against minors participating, as long as the operators have an incentive to prevent them from playing. Financial penalties and potential license suspension provide very powerful tools to assure compliance.
The legislation being contemplated requires age verification systems like those currently in place in European countries where Internet poker is legal and regulated with success. In those countries it is harder to gamble over the Internet than it is to get a fake identification card and walk into a land-based U.S. casino.
"Problem gamblers" are a serious concern. The problem exists today and is far worse in an unregulated system. The legislation being contemplated in California will require deposit limits and wait periods of 24 to 48 hours to raise the deposit limit. Players will not be allowed to raise their personal limits at will when in a losing streak.
This is far more effective than any enforcement in a live casino or card room with an ATM. Additionally, each legal website operator will be required to prominently display on their site information about programs to help those gamblers. Ultimately we can't save people from themselves, but the chances of preventing abuse and providing assistance is much greater in a legalized system.
A legalized, intrastate system would generate significant revenue for California. While it will not come close to covering the budget deficit, it will help avoid laying off firefighters, police officers and teachers. In addition to the revenue from the fees, the state would see modest job creation as poker companies that want to participate in California's lucrative market will be required by the legislation to locate their operations in the state.
And finally, this is not breaking new ground. California already permits Internet wagering on horse racing, and live poker is available at 91 card clubs and 41 Indian casinos in the state. This simply brings the law into the 21st century.
Given the circumstances laid out here, it clearly is in the best interest of California poker players, businesses, residents and government to legalize and regulate intrastate, Internet poker.
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Lloyd Levine, a former assemblyman who introduced legislation to legalize intrastate Internet poker, is president of Filament Strategies, a political consulting company.
• Read more articles by Lloyd Levine
