Unstacking the Deck: The Legalization of Online Poker

Article excerpt

I. INTRODUCTION

As long as Americans have been playing poker, the government has tried to stop them. During the nineteenth century, when the game first became popular, legislatures tried to banish it, (1) but poker flourished

anyway on the rough-and-tumble frontier. (2) Its evangelists were thieves and cheats; (3) its outposts were seedy saloons; (4) its sanctuaries were lavish riverboats that could leave their docks to evade the law of the land. (5)

From these shadowy roots, a game evolved that embodies the American ethos, with its freewheeling individualism, its veneration of risk, and its capitalist system of keeping score. (6) Far from just a gambler's vice or a swindler's hustle, poker slowly straightened out--and as it did, it filtered upward into polite society. It has been enjoyed in the White House by the likes of Ulysses S. Grant, (7) Dwight Eisenhower, (8) Richard Nixon, (9) and Barack Obama. (10) For thirty-three years, Chief Justice William Rehnquist played in an elite monthly game. (11) Mark Twain was an avid card shark; (12) so is U.S. Olympian Michael Phelps. (13) And a young Bill Gates used poker winnings to help start up Microsoft. (14)

Today, tens of millions of Americans play poker at casinos and around kitchen tables. (15) They also play on the Internet--the twenty-first century equivalent of the lawless frontier.

Located offshore, walled off from U.S. regulation or taxation, the online poker industry emerged in 1998. (16) It began to boom in 2003, when an amateur player--prophetically named Chris Moneymaker--turned a $40 entry in an online tournament into a $2.5 million first prize in the world championship of poker. (17) His success inspired casual players to flock to poker web sites, and by 2011, more than two million Americans played online, with $20 billion at stake. (18)

But online poker in the United States has always operated in a digital underworld, carefully calibrated to evade efforts by federal authorities to eradicate the industry. The federal crackdown began in earnest in 2006, when conservative lawmakers used legislative gamesmanship to criminalize some financial transactions related to Internet betting. (19) It culminated five years later, when the Department of Justice unleashed a flurry of criminal indictments and seized the domain names of the largest poker web sites operating in the United States. (20) The day of the indictments--April 15, 2011, known as Black Friday in the poker world--quashed the poker boom. (21) Still, a number of unregulated and unsavory foreign companies operate poker web sites in America to this day. (22)

Given these prosecutorial actions, most American players might not realize that no federal law makes online poker illegal. Although the industry has lingered for years in a legal gray zone, two recent developments--a surprising reversal at the Department of Justice and a pivotal ruling in the Eastern District of New York--clarify the legal status of the game. Together, these developments under- mine the suppression of online poker under federal law. And they illuminate a clear path for federal or state lawmakers to shut down poker's online underworld by bringing the game into the light.

This Note analyzes the current legal landscape of online poker and argues that a safe, well-regulated, and properly taxed regime of online poker is both feasible and desirable. Part II examines how state laws have traditionally treated poker as illegal gambling, despite mounting evidence that poker should be considered a game of skill, not a game of chance. Part III evaluates three federal statutes that potentially implicate online poker, and it explains how a recent Department of Justice opinion and a federal court case limit the reach of those statutes. Part IV proposes three potential paths for federal or state regulation of online poker and argues that a system of interstate compacts is the best way forward. …