Sunday, October 08, 2006

The Internet Gambling Bill...Exposed!

Last Saturday, both houses of Congress passed H.R. 4954, the Safe Port Act. Attached to the bill, as it came out of committee, was a long-discussed internet gambling bill. The bill can be read here. I'll do my best to give you a breakdown of this thing.


The internet gambling bill has been floundering in Congress for years. Its primary sponsors have been Jim Leach (R-IA2) in the House and Bill Frist (R-TN) in the Senate. Why these two? Well, Bill Frist wants to be President in a couple of years (he has NO CHANCE, but why would reality matter to a member of Congress?) He needs the votes of the religious right to make that happen, and what better way to get the votes of the Christian right than to impose their moral superiority onto everyone else? Frist makes sense. Leach is more difficult. Jim was my Congressman for a couple of years (he's the Congressman for Iowa City), and he's a genuinely good guy. He takes no PAC money and generally votes his conscience (he was one of only 4 Republican Congressman to vote against Iraq and broke from the administration on the recent torture bill, because being against torture puts you at odds with the modern-day GOP). If it were anyone else, I would be looking for money coming in from Riverside Casino, but Jim doesn't do that. I think he saw a lot of people get in trouble with gambling in the Quad Cities, and is seeing it now in Iowa City, and genuinely wants it stopped.

Frist and Leach were initially joined by the representatives of Nevada and New Jersey, but they almost immediately flipped. Casinos figured out that it would be very profitable to put their brand name on casino sites. After all, who would you trust with your money, or So Vegas and Atlantic City wanted this killed while they built their own sites, and Harry Reid and friends did his best to do that. It was blocked at every pass. It was omitted from other bills. Anonymous holds were in place. Amendments to include it were killed.

So, how do you get a bill passed that can't see the light of day? Get into the conference. For those of you who failed high school civics, the House and Senate each pass their own version of a bill, then representatives of each house meet in conference to hash out the differences. In early September, the House and Senate passed alternate versions of the Safe Port Act, which added something like $200M to the port security budget. When the conference representatives were chosen, Mr. Leach was included. He attached the internet gambling act to the bill, knowing that nobody could vore against port security, even if it also included a death blow to and, subsequently, Norman Chad. And that's exactly what happened; the bill passed unanimously.

What? No giant fields of internet qualifiers at the WSOP
next year? But I've already ordered 10 new blazers and
the corresponding t-shirts! I haven't been this mad since
my second divorce! And that young guy's really immature!


This law doesn't prohibit online gambling; that's allegedly accomplished by the Wire Act. It doesn't do anything to the gambling sires, which are all located overseas and cannot be affected by U.S. law. What the new internet gambling act does is put the onus of enforcement on the banks. Under the act, a "designated payment system," such as a bank or credit card, cannot accept a withdrawal request made by a prohibited financial institution, defined as internet casinos, poker rooms, and the like. "Designated payment system" also includes third-party intermediaries, like PayPal (which doesn't make transfers to and from casinos) and Neteller (which most certainly does).

It also exempts certain activities, like commodities trading, horse racing, and Indian casinos. Interestingly, it includes an exception for fantasy sports, but limits it so that a fantasy league can't be structured to mimic sports betting (like a "fantasy league" where you pick a team every week, play against another team based on the spread).

The signing ceremony is set for October 13, which is this coming Friday. Federal regulators will then have nine months to put the statute into effect.


How this is going to work is still up in the air. The big question is whether the regulations will extend "upstream." In other words, the banks can easily identify and reject a transfer directly to PartyPoker or Pinnacle. Of course, a large number of these transactions don't go directly to one of thse sites, but rather goes through a third-party intermediary. The most prominent of these is Neteller, which is based in England (outside the reach of the statute). Neteller could decide to comply, which would cut off that outlet. But, because it's overseas and has no US presence, Neteller could also tell the government to shove it. If they did, the regulators could possibly prohibit Neteller transactions just as it prohibits transactions from the poker sites themselves. That is the big question.

In the short term, Neteller has released a statement to customers saying, more or less, "Business as usual." But they're also making non-European account holders reaffirm the terms of use agreement, which might allow them to release account information to federal regulators if required. A significant number of the internet poker sites have decided to leave the US market, including the Big Dog, PartyPoker. Others have adopted a wait-and-see attitude. Pretty much all the sports sites are also waiting until the regulations are put in place. Also, for those of you out there who like international finance, PartyPoker, PokerStars, and a couple other poker sites are traded publicly in London. They lost, on average, 40% of their market cap in one day. This has made some people VERY hesitant about Party's liquidity, especially since millions of dollars in withdrawals will be made in the next few weeks. On the plus side, nobody on the McLaughlin group this morning (including Pat Buchanan, who loves this thing) said it would last (the common sentiment being about 4 years).

The FAQ at the legislative forum has some excellent information (just check your sources before you rely on anything). Otherwise, lord only knows what's going to happen. If this thing works, Vegas property values are going even higher than they were before.

In the meantime, good luck. I'll be at Riverside and the Isle.


Irish Hawk said...

Thanks Pat. Saved me some work and you enjoy politics. Still, I wish Congress addressed it in a bill directly instead of attaching it to the port security bill so there could be adequate debate on the floor about it.

Irish Hawk said...

I still think the better solution is more regulation and not outright prohibition. Now heavy gamblers (not for fun guys like me and you) will have to go back to bookies. Yeah that's not dangerous.

Anonymous said...

I absolutely love to gamble online and I believe every human being on the planet should be able to engage in this type of entertainment from the comfort of their home.