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Will Online Poker The New King Of New York?

Apr 23 2014, 8:35am CDT | by

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Will Online Poker The New King Of New York?
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Will Online Poker The New King Of New York?

In America there is a war going on for the hearts and minds of thousands of online poker players, many of whom have been frozen out of the game they love.  In one corner stand the lobbyists pushing for a federal ban on online poker. In the other, individual state lawmakers who are forging ahead with plans of regulated online poker for their residents.

null .  However, with disappointing returns reported to date and tax revenue not what was once expected, is there life in legal online poker in the Empire State?

“The market is still maturing,” Nicholas Kisberg, CEO of CardsChat.com explained to FORBES.  ”While online gambling does see steady growth in regulated markets, it does take time for players to become comfortable with the operators.  In addition, traffic levels at poker rooms – a factor that is essential to their success – take time to reach critical levels that create exponential growth.”

The Online Poker Green Light

After the Unlawful Internet Gambling Enforcement Act (UIGEA) was passed in 2006, online poker sites operating in the United States were prevented from processing payments from their customers.  Many websites left the United States altogether while others remained, and it came to a head with the Department of Justice’s (DOJ) Black Friday raids of April 2011 when the sites of the three largest poker sites in the United States were shut down and players’ funds seized.

As the dust settled, the DOJ relaxed its stance on the terms of the Wire Act, which effectively outlaws bets made over the Internet, to allow poker and casino games to be played online by Americans, subject to state legislation.

New Jersey and Nevada Lead the Way

The Department of Justice’s reinterpretation of the Wire Act was a green light to many states keen on some form of legalized Internet poker for their residents, and as expected, the states with a heavy land-based gaming presence such as Nevada and New Jersey have wasted no time in forcing through their own laws.  Elsewhere, Massachusetts, Pennsylvania, California and Illinois are all potentially poised to pass online poker legislation of their own.

Over the coming months we will start to see ‘inter-state compacts’ emerge that allow residents in gambling-friendly states to play poker against one another.  Such compacts have already been signed off by the governors of Nevada and New Jersey, with Delaware expected to join in the fun this summer.

New York Joining the Party?

While it doesn’t have the existing land-based casino presence (often seen as a stepping stone to regulated online gaming), New York does have a history of card rooms, and the State has produced many poker world champions in the past.  However, a bill has recently been introduced in the New York Senate, which is set to regulate online Texas Hold’em and Omaha for residents of the State.  The key Bill (S6913), introduced by NY Senator John Bonacic, is an amendment to existing gambling law and will seek to recognize poker as a game of skill.  The amendment was reached after a conviction was made against Lawrence DiCristina for running ‘illegal’ poker games in contravention of the 1970 Illegal Gambling Business Act (IGBA). Pro-online poker observers were disappointed when DiCristina’s initial acquittal was overturned February by the U.S Supreme Court.

Despite the DiCristina verdict, the amendment, which states: ”Under federal poker law poker was predominantly a game of skill….and the courts have found that where a contest pits the skill levels of the players against each other, those games are games of skill and not games of chance,” will form the basis of any new legislation in New York.

Bill S6913 is now in the hands of New York’s Senate Committee on Racing, Gaming and Wagering for approval.  Interestingly, Sen. Bonacic is currently the Committee’s Chair.

What Will Be Offered Under the New Law?

Whereas New Jersey currently allows table games such as roulette and blackjack to be played online by New Jersey residents for real money, New York’s would, at first, restrict offerings to “skill games” like Omaha and Texas Hold’em.  Operators will have to purchase a gaming license at $10 million, and gross gaming revenue will be taxed at 15%.

Acting Out the Bad Actor Clause

As with new regulated markets in New Jersey and Nevada, the future of the online game in the United States is undoubtedly through inter-state compacts that allow players in multiple states to play against each other.  These markets could conceivably be opened up to allow global poker players to play on the websites.  However, New York looks set (as in New Jersey) to include a ‘bad actor’ clause into any new laws it may pass.

The ‘bad actor’ clause prohibits any Internet poker room that illegally received bets and processed payments from customers after UIGEA came into force in 2006.

Major global sites such as PokerStars.com are already feeling the effects of the clause in New Jersey and are currently frozen out from teaming up with existing land-based operations to provide online poker.  Additionally, PokerStars has been frozen out of Nevada for another four or five years, and any inter-state deals, whether they include a newly-regulated New York or not, arguably need major global brands like PokerStars involved if those states are to produce more convincing balance sheets.

The Land-Based Launch

Starting up online poker sites has been smoother in states such as New Jersey and Nevada that already have a sizable land-based casino presence, but one positive for the future of regulated online poker in New York is the introduction of four privately-owned casino resorts.  Since legislation was approved last year by New York Gov. Andrew Cuomo, New York could see up to seven casinos built around the Albany area, the Southern Tier and the Catskills.

While it is too early to say whether those land-based operations would be open to on-line team-ups as seen in New Jersey, it is hard to imagine otherwise given the potential revenue.

How Is Regulated Online Poker Faring Elsewhere?

If figures from the fledgling regulated states are anything to rely on, then New York will certainly need those inter-state compacts and the major sites if the market there is to thrive.  According to data compiled by poker analysis site, PokerScout.com, online traffic in the three regulated states of Delaware, Nevada and New Jersey is on the decline, with payment processing and geo-location teething troubles still being felt.

Since the UIGEA, many banks are still jittery about processing payments made to gaming websites (even in states where it is legal), while geo-location problems (players must prove their location within state borders via their mobile phone before playing online) have been rife.

A Rosy Future For Online Poker in the USA?

A report from Eilers Research titled, “The U.S. iGaming (Real) Opportunity” predicts a steady, if largely unspectacular, rise in the iGaming market over the next five years.  In the report, Eilers suggest a conservative estimate of $500 million to $3 billion countrywide, with a lack of a federal bill on legalized Internet gaming one of the main factors for such low forecasts.  Morgan Stanley, meanwhile, has pitched a figure as high as $9 billion by the year 2020, while H2 Gambling Capital puts that figure lower, at around $7.4 billion by 2017.

New Jersey Governor Chris Christie, one of the first to green-light legal Internet gaming in the United States, has remained bullish on the potential of receiving revenue from online gambling closer to home in the Garden State and has predicted that it will reach $1 billion by this summer, although State Treasurer Andrew Sidamon-Eristoff has said he expects gaming tax revenue to come in at just $34 million this year.

Problems Still Posed By Legal Internet Gambling in the USA

Where Nevada and New Jersey have arguably faltered is in their populations – just 3 and 9 million respectively – and inter-state compacts are essential to bolster online player pools.  New York has the fourth highest population in the union at 20 million and is obviously well-positioned to bump that figure up a notch or three.  It is worth noting; however, that since UIGEA, many global poker brands packed up their online rooms and fled the United States to await any regulation.

In the meantime (and we are coming up to eight years since the UIGEA was passed) dozens of unregulated sites continue to operate in the United States, siphoning off traffic from the new regulated and licensed rooms.  Until a federal law is put into place governing the country’s poker sites as a whole, the new dawn of online poker in the United States may continue to be a false one.

Restoring the Wire Act: Another Fly In the Ointment

A proposed bill – the Restoration of America’s Wire Act (Bill H.R. 4301) – put forward by Congressman Jason Chaffetz (R-UT) and backed by casino mogul, Sheldon Adelson, is intended to restore the restrictive conditions of America’s Wire Act and outlaw online poker across the entire United States.

Adelson, who has been positioning himself to support any prospective Republican presidential candidate in 2015, is fearful of Internet gaming’s effect on his land-based operations. If the Bill gains momentum, regulated online poker in the Empire State may be dead before it has had a chance to flourish.

Want to learn more about the business of sports? Order my book How to Play the Game and follow me on Twitter.

Follow @DarrenHeitner

 

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