How we're becoming a Poker Nation

Canada -- Free sites wet the appetite for real-money stakes

Paris Hilton and Pam Anderson play it and Cinderella-story stars like Chris Moneymaker make millions at it. Small wonder online poker is so explosively popular.

In case you haven't noticed the card-by-card coverage of Texas Holdem tournaments on TSN and ESPN -- and for that matter every other sports network -- poker is in the midst of a major renaissance. Television ads, billboards and Web-based click-through banner ads blare the praises of online poker.

The companies that run the real-money games tease new players into free sites, where you can play and learn Holdem and other forms of poker without risking a dime. But as you learn the game and build a stake of chips playing against beginners, you are faced with the lure of trying your luck against real players for real money. Free dot-net sites all have easy links to dot-com versions.

Poker tournaments in Las Vegas are major sporting events, festooned with ads for online poker sites and featuring athletes who look like they could barely climb a flight of stairs.

Blame Chris Moneymaker. A nobody from Tennessee, Moneymaker put up $40 and built it into $10,000 in qualifying tournaments held in online poker rooms. What he qualified for was the 2003 World Series of Poker, the first live poker tournament he had ever played in. He won.

In fact, he won $2.5 million and a star was born. He left his $40,000 job as an accountant and never looked back. These days he travels to play in tournaments and appears in games on PokerStars.com as a lure for those swaggering amateurs who want to take on the biggest kid on the block. PokerStars has a roster of about 20 pros who make appearances in tournaments both online and in real life.

Moneymaker was no rookie player. He honed his poker skills playing at the PokerStars.com website, winning a few online tournaments as he gained experience.

It is that image that PokerStars -- and all of the hundreds of poker websites that have sprung into existence since 2003 -- have leveraged into a truly massive enterprise.

How big is hard to know and the business landscape is complex. A handful of the big online poker companies are publicly traded, so their revenues are easy to get. The vast majority of the business, though, is privately owned and offshore, nestled on Caribbean atolls and tiny island banking havens away from the reach of the U.S. authorities.

Annoyed that Americans were gambling away about $6 billion a year online, the U.S. Congress tried to stop the bleeding by passing the Unlawful Internet Gambling Enforcement Act in 2006. The act made it illegal for credit card companies to transfer funds to further online gambling and effectively criminalizing the act of receiving a bet.

While the law remains virtually untested, its impact was felt around the world.

Stock in Gibraltar-based PartyGaming Plc, which ran the world's biggest online poker system, fell from a total market value of $9 billion to about $1 billion almost overnight. PokerStars and a host of other privately owned poker companies moved in to soak up the business that PartyGaming walked away from. A website fronted by long-time professional poker player Doyle Brunson brought in Pamela Anderson and Nicky and Paris Hilton for their star power. Many other sites bring in top-ranked pros for people to play against and continue to brazenly do business in the U.S.

In 2006, the United States sent a chill through the online gambling world, arresting the CEOs of two online sports-betting websites. BetOnSports Chief Executive David Carruthers was arrested in Texas while waiting for a flight to Costa Rica, where his business is based.

Even though the business is not located on U.S. soil, the United States has a history of assuming jurisdiction when crimes involve U.S. citizens, according to University of B.C. business professor Ron Cenfetelli.

"It's not unlike the case of Mark Emery," Cenfetelli wrote to The Vancouver Sun. Emery was arrested in Canada for operating a business that sold marijuana seeds by mail order into the U.S. Emery's plea bargain could see him serve five years, mostly in a Canadian prison, not an example most high-flying CEOs would care to emulate.

The Canadian founder of online betting empire Bodog, Calvin Ayre, has long avoided U.S. soil out of fears that he too would be arrested. His Antigua-based operations, which continue to do business in the U.S., have made him a billionaire.

Major publicly traded online systems Sun Poker and iPoker have left the U.S. market out of fears that the U.S. Department of Justice could freeze their assets should it decide to crack down on online poker using the new law. Although shaken by the collapse of its business in the U.S., Sun Poker parent company Cryptologic has substantially grown its business in Europe and Asia.

Cryptologic's poker revenue alone went up 26 per cent in 2006, according to the company's annual report. Commercial poker websites make money by taking a small payment called a rake from each pot, usually between $1 and $3.

Cryptologic's revenue in 2006 was $104 million and it has transacted $55 billion in bets over 11 years in spite of abandoning the world's most lucrative market, the United States. PartyGaming reported a profit of $324 million in 2005 and still managed to eke out $138.9 million in 2006 after dropping out of the U.S.

Industry watchers such as pokerpulse.com recommend players confine themselves to the publicly traded companies that do not allow U.S. players, even if they themselves do not live in the U.S.

Players with a real-money account with a company accepting bets in the U.S. could lose their winnings or spend years waiting for their payouts if the U.S. authorities go after that website and freeze the company's accounts, pokerpulse.com warns.

Other countries hoping to keep online poker revenue at home have taken a different approach. The Netherlands has plans to set up its own online poker rooms and attempt to regulate their citizens into using the legitimate government casino facilities. The Dutch plan to wave a big stick at banks that do business with gambling websites the government considers illegal.

Sweden already has state-run online poker and bans competition from other companies, even those licensed by the European Union. Court dates are being set.

The threat of lengthy paralysing legal action by the EU has stalled the passage of legislation in most of Europe and halted the development of state-run poker rooms.

Austria is the only other country in Europe that has a functioning online casino.


Germany banned online poker on Jan. 1 and ordered banks to halt transactions to online gambling websites, not unlike the U.S. gambit.

The European Gaming and Betting Association called on the EU to declare the German law incompatible with European law and the fight is on. Europe represents the biggest slice of the multi-billion-dollar worldwide online gambling market, so all the players, public and private, will continue to do business there until the legal issues are ironed out. Companies like PartyGaming and Cryptologic are aggressively targeting the gambling market in Asia, and especially China.

Global gambling revenue is estimated to be almost $200 billion. Because many of the online gambling companies are privately owned and are not obligated to publish their balance sheets, it is difficult to know the exact size of the industry, but The Economist estimated that global revenue from online gambling would hit $18 billion in 2008. So with a product that people can use in their own homes, the opportunities for growth in online gambling are enormous.

In Canada, the legal landscape for online poker players is murky.

The operation of legal gambling is the jurisdiction of provincial governments, so technically any gambling that is not regulated by the province might be considered illegal. The Criminal Code makes it illegal to be in the business of taking bets and to run a betting parlour, but exempts bets made between individuals "not engaged in the business of betting," according to Terri MacKay in her report, Internet Gambling in Canada Awaits in Legal Purgatory.

So is it illegal to play online poker in B.C.?

Yes and no, according to assistant deputy minister Derek Sturko of B.C.'s Gaming Policy and Enforcement Branch.

The only forms of gambling that are allowed are those authorized by the province and the province does not allow Internet gambling, he said.

But online poker has so far proven impossible to regulate, he said. No one in B.C. has ever been charged criminally for playing online poker.

When gambling money begins to leak overseas, the response of provincial governments in Canada has been to expand domestic gambling to capture that "leakage," according to policy analyst Jason Azmier of the Canada West Foundation. Azmier notes: "The emergence of poker as a significant ratings winner for television networks underlines the suggestion that gambling as a product is nowhere near its market boundaries."

State-sanctioned gambling in B.C. already rakes in about $1 billion for the province through casinos and lotteries and is projected to rise 20 per cent by 2010, mostly on the strength of casino revenue.

News Added: 29 February, 2008

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