USA Poker Legislation and State Laws

1998-2001

Online Poker is Born & The Wire Act

Online Poker can be traced back to January 1998 with the first real money hand being dealt at Planet Poker, a poker site founded by Canadian Randy Blumer. In the same year Yahoo Games launched Texas Hold’em games for play money which was a very popular portal and instrumental in introducing this new poker variant to the mass market.

As Texas Hold’em began to take hold in casinos and the embryonic online poker market, it was the Paradise Poker launch in late 1999 which brought a more serious brand and game quality to the marketplace, and making them the number one poker site after one day of operations.

Considering this was a nascent industry it is not surprising the legal landscape was not developed and very unclear. Certainly the early brands were operating legally in jurisdictions like Costa Rica or Antigua, but the interpretation became less obvious when asking questions like:

‘Where did the bet actually take place?’ or
‘Is it legal for the player to participate in online poker or not?’, and
‘Is it legal in my state or is this a federal law?’.

Although certain powers may disagree, let’s also be aware that the laws of the United States are not global, and do not reach beyond their own borders (although their influence certainly does). This is also important to remember when looking at the legality of online poker.

During the days of Planet Poker and Paradise Poker, the brands operated on legal opinions which primarily considered the Federal Wire Act of 1961(or Interstate Act), which specifically refers to sporting events or contests in its language and refers to a wire communication facility, which was aimed at bookies in wire rooms connected with organized crime syndicates (obviously well before the internet was even conceived). Calling poker a sport seemed like a stretch and at the time there was also the strong belief that poker being a skill game should not be lumped in with betting games.

2002

Mastercard Case – An Online Casino Joyride Tests Wire Act

It was on November 20, 2002 the Federal Wire Act as it relates to poker (and casino) was finally tested in a significant U.S. court and it was positive news for the industry. The United States Court of Appeals,Fifth Circuit decided that some defending online casinos (offering casino and poker) were not liable to repay some disgruntled gamblers since they were not illegal under the definition of the Wire Act (18 U.S.C. § 1084), which the judge opined clearly does not prohibit non-sports internet gambling. This was very positive news for the industry indeed.

2006

UIEGA – Finally a Federal Bill Slips Through the Cracks

For most of the early years of online poker it seemed a U.S. federal bill was introduced, only to die each year as sessions adjourned. This all changed in September 14, 2006 when the senate passed the Unlawful Internet Gambling Enforcement Act (UIGEA) in a hurriedly fashion and without any traditional discussion or vote. It was an amendment to an unrelated legislation (the Port SAFE Act) pushed through the senate floor on the last day before the session closed for the summer. The language of the Act focused on payments, essentially placing liability on financial institutions and banks and forcing them to proactively restrict all transactions that could be gambling related. Although the act mostly yielded to pre-existing laws to determine legality of the game in question, it did target online poker by stating that any game subject to chance is gambling. In addition, it clarified that betting takes place where the user is located and not on the remote server (an argument sometimes made by operators).

UIEGA whipped the industry into a frenzy, forcing most operators (in particular the publicly traded ones) to exit the U.S. before the October 13, 2006 deadline. Brands such as Party Poker, Paradise Poker, and 888 all exited and saw their player liquidities plummet.

2007

DOJ Launches Attack on European Institutions

Looking to strike while the iron was hot, the Department of Justice subpoenaed several investment banks including HSBC, Credit Suisse, Deutsche Bank and Dresdner Kleinwort, all having transacted with various publicly traded companies (all UK listed). The DOJ also engaged in a far reaching fishing expedition which was widely panned in Europe considering that US authorities were well out of their jurisdiction and ultimately had no authority to enforce their laws across the Atlantic.

2007-2010

Public Brands Settle with DOJ

Shortly thereafter, the pressure continued to yield dividends, culminating in a series of ‘mi culpa’ non-prosecution agreements (corporate settlement pleas) starting first with Party Poker in April 2009 in the amount of $105 million and later settled with Sportingbet (owner of Paradise Poker) in September 2010 for $33 million. Besides the cash grab, US authorities were able to claim admission of illegal gambling, bank fraud, wire fraud… but the reality is these were non-consequential pleas designed to give the impression underlying laws were successfully enforced.

2008

Party Poker Founding Shareholder Pleads Guilty

The DOJ pressure did yield results, starting with the stunning plea by Party Poker founding shareholder and software chief, Anurag Dikshit in December 2008.. Mr. Dikshit flew to a courtroom in Manhattan from India to plead guilty to wire charges and agree to a whopping $300 million cash settlement. It is widely believed that Mr. Dikshit caved in to intense pressure, and was highly criticised by industry veterans. For example, key founders Ruth and Russ Parasol never considered any admission of guilt and certainly not to wire charges which was the foundation of their legal opinion since day one.

2007-2010

Poker Stars & Full Tilt Reign Supreme – European brands challenged

While European based brands were dealing with settlements for pre UIGEA activity, this left the privately owned brands of Poker Stars, Full Tilt, Absolute Poker, and Ultimate Bet to fight it out in the less competitive landscape. Poker Stars and Full Tilt were the leading brands in the USA from 2007-2010, and surprisingly were allowed to continue .net advertising on the major networks despite the new federal law. Payments were an issue, but these companies miscoded the required 7995 credit card code and claimed poker deposits were jewelry and golf ball purchases.

While Poker Stars had the best of two worlds, leveraging their American player pool to attract European and global players, European plcs had a very frustrating time competing, while also positioning for the early stages of regulation. Party Poker (with 10% global share) was the European leader during this time, with iPoker and Ongame networks claiming 2nd and 3rd spot for European based liquidity.

Although there is no public data for the private companies during this time it is widely known that Poker Stars benefited greatly with the lack of serious competitors in USA (except Full Tilt)

2011

Black Friday – The unfair advantage comes to an end

Like all good things, the glory days came to a dramatic conclusion on April 15, 2011, a day poker players remember vividly as Black Friday, whereby the U.S. government indicted Poker Stars, Full Tilt, and Absolute Poker founders criminally for bank fraud, money laundering, and illegal gambling. If this weren’t enough, a tidy $3 billion in penalties to boot. The charges were very much focused on payments and fraud, especially considering the miscoding of credit cards, and the co-operation of a US based bank in Utah.

DOJ Says the Wire Act Covers Sports Only Giving NJ the Green Light
On September 20, 2011 the DOJ was asked to opine on the legality of New York and Illinois state lottery sales via the internet as it related to the Wire Act, as the states did not want to violate this federal law. The opinion of the DOJ memorandum was that the Wire Act relates only to Sporting Events or Contests, and thus lotteries would not violate it. More importantly, online poker had finally broken free of the Wire Act millstone, and this opinion was exactly what New Jersey needed in order to move forward with their online licensing plans.

2012

PokerStars Corporate Settlement & Mark Scheinberg Clear

Soon after taking control of the Poker Stars and Full Tilt .com domains, the DOJ soon realized that Full Tilt was quickly spiralling out of control, having failed to ring fence their player’s deposits as per the regulatory requirement, it was looking more like a classic ponzi scheme.

This turned out to be a very fortunate circumstance for Poker Stars as they were able to save the day by having all corporate charges dismissed by forfeiting $547 million relating to their misdeeds in the US, and even more important for all parties involved, Poker Stars agreed to pay $184 million to reimburse all player funds that Full Tilt management stole from their player deposit reserves.

With shrewd negotiations Poker Stars as a company received a clean bill of health including a green light for their eventual re-entry into the U.S. market, and Mark Scheinberg, the founder’s son was cleared of any wrongdoing (unlike his father who remained indicted on personal criminal charges)

2012

In August 2012 a U.S. Circuit Court of Appeals in New York ruled on a case where Lawrence DiCristina had been offering Texas Hold’em games in a warehouse, and Judge Jack Weinstein declared that Texas Hold’em is a game of skill, which was a major ruling for the game of poker. However in 2014 the U.S. Supreme Court declined to hear the case and therefore conveniently avoided the issue altogether.

2012-2020

Plea Deals, Jail, and Wrist Slaps

It has been almost ten years since Black Friday and only two individuals representing poker brand operations have served jail time, including Brent Beckley who did 10 months in prison and Scott Tom, the Absolute head who did only one week in jail, and both were key figures in the very shady operations of Absolute Poker.

Many of the heavier sentences were placed on individuals acting as payment processors (third parties who miscode the credit cards), with Ira Rubin being sentenced to three years (by far the steepest penalty of any individual in the indictment). Ray Bitar, the CEO of Full Tilt, was spared prison time due to his heart condition and frail health (which seemed to recover nicely at this moment in time). Many, however, have effectively received ‘wrist slaps’ and have agreed to charges focusing on the Illegal Gambling Business Act, UIEGA, and bank fraud.

At the time of writing, the last man standing is Isai Scheinberg, the founder of Poker Stars, who awaits sentencing in Manhattan scheduled for sometime in the summer of 2020. He has been holed up in the luxury Sofitel hotel in Manhattan, as the only guest along with his wife, complaining about the lack of services at the hotel since it has effectively shut down due to the covid-19 virus (He wants to be transported to California). His fate is very likely to be a hefty fine in the billions of dollars, and a wrist slap with no jail time.

2019

DOJ Wire Act Reversal Met With Challenges

In January 2019, the Department of Justice changed their mind and wrote an opinion stating that they now believe the Wire Act covers non-sports related gaming which would include online poker. This opinion was met with much suspicion by the industry and widely seen as being influenced by lobbyists for the brick and mortar casino industry.

It also infuriated New Jersey online gaming regulators prompting NJ Attorney General Attorney General Gurbir Grewal to fight the ruling in the First District Federal Court of Appeals. Understandable, considering the DOJ flip flop essentially makes their operations illegal (Since most operators are sharing liquidity across states now).

The New Hampshire lotteries also didn’t take kindly to the DOJ opinion, taking them to District court in June 2019, and winning with Judge Paul Barbadoro concluding that the Wire Act does not cover all forms of online gambling (including poker).

It seems unlikely the courts will side with DOJ, and it is highly unlikely that regulated states will bow down to this desperate attempt to reverse their own previous legal interpretation of a poorly written outdated federal law. It seems they are more content prosecuting more classic crimes like bank fraud and relying on state law violations which triggers the Illegal Gambling Business Act.


Regulated Online Poker – The New Era

New Jersey Leads the Charge

Having watched Atlantic City’s fortunes crumble over several decades, Senator Raymond Lesniak who initially pushed his co-sponsored A2578 bill (and after failing previous two years), and introduced the bill to the house Feb 16th 2012 with the support of sponsors John Burzichelli, Vincent Prieto, and Ruben Ramos Jr. The bill then passed the house floor December 17th with 48 to 25 in favour. The bill was quickly passed days later on December 20, 2012 by New Jersey senators 33 to 3 in favour of licensing online poker and casino, and signed by Governor Chris Christie the same day.

The bill gave new hope for Atlantic City’s fledgling casinos, giving all licensed casinos the right to offer online poker and online casinos subject to a 15% tax on gross gaming revenue (compared with 8% for land based casinos). Certain conditions were required, including the fact the state constitution required all websites to be physically located in Atlantic City. In addition, restrictions to control underage gambling and the use of geo-location technology to identify if a customer crosses state lines. The idea was that preventing interstate play kept the federal bills at bay, even though the DOJ had previously given the all clear re. The Wire Act.

All that was needed was for casinos to launch their games, but with one major problem. The primitive nature of online gambling in the U.S. meant that European operators were a decade ahead in their technologies, software, marketing, and operations. For this reason, Atlantic City casinos quickly partnered with jubilant European brands that wanted a chance to enter the American market.

In November 2013 Atlantic City casinos and respective partners launched their online brands as follows::

  • Borgata & Party Poker
  • Borgata Casino
  • Borgata Poker
  • NJ.Party Poker
  • Caesars & 888
  • Caesars Casino
  • Harrahs Casino
  • WSOP
  • 888
  • Tropicana & Virgin
  • Tropicana Casino
  • Virgin Casino
  • Trump Plaza & Betfair
  • Betfair
  • Trump Taj Mahal & Ultimate Gaming
  • UCasino
  • Golden Nugget
  • Golden Nugget Casino
  • Golden Nugget Poker

Liquidity Sharing Commences

In May 2018, WSOP began combining their New Jersey, Delaware, and Nevada player pools in a cross state liquidity share initiative, breaking the early concerns of interstate poker.

Sports Betting Now In Play

In May 2018, a major Supreme Court decision against the NCAA effectively repealing PASPA – the Federal Sports Betting Ban – now presents an opportunity to move to regulating many forms of gambling online, since the sports betting legalization wave is expected to be broad and rapid and may accelerate poker and iGaming in general. Sports Bill passed June 2018 after success of PASPA litigation. Sports bill passed, now awaiting signature from Governor


USA Poker Legislation by State

NEVADA

Legal State – Liquidity sharing with Delaware and New Jersey

PENNSYLVANIA

Legal State – The 4th Legal State – Used an Omnibus/Many Gaming Verticals approach to getting Law passed / AT TIME OF WRITING: Licensing regime due for roll out in H2 2018

CALIFORNIA

Online Poker bill failed in 2017 and “expansions of Gaming”, like Sports, will need a statewide voter referendum. CA still faces possible re-introduction of Poker Bill or Omnibus/All-Gaming types Bill as post-PASPA response, particularly since an Omnibus Bill could include relatively more popular Daily Fantasy Sports (DFS) – There is a June 28 Legislative deadline to get on the November 2018 Ballot

CONNECTICUT

Liberalization in B&M, with a new jointly owned Mohegan/Foxwoods Casino opening soon, means there is need for incremental revenue – which online brings. Sports bets already pre-approved by Legislature. Online lottery has a bill under review now, but poker, daily fantasy sports and casino could happen fast here if an omnibus approach is taken to the legislation. Note – need for poker pool-sharing due to State’s small population of only 3.5m residents

FLORIDA

Gambling liberalisation across the State but no specific interactive gaming moves – yet. Worth noting FL Governor is not a supporter of Online Gaming

ILLINOIS

Senate Bill 3432 introduced for Sports Betting in advance of PASPA Repeal – may now be debated with poker and casino. AT TIME OF WRITING: Senate Bills S1667 and S1531, covering DFS and Online Gaming still remain in debate, and omnibus discussion has been raised. There was a move, post-PASPA, to conjoin the DFS, Sports and Online Gaming debates, and add all of them *as an amendment* to the existing land-based casino expansion Bill, titled S7. The newly-amended S7 failed to pass the Senate on voting but is still on the agenda and may return in either June 2018 or November 2018

INDIANA

State casinos have seen revenues decline over the last five years, particularly under outgoing Governor Pence (now Vice President). With Pence gone, IN becomes a likelier candidate for allowing the existing casino industry to innovate and move business online to prop up flagging revenues

LOUISIANA

Bill SB322 on agenda that could introduce online gambling – but only by way of a voter referendum

MASSACHUSETTS

Several online Bills over recent years, in line with large scale “Player Research” surveys by the State. None has worked, but greater gaming liberalization of recent years, and new properties for MGM and Wynn means progress may not be so far off.: S200 Bill is open for debate now, looking to legalize and regulate online gaming – as with many other States, an omnibus approach is being talked up to include DFS, Sports, Poker, Casino

MICHIGAN

Significant Tribal and B&M Casino issues hamper moves in MI generally. Bill H4926 re-introduced in 2018. Section 16 of Bill H4926 has become known as “the poison pill” due to its assumptions regarding Federal Law changes and the potential future competitive differences between the Tribes and commercial casinos, for online gaming and poker. This section was eased by bill sponsor Rep. Brandt Iden, leading to a 68-40 vote in favour of establishing an Internet Gaming Act in MI – this now moves to Senate vote in Fall 2018.

MISSISSIPPI

Had Sports legislation ready *in advance of* New Jersey’s PASPA victory. An omnibus legislative approach may now promote further moves for Daily Fantasy Sports, Casino and Poker

NEW HAMPSHIRE

Failed on passing Online Gaming bill in 2017. Bill H562, for Online Gambling, is being tried again in 2018 but has more hurdles due to the just having been passed in 2017, Keno and iLottery, and one of the bill’s sponsors facing criminal legal charges. There is also a Bill, S242, for legalizing Poker in land-based casinos on the agenda

NEW YORK

Broad gambling liberalization at B&M Level over recent years. Bill A520 being debated Q2 2018 – Potential for Poker to be combined with Sports Betting after PASPA. Casino unlikely due to need for public referendum

RHODE ISLAND

A small State, but one with a Casino industry – likely to be impacted by Massachusetts liberalisation of Gaming, and will need to respond

TEXAS

Little movement in Gaming, generally, and particularly online

WASHINGTON

Existing anti-gaming laws make introducing new online gaming legislation very difficult

WEST VIRGINIA

Northern neighbor State, Pennsylvania, just became the 4th legal online State…and PA has put pressure on WV B&M racinos, etc, for years due to the sprawl of B&M Gaming there, currently. WV intro’d online gaming bill in 2017, and will need to do “something” about the threat from PA. Note the State will need inter-State compacts and pool sharing due to a small population of only 1.8m. Bill H3067 to legalize online gambling still on agenda

Thomas Nielsen