Part II Internet Poker Struggles (Poker Law)

Legality

In the early days of internet poker online poker companies were able to get gaming licenses from numerous locations around the world. Because of the lack of a global standard, many poor and borderline criminal companies received licenses and misused player funds. Unfortunately, there have been numerous circumstances where player funds have not been segregated, and when online poker companies have gone broke all the players have lost their money. Microgaming is one network that still operates, and has a history of not segregating player funds. See this thread on 2 plus 2 about microgaming skins and the lack of player refunds. Most of you will also have heard about the “Ponzi” scheme, Full Tilt Poker, which was at best a very poorly run company and probably criminal as well. There are other examples as well but I will spare you all the stories of broke online poker companies. With no global standard internet poker has been more akin to the wild-west than 21st century America.

Ironically, the early companies that seized the online poker market failed to realize just how perilous their situation was. As companies like Full Tilt Poker, Poker Stars, Ultimate Bet, Paradise Poker, etc etc grew at an exponential rate they failed to realize the dangers lurking in the halls of the United States Congress. The largest gambling market in the world was about to be shut down following the passage of UIGEA (Unlawful Internet Gambling Enforcement Act of 2006). This was of course just the first shot across the bow for online poker players in the United States, but just a couple of years later it led to Black Friday which essentially shut down online poker for Americans. This is also when the Full Tilt Poker “Ponzi” came to light.

It really amazes me that these growing online poker companies for the most part didn’t spend any time or money lobbying congress. If you ran a business that made tens of millions of dollars it would seem to make sense to protect your interests. The inept nature of many of the early online poker operators is astounding. I think the following twitter hashtag sum up what was the case with many online poker companies in the early 2000’s #notreadyforthebigtime lol.

US Poker Black Friday

Poker Black Friday was a disaster for players in the United States and the world. There were thousands of poker players who literally overnight lost their livelihood. Within a few days almost all poker companies stopped offering services to US players. To make matters worse the poker players in the United States who had money tied up in Full Tilt Poker had no access to those funds. Full Tilt Poker quickly went bankrupt and the poker environment seemed incredibly bleak for US players. Since then the online glimmers of hope have been the state legalization of online poker in New Jersey and Nevada. Any kind of sweeping federal legislation remains mired in Congress with very little hope of anything meaningful occurring. From a legislators perspective there is very little to be gained by sticking their neck out for online poker and a significant amount to be lost.

World Wide Legality

However, this was not the only blow occurring to poker players around the world. When I first started playing poker (back in the stone age 🙂 ) there was a little European network called the Cryptologic Network where I used to play on Ladbrokes Poker (which is now on Ipoker and still a great place to play btw). Back in 2006ish the Cryptologic Network had very loose games and great player rewards. They ended up joining the Boss Media Network which used to have games in Turkish Lira, GBP, Euro, and USD. Players used to come from all over the world including places like Russia, Turkey, Italy, Spain, etc. Since 2007-2009 the world wide legal picture has changed dramatically! In Russia it has become essentially illegal to play online poker in, Turkey recently proposed huge fines for online poker players, Italy and Spain have ringfenced players, Boss Media closed the door to Canadian Poker Players after they started selling the software that Canada uses for Playnow.com. Legal and tax issues have started to rear their ugly head all around the world. Boss Media, like many other networks which used to be great places to play slowly have slowly become ghost towns with reduced liquidity. If you look at poker analytics in today’s online poker world over 50% of the top 20 poker networks in the world are ring fenced. In today’s challenging online poker market Canada, Australia, and much of western Europe remain the best places for players to live and play online poker.

Show Me The Money

As governments around the world have come to realize that online gaming is here to stay two things have occurred. 1) Countries have simply made it illegal to play or operate an online poker operation like in the US with UIGEA, Turkey (fines etc), Russia, and China). 2) In the more liberal countries like Canada, Sweden, Norway, and much of western Europe the solution has been to regulate and tax. Even countries as obscure as Colombia are regulating the online poker market. See “Columbia Cracks down on Online Gaming Ahead of Regulation“.  This global money grab for the proceeds from the online poker market has been strangling the liquidity in the game. For players this murky period of time where online poker struggles with the law has been very difficult.

What is the Future of Online Poker Legality?

The US Market: It seems likely that countries around the world will continue to try to ring fence their online poker market. Recently, online poker in New Jersey was launched. Party Poker has become the leader in the New Jersey online poker market, and the WSOP is the second player. Unfortunately, players in surrounding states are not able to play online poker unless they are physically present in New Jersey. Nevada, also recently introduced online poker earlier in 2013. There website lacks significant player liquidity though and is not a great place to play online poker. New Jersey online gaming has been far more successful in part because of the large populations in and around New Jersey. I suspect that many players are simply catching a train across from New York to New Jersey to play online poker. In fact Hoboken is just a short train ride from New York and many people who work in NY live in Hobocken. I suspect that any highly skilled poker player in New York has simply moved to New Jersey for online poker.

Going forward it seems likely that the US market will continue to expand on a state by state basis. California, Colorado, and some others are considering legislation to create their own online poker operations. However, unless these states can figure out how to share player pools it will continue to be  a very small market. In fact, I believe that only California, New Jersey (which will suffer massively if NY opens up its market), New York, Texas, and Florida are big enough to be really successful stand along poker operations. Most of the other ones will miss out on a significant amount of potential revenue because players will not be impressed with the liquidity and choice of games.

The World:

Around the world a similar process is occurring. Countries like Spain and Italy are regulating online poker, but since they are not much bigger than US states they face liquidity issues. It seems like it makes a ton of sense for them to join up with other European countries and share players. There are a few problems with this though.

1) How do you share poker revenues? Do you break it up purely on the basis of how much a player is generating in rake and/or gaming for the website? Are regulars who play a huge volume of hands but don’t contribute to the looseness of the games as valuable as whales? How much money is spent marketing to weaker players? Who runs the company?

2) Every country will have its own set of laws that govern online gaming. How do you deal with the fact that these laws will often conflict? What if one country is more concerned about responsible gaming than another

3) Online poker is a highly politicized subject. In many cases the population will have a strong opinion on whether it is good or not. Unfortunately, this makes it difficult to conduct sensitive negotiations regarding sharing player pools between countries and/or states. Even worse when conflicts arise do they end up spilling over into a highly charged political environment. With politicians getting voted in and out of office frequently it could be very difficult for countries to form a long term strategic poker partnership based on a shared long term vision for online poker growth

It is very difficult to imagine that we will see any kind of dramatic reversal in the legal situation of online poker around the world. Internet poker had its boom from 1998-2006 (UIGEA marking the end of the boom), and it is unlikely to experience another one in the near future. The legal challenges to online poker remain huge around the world and all of those legal issues are having a strangling effect on global player liquidity. For those of you waiting for a second internet poker boom, it could be a very long wait.

If you liked this post please go back and check out my post on “The Rise of Internet Poker”. Also don’t forget to follow me on Twitter!

Good luck at the tables!

-ThePokerCapitalist

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