February 26, 2010

Will the Hawkeye State Go All-In with Online Poker?

The Des Moines Register today reported that Iowa lawmakers are drafting a bill that would legalize online poker for Iowa residents.  According to the report:

The idea would allow people to deposit between $50 and $500 into a special account at one of Iowa’s casinos. That account could then be used to play poker online. The restriction, however, is that the person would have to play on a computer that is using an Iowa Internet address.

Playing outside of the state would be prohibited.

—"Iowa Lawmakers Considering Online Gambling" by Jason Clayworth (Des Moines Register, Feb. 26, 2010).

From this description, it appears that lawmakers envision Iowans being able to play on currently established poker sites, rather than having Iowa casinos set up their own online sites.*  Presumably, the state would require online sites doing business with Iowa residents to comply with regulations regarding deposits and withdrawals of funds, monitoring for cheating, payment and reporting of taxes, and prevention of underage gambling.

One interesting implication of the proposal is that by legalizing online poker in the state, presumably Iowa residents could also make online deposits of funds which would be legal under the UIGEA.  However, the proposal also calls for deposits to be made at local casinos.  This in-person deposit rule likely is intended both to prevent underage gambling and to ensure proper accounting for taxes and fees to be collected by the state.  As a practical matter, the proliferation of casinos in Iowa the past decade means no Iowa resident is much more than an hour's drive from a casino, so the lack of ability to deposit money online would be more annoyance than obstacle for players.

A potential problem for Iowa's online poker players is that the explicit legalization and regulation of online poker would likely mean that any online poker outside the state-approved system would be deemed illegal.  I suspect the state would assert that online poker is currently illegal in the state, but the existence of a legal state-approved system would remove any potential ambiguity about the legality of unregulated online poker play.  Also, based on a recent Iowa supreme court decision, it would appear that any unregulated online poker playing would leave players without any legal recourse if they should have a dispute about cheating or withdrawal of funds, since playing on an unregulated online poker site would be be deemed illegal wagering outside the state-approved gaming system.

This proposal offers Iowa online poker players both positives and negatives.  The positives would include making online poker a clearly legal activity, instead of letting it occur in a legally nebulous gray zone.  Online poker would also be subject to regulation and oversight, particuarly important in light of the Absolute Poker / Ultimate Bet scandals, as well as more garden variety glitches like awarding a pot to the wrong player.  Players would have a legal mechanism within the state to enforce their rights if they were victims of cheating, or had other disputes with the online poker sites.  Players would also be ensured a fairly easy, convenient, and secure method of depositing and withdrawing money.

On the other hand, the negatives would include forcing Iowa poker players to play online poker pursuant to the state's rules, or not at all.  It is doubtful any reputable online poker site would risk doing business with Iowa players outside the state-regulated system.  Also, with legalization and regulation comes their red-headed stepchild—taxation.  Iowa online poker players who currently play with little or no concern for tax issues would find it impossible to avoid paying income tax on online poker profits, not to mention incurring the nearly inevitable fees for setting up and maintaining an account (after all, that handy regulation doesn't come for free). 

The most interesting implication for legalization of online poker is whether the state would eventually legalize other forms of online gaming.  For example, Iowa does not permit sports wagering, yet personal experience tells me plenty of Iowans love to put a little money down on the occasional game.  Letting Iowans place sports wagers with online sportsbooks—subject to regulation, of course—would seem a natural extension of online gaming.  Given the fairly rapid evolution of legalized gaming in the state over less than 20 years—horse racing led to lotteries, which led to slots, which led to table games—the logical question is how long would it be before Iowa allows residents to play blackjack, craps, or slots online?

Nonetheless, all things considered, a state-regulated system permitting online poker playing is a net gain for Iowa poker players.  Also, given the state's budget problems along with the popularity of online poker and the general acceptance of gambling within the state, some form of regulation and taxation is almost inevitable for online poker.  If legalization of online poker doesn't happen first in Iowa, it almost certainly will occur within the next couple of years in another state (perhaps California), which will start a cascade of other states following suit.  Iowa might as well be the first state to go all-in with online poker.

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* None of Iowa's current casinos would likely have the interest or the resources to set up an online poker site, other than the Horseshoe in Council Bluffs (across the river from Omaha, for my non-Midwestern readers).  The Horseshoe is part of the Harrah's family of casinos, and there have been indications that Harrah's has long-term plans to set up an online gaming network.

2 comments:

  1. It all seems full of holes to me. Considering it's called the "WORLD Wide Web" I really don't know how they can enforce this. Or, how people would transition. I have money on two sites now, would I be forced to divest and start over? Not a process I wish to undertake. Also, if I did and moved out of Iowa, what would become of my money? Frankly, I've never understood how or thought it was possible that a single state - or nation, for that matter - to regulate something that's not entirely within our borders. It's all wonky to me.

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  2. @Andy: There's no doubt the implementation process will be a hassle for players. In addition to the issues you note, what about the player who has an hour drive to a casino who wants to add to his account to cover a tourney entry? Doable, but it takes a lot more planning. But, if you want to play online, you'll find it much tougher to play outside the state-approved system, as the major sites crave legitimacy and will work with the state to implement the legally approved system.

    As for regulating an international system like the internet, it's clear that state/national governments have to have some ability to regulate internet activity, otherwise the internet would be a nearly lawless frontier, which would quickly lose its commercial usefulness. The problem is that traditional legal models and principles are strained when applied to the internet which is global in nature, connects people across borders, can be hosted on servers anywhere, and really is not localized anywhere. The current online poker situation really highlights the difficulties in having traditional laws keep up with technological changes.

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