Black Friday For Online Gambling

Nolan Dalla posted this on the BARGE mailing list and since it’s the most reasoned thing I’ve seen published I asked him if I could re-post it here.

I have read many public forums over the past few days. Until now, I have not spoken out publicly on the Internet Gambling Prohibition Act, and the new version of this law which was attached to the Ports Security Bill on Friday night, although my views are probably foreseeable.

I do not believe most of the members here quite understand the degree of damage this new legislation will have upon the online gambling industry — including sports wagering, poker, and affiliated businesses such as MadJacks, et. al.

Before I comment upon this legislation and its detrimental impacts, first I should disclose that I have been involved in the poker business for more than a decade. I was and am the Media Director for the World Series of Poker. I was, until yesterday, the Director of Communications for PokerStars.com — the second-largest online poker site in the world. I resigned my position based on legal advice. In 2004, I was the Editor of a sports betting magazine published by SportingBet USA. I also served as a guest handicapper here at MadJacks for four years. Please note that the opinions expressed here are not those of the World Series of Poker, PokerStars.com, or anyone else I have been affiliated with. They are my own.

Once this bill is signed into law (possibly as early as Wednesday, Oct. 4), it becomes effective immediately. This is why 888, PartyGaming, and others are suspending US operations, effective immediately. News has already been released that .COM (money) poker games will not be available to US residents. However, .NET (free) games will continue uninterrupted according to reports.

I expect this to have a ripple affect across the entire industry. Most of the larger poker sites, and likely offshore sportsbooks as well, will be forced to block wagers from US residents. Otherwise, all operators/employees are subject to arrest and prosecution if they enter US territory. Those here and elsewhere who have stated this new law “only applies to financial transactions” have a narrow and tragically misguided view of the legislation. It essentially makes any employee or agent of the offshore site a criminal under US law — UNLESS they block transactions from US residents. In short, an executive from an offshore sportsbook could enter the US and not fear arrest, provided that company is not doing business inside the United States.

Hence, the impetus is on the sites themselves to shut down US operations and links to US clients. I expect that most of the larger sportsbooks and poker sites will follow this trend for a few reasons which follow:

1. First, many of the larger, more established companies will take a long-term strategic view. They will decide it is better to operate within the law, rather than break it. This is especially true for public companies subject to gaming law and regulations, such as Party, 888, etc.

2. Companies which comply with US law now will be in a better position to re-enter the US market, provided online gambling is eventually legalized.

3. While profits will decline in the short-term, these companies will be forced to expand into new markets (Asia, Latin America, and so forth) or perish. Those companies with diversified products (non-US sports on the betting menu, for example) will be in better position to make the adjustment.

4. I expect a number of rogue sites to pop up and circumvent the law. Clearly, some sites will emerge and take the risk of accepting US wagers because of great potential profit. Sadly, I expect some of these rogue sites will be poorly run and mismanaged and scandal will result, which impacts the entire industry, and this makes legalization in the US even more difficult.

5. I expect that most of the majors in the sports betting market will continue to operate through the end of football season (the most profitable time of the year) and use the 270-day enforcement discussion period as a gray area which can be exploited to their advantage. However, as arrests and prosecutions continue to make news (Caruthers, Dicks, etc.) some of the majors will be forced to confront the prospect of blocking US traffic. I also expect US officials to put pressure on some governments such as Costa Rica, Antigua, and others to regulate their own sportsbooks, in the manner that the US government is involved in drug policy in counties like Mexico, Columbia, and so forth.

6. I predict that most of the majors will conduct themselves in a professional manner, by refunding deposits and paying (winning) players upon request. More to the point, I am not withdrawing my money from any poker or sports betting account at this time. However, those sites which openly violate US law will risk eventually being targeted in international court. I admit to having less knowledge on this issue than any other. But I do not fear that well-established sportsbooks will run away with money. I can say with absolute certainty that the big poker sites will act in good faith. I think I know this industry well enough to express this confidence.

As to the impacts on poker and sportsbetting, this new law is going to be DEVASTATING. Especially for poker.

Consider that:

A. If poker sites cannot accept deposits from US players, that will kill 70-80 percent of the overall market. The question becomes — is there enough of a remaining market and enough contributing players in smaller markets to sustain operations and expansion? Perhaps. But it will take years, if not a decade to return to what has been the golden age of poker.

B. Online poker sites and sportsbooks will no longer be able to advertise (.COM-related services) inside the US. Media outlets will simply refuse to accept the ads. This includes print, television, and radio. Consider the implications. Thousands of new players were signing up daily at various sites. All of that vanishes. Sports gambling is less-reliant on advertising. However, the loss of the US market will force unforeseen changes in how these businesses are run, especially those companies that have multiple-gambling related products, such as BoDog, Paradise, etc.

C. Online betting sites will likely not be able to post banner ads and links to gaming sites, especially those based inside the US. “Aiding and abetting” laws could result in arrest and prosecution for those who provide links to US residents. Poker magazines, online betting forums, and even MadJacks could suffer. I remain uncertain as to how severe this impact will be, especially at MadJacks. But for the hundreds of poker sites/sports sties and blogs out there that are dependent upon online poker and sportsbook advertising, many will go out of business. Once again, this might not seem a big issue to everyone, but these are the pioneers who are bringing in new poker players and sports bettors and when they dry up, the market shrinks and everyone is adversely affected.

D. Many sites use what are called affiliates. Persons who are affiliates and live inside the US will now be subject to arrest and prosecution, particularly those who do not block financial transactions from the US.

E. The celebrity poker culture around star poker players will diminish. One poker site is heavily branded to many big names. Now, these players will no longer be able to promote their sites inside the US. Hence, their value and stature diminishes.

F. Big events like the World Series of Poker, which attract meany players and great interest from online poker sites, could decline in size for the first time in history. I am most sensitive to commenting upon this event because I still have a longstanding association with the WSOP. However, anyone who looks at the situation must conclude that the WSOP and major poker tournaments will be hurt by this new law.

G. Online gaming sponsorships of various products and services will decline. For instance, Golden Palace ads in boxing arenas, NBA stadiums, and on halftime shows will diminish, if not end completely. PartyPoker ads that are seen regularly on TV, on all stations, will fade away. Millions in advertising revenue will be lost by media companies (which begs the question (why were they not fighting this legislation?)

Keep in mind that these points are off the top of my head. I do not pretend to have a legal background. They are simply personal points of view and speculation as to the impacts of this new law.

Finally, there were some here and elsewhere who said not to worry, that the law would never pass, and so forth. Now, we see what happens when we remain complacent and passive. Aside from this being an outrageous violation of personal freedoms and privacy in this country, I view this issue as largely symbolic of the decline of civil liberties in recent years, and an eerie warning of what is to come. It brings to mind a bumper sticker I saw recently, “If you aren’t outraged, you aren’t paying attention.”

Nolan Dalla
Las Vegas, NV