With Online Poker, Fairness Got Lost in the Shuffle

Former Senate Majority Leader Bill Frist (R., Tenn.) caught online gamblers by surprise last year. He inserted an obscure provision -- the Unlawful Internet Gambling and Enforcement Act (UIGEA) -- into the Safe Port Act that bans the transfer of funds from financial institutions to Internet gambling sites.

The UIGEA passed without a committee hearing in the Senate. This means that without a debate, we were stuck with poor public policy, and the federal government restricted our use of the Internet. New legislative initiatives offer a second chance at that debate in Congress.


Legislative Struggle
Four bills have been introduced into Congress to address online gambling, including the Internet Gambling Regulation and Enforcement Act (H.R. 2046), Internet Gambling Study Bill (H.R. 2140), Internet Gambling Tax Act (H.R. 2607) and Skill Game Protection Act (H.R. 2610).

The most prominent is H.R. 2046. Rep. Barney Frank (D., Mass.) introduced the bill in the spring as an attempt to undo the UIGEA, which passed haphazardly last year. Frank called the UIGEA "an inappropriate interference on the personal freedom of Americans."

The new legislation would create licenses for qualified operators already allowed to operate under state and Indian tribal law, while protecting against underage gambling, compulsive gambling, fraud and money-laundering. Rep. John Conyer (D., Mich.) plans to hold a hearing tomorrow in the House Judiciary Committee.

Internet gambling has wide-ranging consequences and implications on a local, national and international level. Historically, gambling decisions have been a local legal matter. Many municipalities and states have legalized gambling activities such as lotteries, horse racing and casino games. Some of these activities are also allowed online.

Local laws have led to an international problem. Antigua and Barbuda successfully sued the U.S. because domestic operators enjoyed an unfair advantage for online gambling. Using the World Trade Organization (WTO) to settle the dispute, the small island nation eventually won a $3.4 billion award.

The U.S. initially chose to ignore the judgment. The U.S. later claimed it failed to see the consequences of online gambling when it agreed to the General Agreement on Trades and Services (GATS). Reneging on GATS could cost the U.S. a significant amount of money. Thirty-five countries -- including the 27 members of the EU -- have joined Antigua and Barbuda's complaint to the WTO, and estimates of the cost to the U.S. could be as high as $100 billion.

All of this could be resolved by approving Frank's bill, according to the Safe and Secure Internet Gambling Initiative's Jeffrey Sandman, per PRNewswire:


"Rather than face paying billions in trade compensation, which would have a significant adverse impact on the American economy, the U.S. should embrace the legislative solution presented by the Frank bill, which brings the U.S. into compliance by regulating Internet gambling and creating a level playing field among domestic and foreign Internet gambling operators."
The Rise of Poker
The most notable consequence of the UIGEA was its effect on online poker playing in the U.S. Many online poker sites feared sanctions and stopped accepting customers from the U.S. The largest operator, Party Gaming PLC, which is publicly traded on the London Stock Exchange, ran Partypoker.com. After announcing the policy, the stock lost more than half of its value the following day.

Poker has become increasingly popular in the U.S. It has proliferated in casinos, neighborhood games, online and on the television sets in our homes. Perhaps its popularity can best be tracked by the number of entrants into the World Series of Poker held every year in Las Vegas. This year the tournament attracted 6,358 entrants, with a prize pool totaling $59,784,954. First place took home $8,250,000.

Popularity is one thing, but should poker be legal on our computers?

I spoke to Howard "Professor" Lederer, a well-known poker professional. Lederer notes that regular poker is already legal in many places in the U.S., including California and Nevada. Online poker would be legal in those places if not for the UIGEA.

Lederer sees benefits from online poker. "Licensing and regulation could generate billions of dollars in revenues for state and federal governments," he said. "This is an industry asking to be regulated."

Furthermore, Lederar says, "It's a personal privacy issue. Online poker takes place in the sanctity of your home over the Internet. It doesn't hurt anyone, and the Frank bill actually helps to address gambling addiction."

A recent study in Britain has shown that the increase in online gambling hasn't led to an increase in gambling addiction. In fact, it surprises many that the prevalence of gambling problems remains so low. Despite the influx of new online opportunities, the rate of gambling addictions has stayed at 0.6% in Britain. This rate is lower than most other so-called social ills.

Gallup Polls in past years have shown that more than two in three Americans gamble in any given year. Fewer than 6% said gambling presented a problem for them. Moreover, another poll has shown that 63% of Americans find gambling morally acceptable.

Poker could be freed from the legality argument if it were proved to be a game of skill (I believe it is a game of skill). Courts in both California and Colorado agree, while others claim it to be a game of chance. Steven D. Levitt, one of the authors of Freakonomics, has a project called pokernomics to study the issue. A recent contributor to their New York Times blog has noted that computer "bots" (robots using artificial intelligence) have learned to beat humans. The computer test presents strong proof that the game requires skill. Poker reasoning can be taught and then replicated by an artificial intelligence.

No matter which side you stand on the gambling divide, one thing is clear: Public policy over these issues deserves debate. I believe the debate will lead to the eventual conclusion that online gambling, and poker in particular, can be regulated, and that the benefits far outweigh any concerns.


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News Added: 14 November, 2007

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