December 24, 2011

Online Poker Legalization Will Ultimately Be a State by State Fight

"All politics is local."

~Former House Speaker Thomas P. "Tip" O'Neill

Earlier today I discussed the reasons why online poker isn't legal despite the DOJ's recent formal opinion stating that the Wire Act applies only to sports-related gambling. Essentially, because poker, like all gambling, is regulated at the state level, the DOJ's position regarding the Wire Act ultimately has little direct effect on the legality of online poker. An important corollary to this point is that the online poker legalization battle will have to be fought and won in each individual state.

I know poker players and the PPA are focused (correctly) on federal legislation to legalize online poker. Technically, Congress could use its Commerce Clause power to preempt state gambling laws and impose a national online poker system. Given that gambling issues are traditionally the province of the individual states, and given the lack of national consensus as to legalization of online gambling, a sweeping federal plan is a complete non-starter.

The best result poker players can hope for on a federal level is legislation permitting online poker on a national basis, while allowing individual states to choose whether to participate in the system. An "opt-out" system (where states are included in the system unless they specifically choose not to participate) is superior to a federal "opt-in" system (where states must affirmatively choose to join the system). For any controversial issue, it is politically easiest to maintain the status quo, as political change requires affirmative use of political muscle. So, an opt-out system is almost certain to bring many states into a federal system which otherwise would lack the political will to affirmatively join under an opt-in system (as of now, Nevada, California, New Jersey, Florida*, and Iowa are the only states which have actively explored legalizing online poker).

If federal legislation fails, then individual states will likely begin to legalize online poker on an intra-state basis. As I have discussed previously, it is likely states will adopt some type of reciprocity system to permit players from states where online poker is legal to play against players from other states with similar online poker regulations. Consortiums like this would improve liquidity and create synergy for all participating states, leading to increased numbers of players (and greater rake and tax receipts). It's also possible, even probable, that as states become comfortable with security issues, foreign players from countries where online poker is legal would be permitted to play as well (though there likely would be some tax and money transfer issues to work out on a federal level first).

The most important point to remember, however, is that whether online poker legalization occurs at the federal or state level, the online poker legalization process is controlled by each of the 50 state legislatures. The legalization process will be easy in some states. But in many states, online poker advocates will have to engage in a political battle against a variety of opponents. Obviously, the usual groups opposed to gambling on moral and social grounds will be vocal. In some states, local or tribal casino interests fearing loss of revenues may oppose online poker, and may have the money and political clout to prevent legalization. There will certainly be a few states where opportunistic politicians will shanghai the online poker issue to strong-arm political concessions for completely unrelated issues.

Make no mistake about it, the online poker legalization fight will be a long and messy process. Regardless of whether a federal or state level system develops, it's entirely possible that online poker may not be uniformly available in all of the states for several years, possibly even a decade. Professional players willing to relocate will likely be able to find a state where they can play legally within a year or so. Unfortunately, many recreational players will not have that option, and will be left to the whims of their state political process.

It's time for poker players to get to know their state legislators.

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* ADDENDUM (26 December 2011):  Edited to add Florida to the list of states which have actively explored legalizing online poker. I was inspired to go back over my post by a thoughtful discussion of the DOJ opinion posted today by Shamus at Hard-Boiled Poker. Just more evidence my memory isn't what it used to be!

- Posted using BlogPress from my iPhone

8 comments:

  1. Or become legislators. I knew I should have challenged mine, he ran unopposed.

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  2. Thank you once again for cutting through all the BS and getting to the gist of what this really means

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  3. Appreciate the post as a whole, but I really think you drove off into the lake at the end. Divide estimates of the likely eventual number of states by 5 or 10, and multiply the time frame to get there by 15 to 20. Besides a very partial list of this or that preferred interest group, I believe you are overlooking another relevant impediment for legislators: The people who elect them don't want them to do any such thing.

    It isn't like this is a new sort of enterprise. Account betting and simulcasting for the racing industry, which is a much larger and far more easily accepted business (even more so given poker subculture inhabitants' self-destructive tendency to demonize and smear and imagine conspiratorial ideological explanations), and they went down this road over the past several decades. At an apparently stable endpoint it is available to about half the country. Internet poker won't be.

    From your local paper, today: "A Des Moines Register Iowa Poll in January 2011 showed that 73 percent of Iowans were opposed to online gambling. Only 23 percent were in favor and 4 percent were not sure." That is what you get nationally as well, it has been so for a long time, and it isn't moving up for the "yes" side at all.

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  4. @ Local Rock: Yeah, I have to agree my "prediction" of final results for legalization is probably optimistic. I was writing the post on the fly (literally on an airplane!), and was focused on explaining the state-by-state process poker players face. Your point is well-taken. Most likely, there will be some number of long-term holdouts among the states, and some states may not see legalized online poker for over a decade.

    However, despite a general anti-online gambling sentiment among the general public, I think a weird confluence of factors may make legalization possible. Some legislators will support legalization on personal freedom grounds, some will support it for tax revenue purposes, and some of the anti-gambling crowd will support it as a way to bring some legal control to the moral Wild West. Although 70%+ of Iowans might be opposed to legalization, I know that it's actually a fairly close fight right now in the legislature. I suspect that's the case in many states. Plus, don't forget the casino interests have plenty of cash to buy influence.

    One other factor to think about is that the initial few states will be toughest, but success with a few states may well lead to a flurry of other states jumping on the legalization bandwagon once it starts to look like their state is missing the gravy train. Years ago, most states had little or no legal gambling. Now, most states allow some forms of gambling, and many states have gone whole-hog with lotteries, horse-racing, and casinos. Once the first 2-3 states legalize online poker and form an interstate compact, I'd give it less than 5 years before a majority of states were on board. It's just a question of which state(s) want to be the bellwether(s).

    Now, I should probably quit before I mix any more metaphors ...

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  5. Yes, I seem to recall you were out somewhere actually playing poker in a real casino at the time.

    I do agree that there is wisdom in the state by state approach, but I find it hard to picture anything like a majority of states becoming involved, and getting there within a decade. That assumes a much more successful campaign than racing's three decades to firmly establish national advance deposit wagering in about half the country, which was less politically and legally contentious than this, and had a base of support from a large longstanding breeding industry existing in every state.

    I'm not much impressed at all with the political efficacy of the commercial casino industry outside of two states (guess which two that might be) leaving aside the fact that they are currently opposed to intrastate online poker arrangements beyond establishing hubs for themselves in Nevada and New Jersey. They haven't even succeeded in getting plain vanilla brick and mortar commercial non-tribal gaming in most states. I also wonder how much rushing to join there will be when the tiny size of the market becomes apparent. The size of the business that was incidentally revealed by the DOJ action was stunning by its insignificance - the largest poker site had less in total US accounts (optimistically pretending for a moment that the money supposed to be on deposit at Tilt actually still existed) than the handle of a single medium sized regional circuit track operating for a short three or four month season, and I'd have to believe that business would expand a hundredfold for the tax revenue potential to be big enough to become very interesting.

    But then, you know what an optimist I've always been on this. Sure wish Loveman would hang a line on it at Caesars, so I could bet the farm on the under. If this plan is a major part of how Gary is arguing that Caesars double digit interest below investment grade debt service is going to get covered, then I'd love to short the stock, if only he still had public stock.

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