Betting Blind: Problems with Proposed Federal Regulation of Online Poker

By Kuznick, David B. | The Journal of High Technology Law, July 2012 | Go to article overview

Betting Blind: Problems with Proposed Federal Regulation of Online Poker


Kuznick, David B., The Journal of High Technology Law


Cite as 12 J. HIGH TECH. L. 450 (2012)

I. Introduction

A cowboy with a gun by his side playing poker in the Wild West is a familiar image in American culture. (1) Online poker sometimes has a similar reputation. (2) The online poker industry has grown tremendously from its beginnings in 1998. (3) This growth led to an estimated $6.7 billion in revenue for the operators of online poker sites in 2010. (4) In 2009, U.S. players generated approximately $5.4 billion for all forms of online gambling, which was about twenty percent of the worldwide total revenue. (5) Federal regulation of online gambling is desirable because the government could decrease the budget deficit by almost three hundred million dollars within the first ten years of regulation by collecting licensing fees. (6) The increase in tax revenues would be even larger at forty-two billion and thirty billion for federal and state governments respectively. (7) Regulating just online poker could lead to between fifteen and twenty billion over the same period of time. (8)

The United States has a long history of regulating vices--gambling in particular--for both revenue and control purposes. In colonial times, lotteries generated revenue to fund public works. (9) The spread of organized crime in the 1950s led to various forms of federal regulation to stop mob-run gambling. (10) The desire to uniformly regulate horserace wagering across state lines was the impetus behind the Interstate Horseracing Act of 1978. (11)

The rise of the Internet and online gambling in the 1990's revealed ambiguities in existing legislation. While various states have outright prohibited online gambling, the legality in other states is vague. (12) The status of federal regulation regarding online gambling is similarly unclear. (13) As a result, difficulties in enforcing online gambling prohibitions, even at the state level, against individual gamblers led Congress to pass the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) to stop the flow of money to and from online gambling sites. (14) Although the online poker industry contracted in the immediate wake of the UIGEA, the industry quickly recovered to become stronger than ever. (15) On April 15, 2011, however, the U.S. Department of Justice seized the Internet domain names of three of the largest online poker sites and brought numerous charges against them including, fraud, money laundering, and UIGEA violations. (16) Although the named sites no longer operate in the U.S., many other smaller sites still have an active domestic player base. (17)

Congress has recently recognized the value of regulating online gambling as a potential large revenue source in the wake of the recent economic crisis. Representative Barney Frank introduced the Internet Gambling Regulation, Consumer Protection, and Enforcement Act of 2009 (Internet Gambling Act); a bill that would regulate and tax online gambling, including poker. (18) However, the Internet Gambling Act seemed dead when Frank lost his seat as Chairman of the Financial Services Committee due to the November 2010 election results. (19) Senate Majority Leader Harry Reid then put effort into introducing the Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2010 (Internet Poker Act); a bill that would regulate and tax online poker, while barring all other forms of online gambling not otherwise allowed. (20) After an unsuccessful push at the end of 2010 to enact the Internet Poker Act, Reid planned to reintroduce it in 2011.21 Representative John Campbell reintroduced Frank's Internet Gambling Act with Frank as a sponsor in March of 2011.22 Shortly thereafter, Representative Joe Barton introduced the Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011, with Representatives Frank and Campbell as co-sponsors. (23) Senator Reid has indicated he may consider working with Barton to get legislation passed. …

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