The case for legalizing and regulating internet poker

PriceWaterhouseCoopers estimates two million Californians play Internet poker today.   

Every one of them plays on a foreign website that is not regulated or monitored by U.S. law enforcement to provide consumer protections against fraud, cheating or theft of personal financial information — basic protections they would have playing in any licensed land-based casino in California.  

Worse, neither the State of California nor legal land-based gaming operators in the State receive a penny from the multi-billion online poker industry that operates from foreign locations.

Yet millions of Californians play today and that number is growing exponentially.

Several things fuel the game’s popularity. First, poker is the third most watched spot on cable television.

Secondly, internet poker is faster-paced than poker played at a traditional casino or card club – where only one hand can be played at one time. That’s not the case on the Internet, where skilled players can participate in as many as a dozen hands simultaneously.

Like several other states, California is considering legalizing and regulating Internet poker to protect players, to protect legitimate land-based licensees and tribal compact holders, and to protect the financial interests of the State.

It’s about time because federal law says individual states have the power to regulate Internet poker, raise revenues from it and protect players and minors.  

This means that there are important considerations the Legislature should consider before legalizing and regulating Internet poker in California.

First, whatever system is adopted, it must provide players with safety and certainty.  If the “eye-in-the-sky” can prevent cheating in a casino, a state-approved Internet system must prevent fraud and collusion.

This means that, consistent with federal law, the California system must use technology to prevent minors from playing, and players are entitled to certainty.  

Federal law makes it difficult for players to manage their accounts through companies – and websites – located outside the United States. While some of these firms are reputable, there is no way for an individual player to know.  Legalization and regulation is the only way to empower California law enforcement to guard against identity theft, release of personal financial information, fraud or the use of these sites by underage players – all protections that can be provided by state of-the-art security technology used in a system regulated and monitored by law enforcement.  

Second, the Legislature must put in place a system that allows its contractors to compete with powerful offshore competitors to keep money from leaving California.  After all, those companies start with a market share of two million Californians.  

Under current conditions, Californians playing poker at offshore sites deprive cash-strapped California of potential revenue through the licensing and regulation of Internet poker portals.  Estimates vary but PriceWaterhouse, Goldman Sachs and H2 Gambling Capital among others have reported the first year of a secure and properly regulated California online poker network would generate $500 million in gross revenues. If the state receives 20 percent of those gross revenues as part of any contract for operating an intrastate system, roughly $100 million annually could be generated.  

Some Indian tribes are trying to confuse the role of technology that might be used to protect minors and safely operate Internet poker in California.  They contend that playing Internet poker involves the use of a slot machine.

Tribal casinos have a monopoly – given to them in a series of compacts, or agreements — which prevent any other entities from offering Nevada casino-style banked games using “gaming devices”.  Those compacts define a “gaming device” as “slot machines”.

These tribes argue that because of this exclusivity only they can offer Californians Internet poker and allowing others to conduct Internet poker violates their sovereignty as tribes.  The arguments of these tribes use sovereignty as a synonym for exclusivity – and fundamentally misunderstand the nature of poker, Internet or otherwise.

First, a personal computer is not a slot machine and playing in the privacy of one’s home is not playing in a casino.

Second, Internet poker is not a banked game.  In Internet poker, the system deals the cards and the players compete against one another.  A slot machine is a banked game – the player is playing against the device and betting against the “house.”

Thus, poker, whether at a living room card table or on your personal laptop, is played against other players. Just as in a casino or card club, Internet players pay a fee for the privilege of using the facilities in order to compete against other players, not the house.  And, in a regulated system, the state should get its fair share to ensure that players are protected and, like in card clubs and Indian casinos, minors don’t play.

There are many different issues to be debated and resolved before legalizing and regulating Internet poker. But it’s important for that debate to occur – before it’s too late.

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