Wednesday, March 14, 2007

Bill Frist, then Majority Leader of the U.S. Senate and now ex-would-be
presidential candidate, designed the Unlawful Internet Gambling Enforcement
Act ("Prohibition 2.0") to cover Internet poker. He defined "bet or wager"
as including risking something of value on the outcome of a contest, sports
event "or a game subject to chance." Is there any game, even chess, that is
not "subject to chance?" But Frist, whose arrogance was matched only by his
incompetence, actually created the greatest explosion of creativity in the
poker industry that I have ever seen. Everyone wants to be the next
PartyPoker.com, to figure out a way to spread legal poker games online. The
cleanest way to run a traditional Internet poker site that does not violate
any federal or state law is to be licensed by a state and limit players to
people who are physically present in that state. Even in this situation, it
is possible the federal Department of Justice might say there is a violation
of the Wire Act, since a phone line might pass temporarily into another
state. But the DOJ would lose this argument for many reasons. The sole
purpose the Wire Act was enacted in 1961 was to help the states enforce
their public policy, which, at the time, was prohibition. What could
possibly be the justification for preventing a state, like Nevada, from
allowing its residents to bet with its own state-licensed poker sites? The
main obstacle to every state licensing, regulating, and of course, taxing,
their own Internet poker sites is politics. Utah is not the only place
where legislators would hesitate to authorize even the most limited form of
online gaming. In Nevada, the problem is the opposite: there are already so
many (landbased) licensed poker rooms that it is difficult to work out the
details for sharing the new online revenue, and there is fear of diverting
players away from the existing gaming floors. In general, the answer is
"skins." Players will log on to Caesars Palace's future online poker room
and choose which game they want to play, say $5 - $10 Hold'em. They then
are placed at a table that has a Caesars Palace logo on it. They probably
will not know, or care, that other players may see different logos because
they signed up through different casino websites. Computers ensure that
each casino gets its correct share of the table's revenue. But there are at
least three other ways to have legal online poker. All gambling requires
prize, consideration and chance. Eliminate any one, and it is not gambling.
A site could charge money, even for games of chance, so long as it does not
give valuable prizes. Bragging rights don't count. So, someone could start
a contest for the world's greatest poker player, if all they win is a
trophy, no cash.

Some poker sites allow players to play for free. For example, at BetZip.com
(one of my clients), anyone from more than 20 states can enter by merely
mailing in a hand-written card. This is not gambling, even though players
can win up to $10,000 cash. Since there is no consideration, it does not
violate federal law or the laws of most states.

Others are looking at showing that poker is a game of skill. I am writing a
Legal Opinion for one of the biggest operators that at least tournament
poker is predominantly skill, and therefore legal under federal law and the
laws of most states.