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Annie Duke explains poker bill
This is from a conversation I had with Annie right after this bill was passed in October.
“Lets start with what does the bill really say. The bill has two components. One is a criminal component which targets the operators of the sites specifically which makes it illegal to operate a gaming site in the US. That doesn’t have a lot of teeth because the operators are in places like Gibraltar and Malta and Isle of Man and the DOJ [Department of Justice] is going to have difficulty conducting investigations there.
The other component, which is the component that everyone is concerned about, is the banking component. This is one of the problems with the bill. The bill is asking the banks to be the police and say ‘we want you to enforce our laws and not transfer money to online gaming.’ The bill is poorly worded in the sense that it says, ‘if you’re not sure what it’s for then you can transfer.’ That opens the door to miscoded transactions. Companies were in general complying with the coding because they felt like they were sitting in a grey area. That’s one of the problems with the bill; it’s going to push companies into miscoded transactions. Also the banks are clearly going to object. They will say they aren’t their police and they will probably sue over it.
The regulations are going to be published 272 days from the signing of the bill. It’s unlikely that it will be put into effect. The World Trade Organization has already filed a complaint, the EU [the European bank] has already taken a stance saying that it is an American law and they aren’t going to enforce it. It’s really muddy. It definitely puts online gaming into a blacker area than it was before, but in terms of enforcement what you see is NETELLER said they were staying because they do other things besides online gaming and they aren’t American and that is an American law. FirePay chose to leave the market. It really depends on how conservative the boards of these companies are.
What did happen was that basically all the publicly traded companies left the market and that’s another problem with the bill. Here’s the issue, you have something that’s a product that a certain percentage of the population has a problem with. So, in the case of gaming it’s about 5% of the population that has issues with gambling addiction or a problem gambling. It happens to be the same percentage of the population that has a problem with anything. So when you look at alcohol abuse it’s about the same rate. Online shopping, it’s about the same rate. Day trading, it’s about the same rate. There’s a variety of products that are offered that most people use their discretionary income for in a safe way that doesn’t harm themselves or anybody around them and then there is a small percentage of the population that has an issue with it, a very small minority. This country has always taken the stance that you don’t punish the majority in order to protect the minority. We tried it once, it was called prohibition. Basically what happened there was you had a regulated safe product that was being delivered to the American population because the temperance movement, which was a religious movement said, ‘oh no alcohol is evil.’ All of the sudden we put prohibition in place and what happened? You had Tommy Guns and people drinking products from backyard stills, Moonshine. Now all the sudden people were being delivered an unsafe product and there was a lot of crime that surrounded it and they ended up reversing the decision and obviously prohibition went away. We have an example of what happens when you decide to deregulate. It turns it into something that’s criminalized and it really affects the quality of the product that you are being delivered.
Obviously there are large companies that are out there that are very safe, Ultimate Bet among them. The fact is when you lose something like Party Poker, when Ultimate Bet goes private, what happens is that these companies that were publicly traded were not shady companies, they had to be vetted and audited by the London Stock Exchange, they had to do earnings reports every quarter that were publicly available. Everything about the companies had to be publicly accessible and they had to comply with all the laws because they were public companies. You just chased all those companies away, you just made sure that this big stock exchange that was policing these companies is now not policing them anymore because they aren’t public anymore. Now that’s not to say that people are going to be delivered an unsafe product. I’m not saying that in any way, shape or form. I’m just saying that it’s in everybody’s best interest to have companies that are policed by outside organizations and all of these companies would welcome regulation.
Another issue with the law is that it has these carve outs for horse racing, which obviously there are OTB’s [off track betting] which generate a lot of money for the state. It carves out lotteries and it carves out fantasy sports betting. One of the big issues that I have, particularly in the case of lotteries, is that lotteries are clearly purely a game of chance. That when you play a scratch off ticket, and you can now play a scratch off ticket all day online, for every dollar that you bet on a scratch off you are losing .80 to the dollar and there’s no way to get the best of it. I can fill the capitol building with people making their living playing poker. I cannot find one person who makes their living playing lotteries. I can’t do it. So, what the argument is from the states is that those lotteries generate billions of dollars in income which is generally earmarked for education. First of all on that side we know that lotteries are a regressive tax in the sense that rich people don’t play lotteries, poor people play lotteries. So what you are doing is a very heavy tax on the poor in order to pay for schools and that money generally goes to the richer school districts. So you have poor people paying for the rich kid’s education. I have an issue with that in and of it’s self.
Setting that aside, that argument is completely specious because you can tax and regulate poker and there was a study done by the Poker Players Alliance which showed that they generate over three billion dollars in income for this government if you tax and regulated poker. Saying they get all this money from the lottery is a ridiculous argument. You can do the same thing with poker and then you can earmark that. That would be enough money to pay for the Port Security Act that the bill got attached to at 3 am, in congress, completely underhandedly. It would pay for that Port Security Act. It would pay for higher salary for teachers and policemen if you wanted it to. You could earmark a certain percentage for gambling education, prevention and treatment. So, that’s a ridiculous argument. Particularly when you are carving out a game of chance and saying, ‘but this game of skill is illegal.’ For me that’s one of the biggest problems with this bill.
Setting aside your arguments about poker or not poker, the fact is poker is a better bet for people that are skilled at it than the stock market, and we allow people to trade on the stock market. The courts have taken that position time and time again. The reason there are card clubs in California but you cant play roulette in California is there was a historic case that actually Mike Caro was one of the witnesses at. The California courts determined that poker was a game of skill so they were going to allow card clubs. The last decision that related to the Wire Act, as far as poker being a carve out of the Wire Act, came down in 2002 in the Circuit Courts and it came down in the favor of poker being a skill game. When you look at our tax laws poker is separated from all other games. Billy Baxter brought a case to the Supreme Court in which it was determined that if you were a poker player your earnings would be taxed at earned income rate and not at the 50% gambling tax, and that you could write off losses against winnings. That was a landmark case and the majority decision said in it, ‘for those members in the minority on this court I challenge you to sit down and play poker with Mr. Baxter, because you will lose all your money.’ So all of our court decisions have come down on the side of poker. To specifically target poker is ridiculous. This is a big industry where a lot of people are making money at it. It’s a game where if you become skilled it’s not a losing proposition; it’s like investing in the stock market.
Another big issue for me with the bill has to do with censorship. They are basically asking for censorship of the internet. Again, the fact is that yes I will be the first person to admit that there are people who have issues with online poker, but there are also people who have issues with online shopping, in fact the same percentage of people. So, what are you going to do? Are you going to start having banks police your online shopping activities? ‘Well I’m sorry, you bought two pairs of shoes already this week so we aren’t going to approve this credit card transaction for this third pair of shoes because we think you have a problem.’ Same thing with day trading, are you going to start censoring people’s ability to use their money to use E*TRADE? It is the same percentage of the population that are losing their shirts and jumping out of windows on E*TRADE. This is an issue of what people do with their discretionary income on their own time and frankly the amount of money most people spend playing a $20 poker tournament online is less than they are going to spend going to a movie. It’s less than they are going to spend going to dinner and buying a nice bottle of wine. This is people’s own money and their own activities in the privacy of their own home on the internet. Once you open up the door to censorship in that sense you are opening up the door to censor a lot of other things and a lot of other activities that people have issues with. It’s up to people to control their own spending. I just think that opens the door to say you can’t online shop because some people are uncontrolled about it, you can’t day trade on E*TRADE because some people don’t have control of it.
The fact is that there are people who think gambling is bad. Well I think online shopping is bad so I want to censor that. That’s like a huge issue in this bill for me. What it means for the industry, the industry isn’t going anywhere. The private companies are going to continue operation. It’s not clear that that bill even updates the Wire Act anyway and all the court decisions that have come down have excluded poker from the Wire Act so the issue is they couldn’t update the Wire Act because the Wire Act puts the power in the hands of the states. The states don’t like to give up power to the federal government. They certainly weren’t going to allow a law to be passed that invalidates the Wire Act and makes it obsolete, so the Wire Act is still in effect. The Wire Act doesn’t apply to poker as far as the courts are concerned, or at least the most recent court decisions are concerned. It’s not even clear that it puts it into an illegal zone. It doesn’t make it illegal to play except in very specific jurisdictions where states have made rulings on that, so it’s still legal for you to play as long as it’s legal in your jurisdiction in your state. Its going to be more difficult to get money online, but net teller is around for now and we will see where it goes from there.”
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