"Bad Actors" & Bad Acting—Why Online Poker Legalization Is a Real Threat to Established Sites

As the dust settles from yesterday's House committee approval of Rep. Barney Frank's online gaming bill (HR 2267), the questions on many poker players' minds are:  "What about Full Tilt?  What about PokerStars?"  These questions arise from two "bad actor" amendments tacked on to the bill during the markup process, which purport to prohibit from qualifying for licensing those online gaming sites which have illegally operated in the United States since passage of the UIGEA.  There is a wide range of opinions on the issue, with PokerStars voicing support for the bill while asserting that nothing in the bill threatens its operations, while Gambling911 reports a strong possibility that current online sites might be shut out:  “ 'No one who took a bet or wager on or after the enactment of the Unlawful Internet Gaming Enforcement Act (UIGEA) in 2006, processed payments, or received "assistance" can be licensed'. ” (quoting Joe Brennan, Jr. of iMEGA). 

The PPA and their friends at PokerStars, Full Tilt, and Ultimate Bet might be acting confident and unconcerned, but given the language of the bill, the old poker adage, "strong means weak" comes to mind.  Why?  Well, as my law school tax professor repeatedly told us, "The first rule of statutory construction is:  'Read!' "  So let's take a look at the bill and amendments, and see what they say about this issue.  Here's the relevant text from the original bill:



Now, here's the language from the Rep. Sherman Amendment No. 2, which is to be added to the end of the above section (ignore the bullet points—Blogger hates indenting):

"(E) fails to certify in writing, under penalty of perjury, that the applicant or other such person, and all affiliated business entities, has through its entire history:

• "(i) not committed an intentional felony violation of Federal or State gambling laws; and  
• "(ii) has used due diligence to prevent any U.S. person from placing a bet on an internet site in violation of Federal or State gambling laws.  

"All entities under common control shall be considered affiliated business entities for the purpose of this subparagraph."

Next we must look at the language of the Rep. Bachus-Bachmann Amendment No. 15, adopted after Amendment No. 2, implying it will take priority in any substantive difference in their terms (again, ignore the bullet points):

"(E) has, on or after the date of the enactment of the Unlawful Internet Gambling Enforcement Act of 2006-

• "(i) knowingly participated in, or should have known they were participating in, any illegal Internet gambling activity, including the taking of an illegal Internet wager, the payment of winnings on an illegal Internet wager, the promotion through advertising of any illegal Internet gambling website or service, or the collection of any payments to an entity operating an illegal Internet gambling website; or  
• "(ii) knowingly been owned, operated, managed, or employed by, or should have known they were owned, operated, managed, or employed by, any person who was knowingly participating in, or should have known they were participating in, any illegal Internet gambling activity, including the taking of an illegal Internet wager, the payment of winnings on an illegal Internet wager, the promotion through advertising of any illegal Internet gambling website or service, or the collection of any payments to an entity operating an illegal Internet gambling website;

 "(F) has-  

• "(i) received any assistance, financial or otherwise, from any person who has, before the date of the enactment of the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, knowingly accepted bets or wagers from a person located in the United States in violation of Federal or State law; or
• "(ii) provided any assistance, financial or otherwise, to any person who has, before the date of the enactment of the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, knowingly accepted bets or wagers from a person located in the United States in violation of Federal or State law. 

"(G) with respect to another entity that has accepted a bet or wager from any individual in violation of United States law, has purchased or otherwise obtained-

• "(i) such entity;
• "(ii) a list of the customers of such entity; or
• "(iii) any other part of the equipment or operations of such entity; or

"(H) is listed on a State gambling excluded persons list.".

OK, there's a lot of legalese packed into these amendments.  What does it all mean?  First, note that the Bachus amendment, although pitched as "redundant" of the Sherman amendment, is actually much more harsh in excluding current online poker sites from licensing.  The Sherman amendment states that the legal standard for judging past violations of gaming laws is "intentional" conduct, while the Bachus amendment uses the much lower legal standard of "knowingly, or should have known". The applicable legal standard for judging violations is critical, as the "intentional" standard is a high bar for government regulators to prove, while "knowingly, or should have known" is much easier to prove.  For example, if it was illegal under Washington state law to accept wagers on the internet (see the pending Rousso appeal), a website might have put in place passive barriers to preclude Washington residents from using the site (e.g., a box asking users their state of residence, then barring play from Washington residents).  Under an "intentional" standard, a website might not be held liable if Washington residents nonetheless played on the site by misrepresenting their state of residence.  However, under a "knowingly, or should have known" standard, the website could be held liable if the website were aware that it was receiving funds from Washington residents, mailing checks to Washington residents, receiving game play from players with ISP addresses in Washington, or had in its possession any similar information or data that reasonably indicated Washington residents were placing wagers on their website.

The next striking feature of the Bachus Amendment is the laundry list of categories of disqualifying conduct: 

1. taking of an illegal Internet wager,
2. the payment of winnings on an illegal Internet wager,
3. the promotion through advertising of any illegal Internet gambling website or service, or
4. the collection of any payments to an entity operating an illegal Internet gambling website.

The primary purpose of these kinds of laundry lists is to attempt to close loopholes and technicalities that current websites might try to use to avoid disqualification.  The first two strike me as potentially problematic for current poker sites, as they do not necessarily require that the site itself be  found to be operating illegally, but merely that any wager they accepted or paid winnings on was illegal.  For example, if the placement of a wager via the internet was illegal in Washington, then the language above might apply to disqualify a site that took that wager or paid off a winning wager, even if the courts of Washington would find that the site itself was beyond Washington jurisdiction, or that only the bettor had broken Washington law.  This interpretation of the proposed statute might be affirmed by a court as a reasonable regulation intended to disqualify gaming sites that had encouraged or facilitated illegal gambling in states where such gambling was barred, even though the site itself was not criminally liable for the bettor's illegal wagering.  (As a very rough analogy, a bar owner who over-serves a patron will not be criminally liable for the patron's DUI arrest, but may very well lose his liquor license as a result of the incident).

Now, the issue of whether the current online poker sites accepting wagers from U.S. players are operating illegally is a matter of great contention, but may become relevant if regulations eventually establish that sites must have actually acted illegally themselves to merit a licensing disqualification.  It seems likely under current court interpretation of the federal Wire Act that online poker sites have not violated that particular statute, so long as they have not offered online sports betting.  Sites such as Bodog, however, which have offered sports betting are likely precluded from federal licensing, particularly since the committee adopted an amendment reiterating a federal ban on online sports wagering. 

So what about the poker-only sites, like Full Tilt, PokerStars, and Ultimate Bet?  Because the UIGEA itself does not make any online gambling illegal, its intent was to permit states to enforce their gambling laws.  The legislative committee members supporting the "bad actors" amendments seemed under the impression that sites currently operating in the U.S. would be ineligible for licensing, creating an inference that online poker sites currently operating in the U.S. are in fact violating state gambling laws.  Although PokerStars seems strangely confident it is in compliance with state gaming laws, and the Poker Players Aliance (PPA) seems to feel the same way, the issue is far from clear.  PokerStars' reference to "legal opinions" assuring that its operations are in full compliance with state laws is of little relevance to the debate.  An "advice of counsel" defense is difficult to maintain in criminal law, and generally only goes to the issue of "willful" violation of law, which is not always an element of state gaming laws.

Further, state gaming laws in many cases appear to ban online poker.  Several states explicitly ban online gaming, while poker is explicitly regulated as gambling in many states.  In states which use a "skill vs. chance" analysis, any "good faith" argument that poker is legal as a game of skill has been dashed, after the PPA's "poker is a game of skill" litigation strategy backfired, resulting in appellate court decisions in several states which explicitly hold that poker is a game of chance subject to gambling laws.  This leaves online poker sites with only two legitimate possible arguments—they are beyond state jurisdiction, and state regulation of online gaming is barred by the Commerce Clause.

These two arguments are related, each arguing that states cannot regulate commerce beyond their borders.  The first argument, related to state jurisdiction, is not particularly compelling.  States already use "long arm statutes" to pursue criminal and civil actions against companies located outside the state; examples in the consumer protection field include state suits against tobacco companies and Microsoft.  Given that online poker sites unquestionably do business within states that regulate poker as gambling, states arguably can assert jurisdiction over online sites.

Now the online gaming sites might argue that they are domiciled outside the state, and the gaming transaction takes place entirely on servers located outside the state, and thus the state has no jurisdiction.  This distinction might be significant in states that bar only taking or accepting wagers, but seems unpersuasive for states that prohibit the making a wager (e.g., Washington).  Although one federal court has declined jurisdiction in a civil lawsuit between a poker player and a foreign-based online poker site, there is no reason to expect a similar decision in the context of a state asserting its jurisdiction in a criminal law matter.

Looking at the Commerce Clause argument, those issues have been raised in the Rousso appellate challenge to the Washington internet gambling ban.  But the key point to remember is that a law is fully enforceable until declared unconstitutional.  In other words, internet gambling is illegal in Washington until a court rules otherwise, and internet poker sites violate the law every time they take wagers from Washington residents.  A company can't simply declare they feel a law is unconstitutional and flout it; instead, they are bound by the law until they (or someone) succeeds in a challenge the law.

Turning to the licensing ban for companies that have engaged in "the promotion through advertising of any illegal Internet gambling website or service", this provision potentially encompasses ".net" advertising if the ".net" company is too closely connected to an illegal ".com" company.  Indeed, the Nevada Gaming Commission recently pronounced that it would be closely examining these kinds of business affiliations, causing the Venetian to drop its relationship with the PokerStars.net sponsored NAPT.  If federal regulations similar to the NGC's views are implemented, this provision could be a major roadblock for online poker sites currently operating in the U.S., as all of the major players utilize ".net" advertising.

Some poker industry and poker media individuals have wondered if Full Tilt or PokerStars could simply create a new "U.S. only" skin or affiliated site, or create a new corporation to transfer their assets to which would be eligible for licensing.  These types of shell game maneuvers appear to be prohibited by subsection (G) of Amendment 15 (the Bachus amendment), which disqualifies from licensing companies which have bought a disqualified company, or its assets.  So, if Full Tilt or PokerStars were disqualified from licensing in the U.S., then they would be too toxic for another license-eligible company (say Google or Las Vegas Sands) to purchase.  This is a significant poison pill provision with financial consequences beyond the licensing debate.

A final interesting provision is that the bill would permit state and tribal gaming boards to license online gaming companies on a national basis under certain conditions.  The Secretary of the Treasury could reject the state or tribal license, but the state or tribal license provision would enable companies like Full Tilt or PokerStars to "forum shop" for a favorable jurisdiction that would grant them a license, presumably in return for significant licensing fees, tax payments, or locating of business operations.  Nevada would be the logical home court for licensing the brick and mortar giants (notably Harrah's and MGM, likely Wynn and Las Vegas Sands), but there are likely a number of states or tribes that would be open to certifying current online sites for the right kind of financial incentive.  Alternatively, current online sites, if unable to obtain a federal license, could still seek licensing in states which opt out of the national online gaming system.  This would only further balkanize the poker playing world, which is detrimental to the growth of the game.

Now, there are two major caveats to keep in mind at this stage.  First, there may be additional amendments to this bill in the House, and there remain almost certain amendments to be proposed in the Senate (home of UIGEA architect and supporter, Jon Kyl, who just happens to sit on both the Finance and Judiciary committees—good luck, PPA).  These differences will need to be hammered out if a final bill is ever passed, and the bill may contain stronger or weaker language related to online gaming sites currently operating in the U.S.  Second, if and when a bill ever becomes law, the Treasury Department will need to promulgate regulations to help enforce the law.  These regulations tend to be very important, and will be the subject of additional lobbying and political wrangling.  So, the final interpretation of the law will depend to a potentially significant degree on the views of Treasury Department bureaucrats, who can strengthen or soften the impact of Congress' statutory language.

Personally, I would prefer a licensing system that would permit sites like Full Tilt and PokerStars to operate legally in the U.S., as they have proven to be reliable sites enjoyed by millions of players (Ultimate Bet / Absolute Poker should have to do some serious explaining to regulators before getting a license).  If other sites started by Harrah's, MGM, Google, or other newcomers want to compete for the poker dollar, they should certainly jump into the fray and try to offer a superior product.  But I find rather distasteful the use of pious "fairness" rhetoric to justify gaining an economic advantage by disqualifying competing companies through an Act of Congress.  However, if sacrificing some current sites leads to legalization, licensing, and regulation, then I won't mourn the passing of Full Tilt or PokerStars.

The Online Poker Slalom Begins

"Go that way, really fast.  If something gets in your way, turn."

—Better Off Dead

The movie quote above involved a character explaining to a high school kid how to ski.  The online poker legalization efforts remind me a lot of skiing—a long trudge up the mountain, followed by a lightning fast, treacherous obstacle course ride to the bottom. 

As you probably heard if you are at all connected to the poker media, the Barney Frank online gaming legalization bill (HR 2267) was successfully voted out of the House Financial Services Committee by a fairly comfortable and bi-partisan margin.  So what does this bill propose for online gaming, and what happens next?

The base bill plus approved amendments contain a lot of positive points for online poker.  Some of the highlights:

• The federal Treasury Department will have authority to license online gaming.
• There will be regulatory oversight of online casinos, with civil and criminal penalties for violations of gaming regulations.  Think of Russ Hamilton in jail for five years per cheating episode, as well as an end to any claims that the random number generators (RNGs) are rigged (if only it were this easy to legislate an urban myth to death).
• Online gaming sites will need to be headquartered in the United States, with a majority of assets, operations, and employees also located within the United States.  This is intended to ensure legal jurisdiction over online sites, as well as to make regulatory oversight easier, and to maximize the economic benefits (read "jobs") of online gaming sites in the U.S.
• Consumer protections against problem gambling include bans on credit cards funding gaming, self-selected limits on losses (by amount, time, or other variables), and self-banning from play.
• Child protection, requiring age verification, and bans on many kinds of advertising.
• A state opt-out provision, allowing states to prohibit or restrict the kinds of gaming that can be offered to individuals within the state's borders.

The state opt-out provision is vitally important to the legalization effort.  A proposal which attempted to impose online gaming on every state on an equal footing would be a political non-starter.  But, an opt-out provision is far better than an opt-in provision, because the default status is usually the status that is easiest to maintain.  In states where there might be opposition to online gaming, it will be more difficult for anti-gaming advocates to mount a campaign to opt out, while pro-gaming advocates will not need to mount gaming legalization campaigns in all 50 states.  This opt-out provision is unquestionably the key point to an effective and politically palatable bill, yet it is probably one of the least-discussed and least-appreciated provisions.

The final noteworthy provision is contained in Amendment 15, proposed by anti-gaming, pro-"family values" Representatives Bachus and Bachmann.  This is a provision which attempts to punish online gaming sites which are currently operating in apparent violation of UIGEA and/or state gaming laws.  This provision might operate to effectively prevent current online sites like Full Tilt, PokerStars, the Cake Poker network, and the Ultimate Bet / Absolute Poker group from being licensed under the new regulatory scheme.  This provision, and the possible loopholes I can see the sites attempting to use to avoid a licensing ban, merit their own post with more detailed analysis (hopefully tomorrow morning—watch this space!).  But, this is another provision that seems to be politically necessary to gather sufficient support to enable the bill to pass the House.

So, what next?  Much like skiing, getting up the hill is the hard part.  Now that the committee vote has started the legalization process on its trip down the mountain, momentum is clearly on its side.  Legalization advocates are mostly working to avoid obstacles at this point.  Major obtacles remaining are primarily in the Senate, which has yet to act on a companion bill (Senate Bill 1597).  Unlike the House which is essentially a "mob rules" operation  (think of the Alpha Beta jock fraternity in Revenge of the Nerds), the Senate gives much more deference to a few political divas who feel they are the elite (think of the "Plastics" in Mean Girls).   So, in the Senate, a handful of determined opponents can doom any bill.  Plus, there is the complication that a major pro-online gaming advocate in the Senate is Majority Leader Harry Reid, who is facing a tough reelection battle in Nevada (and has received a lot of money from Harrah's and MGM to promote online gaming legalization).  Given this election year dynamic, it wouldn't be a shock to see Republicans resist any pro-online gaming bill merely to deny Sen. Reid a political victory.

I do want to give a thumbs up to the efforts of the Poker Players Alliance (PPA) in helping get the bill marked up and voted out of committee in a reasonable form.   Although I have been (and remain) critical of the PPA for a number of reasons, the PPA deserves credit for their efforts in promoting this bill.  Although the PPA wasn't solely responsible for this legislative progress, it certainly deserves credit for representing the interests of poker players alongside the interests of the big gaming corporations and big business interests.

Even if the current legalization effort wipes out or slams into a tree, the House committee vote today marks the turning point in the online gaming legalization effort.  Now, the question no longer is whether online gaming will be legalized, but instead is merely when ... and the applicable tax rate.

"This is pure snow! Do you have any idea what the street value of this mountain is?"

—Better Off Dead

Reheating the Sh*t Sandwich from the Online Poker Hearing

"The review for 'Shark Sandwich' was merely a two word review, which simply read 'Shit Sandwich'."

—This Is Spinal Tap

The poker world has been busily digesting yesterday's Congressional hearing regarding online gaming legalization.  The reviews are rolling in, with fairly standard pro-Poker Players Alliance (PPA) and pro-Annie Duke reactions from Poker News Daily, Bluff, Card Player, Pocket Fives, and the PPA itself (the self-annointed "leading grassroots poker advocacy group").  Kevin Mathers at Pokerati noted that a markup of the bill (an amending process prior to a final committee vote) may be scheduled as early as next week.  Matthew Kradell at Poker News noted an important development—the U.S. Chamber of Commerce, which is a very influential lobbying group on business (read: Republican) issues, has endorsed Rep. Frank's online gaming legalization bill.

I have also run across some interesting additional information and commentary about some of the issues I addressed in my initial post about the hearing.  First off, Politico is reporting that some Republicans in the House are dissatisfied with Rep. Bachus, the outspoken critic of the online gaming bill at the hearing.  Apparently, some Republicans view Bachus as a weak leader, and want to strip him of his ranking member status on the Financial Services Committee.  This has major implications for online poker legalization, as the ranking member position generally moves into the committee chair position if his party gains a majority in the House, which may occur in the upcoming elections.  Also, the ranking member has a great deal of influence on legislation even while in the minority.  So, anything that reduces the influence of Rep. Bachus is a win for online gaming supporters.

I previously questioned why Annie Duke would be chosen to represent the PPA at the hearing, particularly in light of her involvement with Ultimate Bet, and the taint of the Russ Hamilton "super user" scandal.  Turns out, some folks over at 2+2 had similar concerns.  What is interesting is the response from a PPA yo-yo master and 2+2 poster "The Engineer":

PPA did not this time, nor have we ever had any role in the choosing of witnesses for hearings in the House of Representatives.  Invitations to testify are made by the committee staffs and are rarely done with any input from those involved lobbying on those issues.  Annie Duke was invited by the committee staff, we were informed of that, and we work with what we are given.  While I understand your distaste for what you may perceive as her role in the UB/AP scandal, her presence today was not of our choosing, but she will again be an excellent witness on our behalf and the behalf of poker players, and we will support her with vital information and preparation so that she will be effective in that role.

Now, I'm not certain how much truth there is to this response.  The committee certainly picks its witnesses, but when Congressmen are dealing with friendly lobbying groups that support their bill, you can bet they and their staff coordinate with those lobbying groups to get a solid witness with no hidden issues that might blow up while testifying.  You can bet the committee didn't get Annie Duke's name from watching WSOP highlights on ESPN late at night.  In fact, based on an old 2+2 forum post by PPA executive director John Pappas, it appears Annie Duke first appeared on the Congressional radar back in 2007 when she testified in front of a different committee (the Judiciary Committee) chaired by Rep. Conyers.  Although Conyers requested Duke's testimony, Duke was introduced to Conyers by the PPA during a "fly-in" lobbying event.  The criticisms against Duke at that time were related to accusations of unethical conduct as a poker player, rather than the UB scandal, which had yet to break.  In any event, it seems pretty clear that the PPA could have made some effort to suggest a better spokesperson to the committee, or suggested to Duke that she politely decline the committee's invitation to testify (this wasn't a high profile investigation where the committee would compel testimony from a reluctant witness, plus Duke was called as a "friendly" witness in support of the bill).  The excuse that the committee didn't consult with the PPA regarding witnesses is either a lie or a cop-out.

While we're on the Annie Duke / Ultimate Bet topic, today I went back and reviewed Duke's written statement submitted to the committee (prepared by the PPA).  It echoed the answers Duke gave when confronted with the Ultimate Bet scandal during the hearing:

For me, the most critical component of regulation is player protections.  As some of you know, I play at a site called Ultimate Bet.  Under previous management, an associate of the website developed a breach in the software that allowed for players to be cheated out of a great deal of money.  I agreed to continue to endorse the site only after I was sure that new management had addressed the problems, took voluntary steps to refund the cheated players and ensured tighter control over their site security.  Nonetheless, an important benefit of regulation would be to ensure, through source code-based testing and outcome-based testing, that the games are fair and those players cannot be defrauded by the sites and that players cannot cheat others at the table.  Further, under a U.S. regulated system players would have legal recourse should they feel they are harmed and regulators would be able to penalize licensed companies that breach the regulatory standards.  Today, the best non-U.S. licensing regimes already do this, but, U.S. players deserve the protections and assurances of their own government.

I find it interesting that Duke essentially argues that poker should be legalized so that, if scandals like UB occur, then companies could be forced to take corrective action. Ummm, didn't Duke just tell us that UB was the paragon of virtue and cleaned up its mess without anyone holding its feet to the fire?  That's just a really curious argument to make—"Please legalize poker, otherwise we may cheat our customers again!"

(The argument that legalization and regulation is needed to protect U.S. online poker players from fraud and to provide jurisdiction for civil and criminal remedies is a strong point for the pro-legalization side.  I just find it a bit rich that Ultimate Bet, of all sites, is the advocate for online poker regulation in the U.S. when it has been anything but forthcoming about the details of the "super user" scandal as well as how it investigated and remedied the fraud, with major questions still unanswered even now, more than two years later).

Finally, there was an interesting "real time" discussion thread on 2+2 which ran contemporaneously with the televised hearing.  One of the most intriguing posts was by PPA muckety-muck Patrick "Skallagrim" Fleming, an attorney and poker player who posts under the same nickname at 2+2, in response to another post questioning the PPA's motivations and goals:

Sadly, you don't know anything about the PPA.

One of the major reasons the PPA wants a US regulatory scheme is to ensure that US players have full legal recourse for disputes and that sites that fail to provide a fair game are accountable in a US court of law.

The PPA also supports full and open competition under appropriate regulations, as that is what ultimately provides the best deal for the players.

The vast majority of PPA members want to be able to continue to play poker on the sites they have come to know and, to one extent or another, trust.  The PPA does prefer that these sites also be allowed to compete in a future market.  But only with some clear restrictions regarding fairness of the game and players' economic and informational security and site accountability (and that may well exclude some current sites from being able to obtain clear US legal status).

Furthermore, the PPA is not concerned with protecting the interests of existing poker sites against future competition—if a law passes that otherwise provides a good deal for US players but is somehow unfavorable to existing sites, so be it.  That is a site issue, not a PPA issue, and the PPA would still support the law.

Skallagrim
PPA Litigation Support Director

Now, I also have strong concerns about the PPA's motivations and the looming conflict of interest between the PPA's membership, which presumably wants legalized online poker, and its leadership, which is dominated by individuals who own or are affiliated with established online poker sites which may be shut out of the U.S. online poker market as a necessary compromise if Rep. Frank's bill is to have a shot at moving forward.  Now it's nice that Skallagrim asserts that the PPA is willing to throw established online poker sites under the bus if necessary to advance the cause of legalization.  But it seems to me to be something easier said than done.  Let's look at one of Skallagrim's early PPA forum posts:

On May 7, 2008 the first meeting of the PPA's Litigation Support "Team" took place at the offices of the PPA in Washington, DC. Attending were John Pappas (PPA Executive Director), Myself (Patrick "Skallagrim' Fleming, PPA Litigation Support Director), my fellow attorneys Tom Goldstein and Ken Adams, both of Washington, Andrew Woods (another attorney and Director of the Global Poker Strategic Thinking Society at Harvard Law), and Poker Professionals and authors Howard Lederer, Andy Block, Chris Ferguson, and William Chen.  Also present was Mr. Lederer's wife Suzie.  Everyone present contributed substantially and the meeting was, IMHO, extremely productive.

Lederer and Ferguson, two of the founders and owners of Full Tilt, also remain two of the seven directors of the PPA, along with PokerStars-affiliated Greg Raymer.  Clearly Lederer and Ferguson have been key figures in the PPA since its inception, and have played significant roles in developing the PPA's litigation and lobbying strategies.  If and when—and the "when" is looking increasingly like "sooner rather than later"—the online poker legalization bill is amended to include "poison pill" provisions to prevent current online sites from becoming approved to do business in the U.S. market, how easy will it really be for the PPA to look Lederer and Ferguson in the eye and tell them that the PPA wants to support a death sentence for Full Tilt, at least in the United States?  Does anyone really expect Lederer and Ferguson to approve a PPA lobbying strategy that is a death warrant for their own business?

"Life is a shit sandwich.  But if you've got enough bread, you don't taste the shit."

—Jonathan Winters

Why do I get the feeling the PPA is just feeding us a bunch of bread to hide all the bullshit they're serving?

(Image from _okat at flickr).

PPA Provides Cheese for the Sh*t Sandwich at Online Poker Hearing

"It's a huge shit sandwich, and we're all gonna have to take a bite."

—Full Metal Jacket

Today was supposed to be a big day for online poker, with Rep. Barney Frank holding a House Financial Services committee hearing on his bill to legalize and regulate online gaming (HR 2267).  On the panel testifying for the Poker Players Alliance (PPA) was Annie Duke.  The PPA has posted video footage online for the hearing; it clocks in at over two hours total, but with a 30-40 minute intermission in the middle, the actual hearing time is a much more reasonable length.

As I feared, questions were raised about Duke's connection to Ultimate Bet and the "superuser" scandal (video ~ 53:00 mark).   Duke did parry the question and used it as a pivot to explain the need for legalization of online poker to provide better regulatory oversight of online poker, as well as effective legal remedies for players who feel they have been wronged by an online poker site, and even criminal prosecutions in appropriate cases where cheating or fraud are discovered.  However, it seems that the PPA could have made the same arguments with a spokesperson unconnected to the Ultimate Bet scandal, who would have had more credibility.

Duke didn't help her credibility when she stretched the truth, if not outright misrepresented, a couple of facts.  First, when questioned about her connection to Ultimate Bet, Duke quickly cut in to clarify that her connection was to "UltimateBet.net" which she characterized as a free, non-gambling site.  Although her description of the ".net" site was correct, it takes little effort to see that Duke is also a member of "Team UB" over on the real money ".com" site.  Duke also testified that "most courts" who have considered the "game of skill vs. game of chance" argument have ruled that poker is a game of skill.  Unfortunately, there is currently no state where an appellate court has issued a decision adopting the "game of skill" argument; in fact, the appellate courts which have ruled to this point on the issue have all held that poker is a game of chance governed by state gambling laws.  I am baffled by why Duke would make these kinds of misrepresentations to the committee.

Now, in fairness to Duke, I do feel she made strong points about the advantages of having online poker regulated in the United States to better protect Americans from fraud and cheating, and to better control access by minors, problem gamblers, and criminal elements.  But those same points could have been made by any number of other possible spokespeople without the credibility baggage Duke added to the mix.  However, the person raising the Ultimate Bet scandal, Republican Rep. Spencer Bachus of Alabama, likely would have found an opening to discuss the issue in any event.  So, in the grand scheme of things, Duke probably did no real harm to the legalization cause.  But the PPA still looks a bit like an ad hoc amateur hour outfit in failing to find a better spokesperson.

While on the topic of Ultimate Bet, Duke testified forcefully that the superuser fraud was committed by "one person", presumably Russ Hamilton.  If Duke knows this for certain, then why is Ultimate Bet so slow in revealing all it knows about the scandal?  Alternatively, if more than one person were involved in the scandal, then either Duke was not fully honest with the committee, or Ultimate Bet was not fully honest with Duke.  It might have been interesting if the committee had pressed Duke for additional information about the scandal while under oath.  Regrettably, the online poker community will have to continue waiting for those answers.

Frankly, though, I found other aspects of the hearing much more interesting than Duke's PPA talking points.  It is fairly clear now that many industry forces are in favor of legalizing gaming, but are also in favor of barring companies that are currently violating state or federal laws by offering online gaming or online poker in the United States.  Gaming industry rumors long-reported by Bill Rini and Pokerati's Dan Michalski suggest there is a strategy being pursued by leading brick-and-mortar casinos to legalize online gambling in a manner that clears the field of competition from established online poker sites, notably sites like Full Tilt, PokerStars, Ultimate Bet, and Bodog.  From the committee's questioning, it seems that some of the representatives are inclined to support this approach, voicing opinions that companies that are violating the law should not be rewarded by legalization of online gaming.  This again raises concerns that the PPA, dominated by directors associated with established online poker sites, might face a serious conflict of interest between the interests of its membership and the interests of its leadership.

Of more immediate concern to the online poker legalization efforts was the palpable hostility toward the bill from Rep. Bachus, who is the ranking minority member on the panel.  Rep. Bachus is not only opposed to legalization, he openly supports the UIGEA and expressed frustration that its implementation was delayed for two years!  This is not necessarily a deal breaker at this stage of matters, as the House operates in a manner where a majority can push through virtually any legislation it deems a priority, particularly when the bill is supported by a powerful committe chairman like Rep. Frank.  But, there is no indication that the current legalization bill is a priority, and there is precious little time for any real progress towards a vote between now and the fast-approaching reelection campaign season.  Of even greater concern is the real possibility that the Republicans will take control of the House after this fall's elections, which would flip chairmanship of the Financial Services Committee from Rep. Frank to Rep. Bachus.  Under such a scenario, Rep. Bachus would be able to singlehandedly kill any online gaming legalization bills.  To be blunt, if Republicans take control of the House, online poker legalization will stall for at least two more years.

So, the real lesson of the day for online poker legalization proponents is to support Democrats in the upcoming Congressional elections.  Time for the PPA to organize some "money bomb" fundraisers for key Democratic campaigns.

Annie Get Your Microphone

Dan Michalski at Pokerati reported this morning that Annie Duke will be testifying tomorrow on behalf of the Poker Players Alliance (PPA) in a Congressional hearing on online gaming laws.   A written version of her testimony is also available online, along with the written testimony of other witnesses who are scheduled to testify.  Now, these kinds of hearings tend to be more political Kabuki than substantive discussion of the merits of a particular bill.  It is highly doubtful that any particular witness will sway any votes.  Also, the witness testimony is mostly window-dressing, with the real investigative spadework done by Congressional committee staffers, with assistance from lobbyists who provide relevant research and position papers.  I suspect the PPA has already presented the committee with the latest version of its written talking points regarding poker as a game of skill, the widespread popularity of online poker, and the need for regulation of poker.  Frankly, those written submissions will be vastly more useful to pro-poker forces in Congress than any witness' testimony.

Although the live committee testimony is rather minor in the grand scheme of things, I have to wonder—why Annie Duke?  I know Duke has testified in prior Congressional hearings, though nothing in her prior testimony was particularly compelling or provided any insight beyond what could be submitted in a written statement.  But even though live testimony is generally rather lowstakes, there is always an outside chance that someone on the committee will attempt to use live testimony as an opportunity to set up a soundbite for an election campaign, showing how tough he or she is on the evils of gambling.  So, a witness must be selected with some care, to prevent easy attacks on the witness' credibility.

Unfortunately, Annie Duke carries a lot of negative baggage other potential pro-poker witnesses do not carry.  Duke competed on Celebrity Apprentice, where she performed admirably, but was cast in a light that made her appear villainous compared to the beloved Joan Rivers (and who can forget Rivers disdainfully spitting out "Pokah players are trash, dahling!  Trash!" at Duke, as well as Melissa Rivers' "Whore pit viper!" comment).  Although Duke's public image post-Apprentice is somewhat distracting, of more concern is Duke's long and close association with Ultimate Bet, where the most public and largest-scale "superuser" cheating scandal occurred, and whose management has been at worst complicit in coverup attempts, and at best less than forthcoming with details as to the extent of the scandal and the identities of those involved (beyond Russ Hamilton).  Finally, Duke is also the sister of Full Tilt Poker co-founder and co-owner, Howard Lederer.  Full Tilt is reportedly under investigation by a federal grand jury for alleged violations of federal gaming and money transfer laws, and has been linked to other individuals arrested for money laundering and similar money transfer crimes. 

Now, none of this baggage changes the validity of Duke's testimony, nor does it undermine the essence of the PPA's argument for legal, regulated online poker.  Unfortunately, that baggage does present an opportunity for political posturing during Duke's testimony that would undercut Duke's ability to make the most compelling case for online poker legalization.  Why give your opponents any opening to criticize your message by attacking your messenger?  It's not like Duke is the only person who could provide this type of testimony—off the top of my head, individuals* like Greg Raymer, Linda Johnson, Dan Harrington, Bill Chen, David Williams, and Mike Sexton have the requisite combination of intellectual gravitas and respect within the poker community to be effective advocates for the PPA's positions, without the weighty baggage associated with Duke (or Howard Lederer, Chris "Jesus" Ferguson, Phil Hellmuth, or Mike Matusow, for that matter).  The use of Duke as the PPA's spokesperson before Congress makes me wonder how much thought the PPA really puts into formulating its legislative lobbying strategy.

As a poker player, I certainly wish Annie Duke well, and I hope the hearings go off without a hitch.  But, if the hearings turn into a verbal shootout to create some political drama for the voting audiences back home, then as Annie knows all too well, when things get nasty on camera, there's really no business like show business:




* ADDENDUM (22 June 2010):  This morning, while researching something else, I stumbled across an old 2+2 thread on the subject of Annie Duke's testimony to Congress back in 2007.  Apparently, there was some opposition to Duke's representation of the PPA even then, though it seemed based on her personality and some oblique references to a cheating scandal I had never heard of previously. 

However, the discussion thread did mention two additional individuals who I think would make smart, articulate, and credible witnesses without unnecessary baggage:  Barry Greenstein and Vanessa Rousso.

The PPA & Its "Money Bomb" Are Duds

"Son, you're about as useful as a poopy-flavored lollipop!"

—Patches O'Houlihan (Rip Torn), in "Dodgeball: A True Underdog Story"

Yesterday I was listening to a PokerRoad podcast when I heard an ad by Greg Raymer (at the ~9:45 mark) for the Poker Players Alliance (PPA).  The ad was a generic "join the cause" effort:

Hi, I’m Greg Raymer, and I’m a member of the Poker Players Alliance.  Poker has a target on its back, and we need your help to protect the game we love.  The PPA is the single most effective tool poker players have in the fight to defend this great American pastime.  That’s why I’m a member of the Poker Players Alliance. … Every member counts, so join the Poker Players Alliance now to help in the fight to protect your right to play poker in America.

Intrigued, I looked over the PPA website, trying to get a sense of how membership fees are put to use.  Of course the benefits of "premium" membership sell themselves—a card protector, a window decal, and the "ability to donate to the Poker PAC".  Wow, I can pay for the right to donate more money?  Sign me up!

Well, before I donate money to a PAC, I like to make sure it is effective.  Surprisingly, I found little evidence of any real accomplishments by the PPA.  The calendar of PPA events is literally blank except for an upcoming poker tournament to benefit the Ante Up for Africa charity; certainly a worthy cause, but not something I really need the PPA to facilitate.  The vast majority of the PPA discussion forums have grown cobwebs from disuse.  The PPA makes references to lobbying Congress, but gives no details as to its efforts or any tangible results.  Of course, there is also reference to the PPA's role in several state poker legalization lawsuits, failing to point out that its few victories were Pyrhhic, violating the principle of "Primum non nocere"—"First, do no harm."*  So, in sum, I'm not certain that the PPA has really accomplished much, if anything, to this point.

While on the PPA website, I found it interesting that the PPA has designated July 1, 2010, as the date for a "money bomb", looking to raise $25K or $50K from its members, depending on which PPA message you find.  Purportedly, the PPA wants the money to help its lobbying efforts with Congress this summer as various poker legalization schemes are debated.  But the only thing relevant to lobbying is whether a lobbying group is able to deliver votes or money to Congressmen and Senators.  Let's face it, the PPA might have the "million members" it claims, but those members are hardly motivated single issue voters; i.e., PPA members are not likely to be a voter base that can be reliably mobilized in any election.  Also, the voters need to be people who can vote for Congressmen and Senators who matter—those with influential committee or leadership positions, or who are on the fence on the issue—so having a bunch of members nationwide is really irrelevant to getting a Congressman or Senator from a particular district or state to vote for your issue, if there aren't many of their voters in the organization.  So, the other option is money, and in the grand scheme of federal lobbying, $25K to $50K is chump change.  The money the PPA is raising might keep the lights on—or Senator D'Amato on board as lead lobbyist—but it really won't have much effect on lobbying per se, particularly since most of the money is likely to go to the PPA itself, rather than to Poker PAC.

One also has to question how effective the PPA can be at the lobbying game, given that three of its leading spokespersons (and members of its Board of Directors) are either associated with PokerStars (Greg Raymer) or are owners of Full Tilt (Howard Lederer and Chris "Jesus" Ferguson).  The issue is not that any of these men have been accused of any personal wrongdoing (though there is that rumored Full Tilt federal grand jury lurking out there), but that they are closely linked to the two biggest online poker sites, sites that are associated with several recent money laundering arrests, and which openly operate in the United States despite state laws against gambling, and with apparent disregard for the UIGEA.  One has to wonder how many legislators will want to be associated, even indirectly, with Full Tilt and PokerStars.

The PPA's close association with prominent members of Full Tilt and PokerStars also raises serious questions about potential conflicts of interest.  As background, keep in mind that Harrah's and MGM are now aggressively lobbying for legalization of online poker.  However, their vision of legalized online poker encompasses regulatory restrictions on companies that are currently operating in violation of U.S. laws, including the industry heavyweights, Full Tilt and Poker Stars.  As industry expert Bill Rini describes the Harrah's/MGM scenario:

Any legalization of online gaming will come with a regulatory body who will determine who can and cannot offer gaming to US citizens. One of the big assumptions at the moment is that because PartyPoker paid a fine that they are clean. Actually, part of the settlement was an admission of guilt. That admission may come back to haunt them if companies like Harrah’s lobby for licensing requirements that state that any company allowed to offer gaming cannot have illegally offered gaming previously. It’s a perfectly logical requirement and one that many people would agree with so I don’t think it would be too difficult for a land based casino to attempt to get it inserted into any licensing requirements.

In reality, I would be very surprised if any of the current top online poker rooms ever get a license to operate in the US. If I was Mitch Garber running Harrah’s online division I would pump as much lobbying money as it took to make sure that the licensing requirements were sufficiently stringent that all existing online poker sites would be disqualified.

[more from Bill Rini on the topic HERE and HERE.]

Dan Michalski over at Pokerati.com has a similar take on poker lobbying efforts and the Harrah's/MGM likely battle plan for online poker legalization:

Now the purpose of the American Gaming Association’s shift in policy stance is becoming a bit clearer. Considering that they’re the representative voice for B/M casinos, you can see a plausible plan taking shape:

1. Let the UIGEA go into full effect June 1.
2. Eliminate the most powerful online poker operators currently in the industry (i.e., Tilt and Stars).
3. Pass a new law.
4. Let Harrah’s, the Sands, and MGM/Mirage set up shop.
5. Then let the European poker sites join the party.

Step #2, of course, is the billion-dollar mystery question that could dramatically affect us all. Howard Lederer and family have been doing their best to line political pockets with campaign contributions for the past few years … but there’s only so much you can do as an individual when you don’t have an American corporation to funnel your campaign finances through.

[Michalski also linked to a report showing Sen. Harry Reid's top contributors for the 2010 election cycle, with MGM as top donor with $180,400 in total contributions, while Harrah's was second at $111,950].

This scenario for online poker legalization took an ominous step forward recently when the Nevada Gaming Control Board issued an advisory opinion indicating that "those internet companies that have not complied with state and federal law, especially after the passage of UIGEA, and have demonstrated no interest in voluntary compliance will be looked upon less favorably" by the NGC in evaluating whether a company would be granted a gaming license. 

So what does this all have to do with the PPA, and where is the potential conflict of interest?  Well, the PPA's mission statement is a generic, broadbased advocacy for online poker legalization, without regard for the interests of any particular company:

The PPA’s mission is to establish favorable laws that provide poker players with a secure, safe and regulated place to play. Through education and awareness the PPA will keep this game of skill, one of America’s oldest recreational activities, free from egregious government intervention and misguided laws.

If the rank and file of PPA members were told that online poker would be legalized and regulated in the United States within a 12-18 month timeframe, I suspect most of them would be in favor of such legislation.  Now, assume that the legislation were drafted in the Harrah's/MGM-favorable mode discussed above, which would effectively shut out of the market current foreign-based online poker sites, such that the only legal options for online poker—and the easiest options for fully legal deposits and withdrawals—were new sites started by Harrah's, MGM, the Sands (Venetian), and the Wynn.  Do you think most online poker players would care if they had to make the switch, particularly if the softest competition—new players—overwhelmingly flocked to the new legal sites?  So, what's good for online poker players in general and the PPA members in particular might well be directly at odds with what's best for Full Tilt and PokerStars.  Yet three of the major PPA decision makers** have a direct interest in the continued success of Full Tilt and PokerStars, and it's no secret that the PPA's political fundraisers are heavy in major Full Tilt and PokerStars players.  Feeling conflicted yet?

Now, a cynic might wonder why, if the PPA really needs $25K or $50K, PokerStars, Full Tilt, and Ultimate Bet don't just pass the hat among their "teams", "pros", "friends", and other quasi-affiliated menageries; surely they can raise that amount in just a few prop bets.  In fact, a cynic might wonder why the PPA is seeking to raise a mere $25K or $50K in dribs and drabs from its rank and file members, when the PPA already spent north of three-quarters of a million dollars on lobbying in the first quarter of the year alone; a cynic might wonder if the PPA is merely used by Full Tilt and PokerStars to give a patina of populism to their lobbying efforts.  A cynic might wonder if established sites like PokerStars and Full Tilt regard the PPA as a convenient fig leaf to cover their use of the PPA as a de facto lobbying arm, avoiding the legal complications of being foreign companies with significant lobbying restrictions.  A cynic might wonder if the PPA is the political perfume used to cover the stench of lobbyists and campaign donations being funded by companies who currently flout U.S. gambling laws.  Frankly, given the tenor of the PPA's litigation and lobbying efforts, a cynic might wonder if the PPA truly wants legalized online poker if it doesn't include a Get Out of Jail Free card for established online poker sites.

Color me cynical.

They even look "poopy", don't they?

-----------------------------------------------------
* Although I have addressed the failings of the poker litigation strategy a few times (notably HERE and HERE), my most recent post on the topic sums up the downside to pursuing a flawed legalization-by-litigation strategy:

By tilting at the litigation windmill, poker advocates have instead worsened the position of poker. There are now binding appellate court decisions in several states explicitly finding that poker is gambling. These rulings reinforce in the public mind—with the imprimatur of judicial decisions—that poker is gambling, while also removing any arguable ambiguity as to the legality of poker (and online poker) for players in those states.

**  Greg Raymer's role as essentially an endorser and spokesperson for PokerStars makes his role in the PPA exponentially less problematic than Ferguson and Lederer, insofar as Raymer does not (to my knowledge) hold a major ownership position in PokerStars.

Recapping Oral Arguments In Rousso v. State of Washington

Thursday morning, the Washington supreme court heard oral arguments in Rousso v. State of Washington, the legal challenge to Washington's ban on online gambling.  Interestingly, the man who brought the challenge, Lee Rousso, argued the appeal on his own behalf (he is also a Washington attorney).  Also, Rousso chose to split his argument time (each side gets 30 minutes total) with an attorney for the Poker Players Alliance (PPA), which had filed an amicus curiae brief. You can watch the entire argument, which clocks in at just over an hour:
 

Full length video of oral argument.

Below the jump I will discuss the arguments raised by the attorneys, the court's questions to the attorneys, and what I think it all means for the case's likely outcome. There will be several snippets of the argument embedded in the post below the jump, which I think were key moments in the argument. Be warned that the embedded videos seem to load slowly, apparently due to technical limitations at tvw.org (Washington's state public TV network). You will need to give the videos a few minutes to load, and may need to refresh the page to get particular videos to reload.


Now that you've joined me for the full-length discussion, let's talk law. Neither side raised any significant new arguments not previously raised in the briefs they submitted to the court.  Overall, I thought Rousso presented a solid argument focusing primarily on the concept of protectionism—specifically, that the online gambling ban favored in-state brick-and-mortar casinos and card rooms over out-of-state or international internet gambling sites.  The difficult questions for Rousso focused on the idea of regulation if the state online gambling ban were struck down.  The court expressed concerns about who—if anyone—would regulate internet gambling.  In a key exchange with Chief Justice Barbara Madsen, Rousso makes the point that internet poker rooms are in fact already regulated, simply by foreign governments.  With a nice rhetorical flourish (the good kind that drives a point home to an audience), Rousso declared:

It's not the Wild, Wild West out there with respect to internet poker.

Rousso discusses the state's need to regulate

online gambling with the Chief Justice.

Following up on this point, Justice Richard Sanders seemed worried that Washington would be unable to protect its legitimate regulatory interests by merely trusting that internet gambling sites might or might not be subject to some variable degree of oversight in a foreign country.  However, the justice did indirectly express some skepticism about the state's claimed need to ban online gambling, phrasing the state's claim as a "prohibition of internet gambling for the benefit of all these people in this court room, whether they know it or not."  In any event, I thought Rousso's response to this concern was rhetorically brilliant.  First, he acknowledged the need for regulation of online gambling, essentially granting the state its premise that the public needs some degree of protection in the realm of internet gambling.  But Rousso then pivoted and suggested that such regulation of an interstate and international commercial enterprise is best left to Congress.  Here is the key part of Rousso's exchange with the court:

The issues you raise are legitimate ones. People have concerns about the integrity of internet poker. The people in the internet poker community have a strong interest in the integrity. But I think if ... we're dealing with corporations that are domiciled overseas, it's the job of Congress [to regulate online gambling].

Rousso throws Congress under the online gambling bus.

To my ear, this argument seems fairly straightforward and compelling.  If the court is worried that online gambling will be unregulated if they strike down Washington's statute, they can be assured that most online gambling at this point does have some degree of regulation, and if that regulation is insufficient, then Congress can step in and impose national regulatory standards.  I think this argument will be aided by an amicus curiae brief filed by four poker players (whose connection to the PPA is unknown to me) which detailed the online poker regulatory schemes of several foreign countries, as well as proposed regulations pending in Congress.  Frankly, I wish Rousso's briefs to the court would have focused more on this "Washington needs to step aside and let Congress regulate online poker" meme, as it feels (to me at least) more compelling than Rousso's dominant argument in his briefs that the Washington legislature was acting to unfairly protect brick-and-mortar card rooms from online competition.

Following Rousso's argument was Thomas Goldstein, an attorney from the well-respected national Akin Gump law firm, arguing for the PPA.  Goldstein was easily the attorney best-versed in the nuances of Dormant Commerce Clause analysis, and was also the attorney with the smoothest presentation style.  Nonetheless, I felt his performance ultimately was the weakest of the three attorneys, doing little to build on the solid foundation laid by Rousso, while in places actually undermining Rousso's argument.

Goldstein stumbled right out of the gate, by suggesting that the PPA's argument was "more modest" and less "robust" than the argument made by Rousso.  Where Rousso had argued a facial challenge to the internet gambling statute, arguing that the state had no right to regulate online gambling at all, the PPA's position was an as applied challenge, contending that the state could prohibit internet gambling if it could prove that it could not effectively regulate online gambling:

When Washington makes the decision to legalize, for example, regulated poker, it has to either prove that it can't regulate it over the internet, or it has to regulate it over the internet.  That is the discrimination.

Now, this is actually a fine Dormant Commerce Clause argument, but Goldstein, representing an amicus curiae, has no standing to advocate positions not raised by the parties themselves (this rule prevents special interest groups from looking for controversial appeals and then hijacking them for their own purposes under the guise of serving as a "friend of the court").  Two of the justices jumped on Goldstein almost immediately about this issue, and he correctly retreated, casting his comments as simply augmenting the argument made by Rousso.  However, in several spots, Goldstein indirectly returned to the idea of an "as applied" challenge by suggesting that the court needed to remand the case to the trial court for an actual trial or hearing on whether Washington could effectively regulate internet gambling.  The state's attorney, Jerry Ackerman, would note in his argument that neither party has ever contended that such a trial is necessary, which was a subtle jab at Goldstein's overreaching argument.

As his argument developed, Goldstein continued to hamstring Rousso, by declaring that the PPA's position is that Washington state has the power to regulate online gambling sites, even those based overseas.  In contrast to Rousso's position that internet gambling sites may be regulated in the United States only by Congress or not at all, the PPA contended that Washington could require out-of-state or overseas internet gambling sites to be licensed and regulated by the state.  Although this is probably an easier argument for the court to accept, it has a big hitch—if the court strikes down the internet gambling ban, there are no regulations in currently in place applicable to online gambling.  The result of such a decision might conceivably be the return of a "Wild Wild West" scenario, which the court will be reluctant to create.

Turning back to the Dormant Commerce Clause argument, Goldstein's main point was that, where the state has authorized one form of gambling in a brick-and-mortar context, then the state can't discriminate by banning exact same game being offered on the internet.   However, the chief justice specifically noted that Goldstein's argument implied that games beyond poker might be legalized in the online context under Goldstein's reasoning, and Goldstein confirmed that any game authorized by the state—for example, blackjack—would have to be authorized online.  As I noted in my prior analysis of the case, this implication that striking down the online gambling ban will have results far beyond poker and potentially legalize online versions of any casino game permitted by the state is a big hurdle for the court to jump.  Goldstein's use of blackjack as an example seems to be a misstep; he would have been much better off limiting his argument to poker.

Goldstein did finish on a strong note, however, by correctly pointing out that this case carries implications beyond the context of online gambling:

This case is about internet commerce, not about gaming.  The rule you articulate here will apply to everything the State wants to permit to happen inside its stores inside the State of Washington and forbid on the internet.  And that's a tremendously consequential point beyond the four corners of poker.

The court seemed to pick up on this point, and posed several tough questions to the state's attorney, Jerry Ackerman, during the early part of his argument.  Altogether, despite a rough start and a few missteps, the last part of Goldstein's argument really did seem to score some points with the court:

Goldstein discussing the big picture implications

of internet regulation with the court.

Because his argument time was undivided, Jerry Ackerman had a lot more time to make points with the court during his argument on behalf of the state.  In the Betcha.com case heard by the Washington supreme court immediately prior to the Rousso argument, Ackerman had given a masterful, polished, and persuasive argument that an online sports betting site was engaged in illegal bookmaking, even when the site gave bettors an option to "welch" on their bets against other players.  By contrast, Ackerman seemed less in command during the Rousso argument, though that is likely a function of receiving significantly more difficult questions from the bench.

Ackerman started his argument by pointing out that poker is gambling under Washington law.  He cited to a statute that indicates that any game where chance is a material element is gambling, even if the skill of the player can affect the outcome.  This explains why the PPA's patented "poker is a game of skill" argument was not advanced, at least not directly (though Rousso and the PPA made allusions to the point in their briefs and arguments).

Justice James Johnson then began a series of questions directed at the Dormant Commerce Clause issue.  Justice Johnson seemed inclined to agree that the internet gambling ban discriminated against out-of-state online gambling companies, and wanted to explore the state's justification for an outright ban on internet gambling instead of a legalization and regulation approach.  Justice Johnson noted that brick-and-mortar gambling has become common in Washington (a sentiment later echoed by Justice Gerry Alexander), and inquired as to why the ubiquitous nature of casino-based gambling in the state didn't undermine the state's claim that prohibition of poker was needed to prevent a number of social problems.  After citing a number of studies related to the purported detrimental impact of online gambling, Ackerman used a question from Chief Justice Barbara Madsen to pivot and remind the court that the statute at issue bars all online gambling, not just poker, the implication being that overturning the statute would permit online gambling other than poker.  However, once he turned to a discussion of the "parade of horribles" that would result from permitting this expansive version of legalized online gambling, he couldn't resist a rhetorical flourish of his own:

Internet gambling is the crack cocaine of gambling, because it makes it so easy, so readily available, so easy to digest.

However, Justice Gerry Alexander broke in, and inquired whether the mere advance in technology was enough to distinguish online gambling from traditional gambling:

You say those things [about the perils of online gambling].  It's sort of a generational thing.  I mean, the same argument could be made about email—we shouldn't have email because it's so instant, we should go with U.S. mail, take our time, write letters. ... I think we've got to get modern here.

Ackerman's response was essentially that online gambling has been studied, and the problems associated with online gambling are different in degree and kind because of the peculiar nature of the availability and immediacy of the internet experience:

Ackerman discusses the perils of online gambling,

facing skeptical questions from the bench.

In response to questions from Justice James Johnson and Justice Richard Sanders about whether his position would permit discrimination in other lines of commerce such as barring internet shoe sales to protect in-state shoe shops, Ackerman took the opportunity to refer to a case, Brown & Williamson v. Pataki, in which the Second Circuit Court of Appeals (a federal court) upheld a New York statute which barred internet sales of cigarettes, even though cigarettes can be sold in in-state brick-and-mortar shops.  The importance of this case is that the court held that the method of delivery of the product meant that the two businesses were not "similarly situated", and thus the state could ban one method of sale without discriminating for purposes of the Dormant Commerce Clause analysis.  Thus, Ackerman contended that poker in a brick-and-mortar setting is not the same as poker on the internet because the method of delivery of the gambling product is fundamentally different.  Though he did not develop the point, the Brown & Williamson case also implies that courts will be more deferential to state legislatures when they regulate traditional vices.

Toward the end of Ackerman's argument, Chief Justice Barbara Madsen again asked if Rousso's "facial challenge" to the online gambling ban meant that the statute barred online gambling that was not legal even in the Washington brick-and-mortar casinos.  The import of this question is that overturning the statute on a facial challenge means that the statute cannot be applied at all to prohibit or regulate any form of online gambling; by contrast, a successful "as applied" challenge directed to internet poker would be limited to legalizing online poker, while leaving a ban on other forms of online gambling in effect.  Most of the Chief Justice's questions seemed to be in this same vein, expressing a hesitation to endorse a sweeping ruling invalidating a ban on all online gambling, particularly forms of gambling not legal in the state's brick-and-mortar casinos.

During the final series of questions in Ackerman's argument, Justice Debra Stephens (who was a particularly active participant in the prior Betcha.com argument) asked if the gambling context of the Rousso case had any impact on the proper Dormant Commerce Clause analysis.  Ackerman understood the concern suggested by the question—are regulations of vices reviewed under a more lenient standard than regulations of "ordinary" commerce?—and contended that online gambling is barred by federal law (citing 22+ prosecutions under the Wire Act) as well as by every state (probably true if one assumes gaming unregulated by a state is illegal, as no state has explicitly legalized online gambling).  Ackerman then argued that the Dormant Commerce Clause is not violated by laws barring universally illegal activities:

When you have no lawful commerce that can be burdened—think heroin trafficking—then the Dormant Commerce Clause has no application to what's taking place.

Ackerman completes the parade of horribles trifecta:
Online gambling corrupts kids like crack cocaine and heroin.
However, he missed the easy bonus points for invoking,
"The terrorists will win if this law is struck down." 

In his brief time for rebuttal, Rousso faced questions from the bench related to the state's claimed interests in preventing the evils associated with gambling.  Rousso started with a strong dissent from the state's assertion that a prohibition of online gambling was the only reasonable solution:

I think the position taken by the State is that this [online gambling] is a Leviathan that cannot be regulated.  And that will be the State's position until such time as it decides it wants to tax it.  And once it decides they can tax it, I assure you the State will decide immediately that it can, in fact, regulate this.

Rousso calls the state's bluff on the need for prohibition.

Justice James Johnson then turned the conversation to organized crime.  He questioned Rousso whether the state had any interest in preventing online gambling from being used by organized crime or terrorists to fund their operations.  Rousso again had a solid (if not entirely convincing) libertarian argument:

The way you eliminate crime from gambling is to make it legal.  And that's how you got rid of organized crime in Las Vegas—you made it legal.  If you want to get rid of crime in gambling, you make it legal, regulate it, tax it.  Crime goes away.

Rousso makes the Washington Supreme Court

an argument it can't refuse.

Note that a few seconds into his response, Rousso stated that the federal Wire Act was enacted to combat organized crime, and Justice Johnson interjected his agreement with that contention.  Overall, Justice Johnson seemed the most supportive of Rousso's position, although he may just have been playing devil's advocate to see how the attorneys would respond to questions probing the validity of the law.  More likely, Justice Johnson, along with Justices Sanders and Alexander, see some merit to Rousso's position.  Those three justices expressed some skepticism of the state's claim that it could not regulate and could only prohibit online gambling to accomplish its goals of protecting the state's citizens from the evils of gambling.  These justices also seemed troubled by the state's apparent hypocrisy given its close relationship with an extensive network of legal, regulated brick-and-mortar casinos, and seemed to view the internet as merely a more modern method of commerce, rather than a wholly new form of gambling.  However, just because a particular justice is sympathetic to a party's position doesn't mean that justice will ultimately vote in favor of that party on the merits.  It is not at all uncommon for a court to uphold a challenge to a law by essentially stating, "We disagree with the law, but it is the legislature's role to make policy decisions like this, and absent some compelling reason, we won't interfere with the legislature's decisions."

On the flip side, I think Chief Justice Madsen and Justice Stephens are unlikely to vote to overturn the online gambling ban.  Both of those justices seemed concerned that striking down the law would allow a wide array of online gambling (including gambling not authorized for Washington's brick-and-mortar casinos) to occur in an unregulated environment.  These justices seem more likely to endorse a middle way, such as the PPA's "as applied" challenge targeted only to striking down the law as applied to internet poker, not online gambling as a whole.  It's possible the court could rule that the statute is consitutional in general, but find that it may not be valid as applied to poker (or other games authorized by the state).  In that case, the court could either remand the case to the trial court for a hearing or trial on the state's need and ability to regulate or prohibit online poker, or it could simply decide the issue based on the record in front of it, despite the fact Rousso disavowed an "as applied" challenge.

Finally, the court may simply find the online gambling ban to be constitutional both facially and as applied to poker.  Although the justices may have some skepticism as to the state's claims regarding the reasons justifying an outright ban on online gambling, the court could decide that the state's claims are sufficient to meet a constitutional challenge, and let the legislature ultimately decide whether, when, and how to go about legalizing internet poker specifially, or online gambling in general.

I still think that Rousso's chances for success are a longshot, but I would say that oral argument certainly helped him frame the case in the most effective light for his position.  Despite Rousso's solid performance in court, ultimately this case requires the court to take a big step in striking down a law regulating gambling, an area where legislatures historically have enjoyed wide latitude and nearly unlimited discretion.  However, even if the court ultimately rejects his argument, Rousso certainly left the courtroom with the justices giving his argument serious consideration.  It will be interesting to see how the court rules.