Online Poker One Step Closer to Regulation in U.S.

On July 28th 2010 the House Finance Committee approved a bill that would legalize and regulate online poker in the U.S. by a vote of 41-22. While this is just a small step in a lengthy process it is a huge moral victory for online poker in the United States. First it shows that the federal government is finally willing to accept that the UIGEA was a complete failure. The banks have always wanted the UIGEA repealed as it was passed hastily and is a burden on already heavily regulated banks. Second it proves that large lobbying groups like the Poker Players Alliance have been effective.

The poker rooms have long called for regulation. When the UIGEA went into effect major players such as Party Poker and Pacific Poker left the U.S. market. The rooms that left the market, rooms that never entered the U.S. market, brick and mortar casino companies as well as current U.S. facing brands all have been open about how they would prefer to pay taxes and be regulated then operate in what appears as a gray area of the law to many industry observers. If this bill becomes law they will get their wish to operate and advertise openly.

Lawmakers want to tax online poker rooms and casinos 8% of their deposits. While this may seem like a lot it is much better than it sounds. Currently U.S. facing brands are paying 9-10% of the deposit in processing fees. These are the fees that third party payment processors pass on to the poker rooms and casinos. In a regulated environment these fees would go down to about 3%. This means most of the tax would come from payment processing savings. In the end this will likely work out better than taxing a percent of the pot like France is doing.

France players were recently ring fenced on licensed .fr sites such as Pokerstars.fr. The rake on those sites is among the highest in online poker to help cover the costs of the new tax and licensing fees. By using a deposit tax instead of a 2% pot size tax rake and promotions should be close to where they are now. They may even be better as brick and mortar casinos could integrate their player’s clubs into their online offerings.

There were several notable amendments that were added. One of the important amendments states that any company that accepted illegal wagers from U.S. players will not be able to get a license. This has caused widespread debate. Does this mean that current U.S. operators will not be able to get a license? Some argue that online poker isn’t illegal, some argue that it is. In the end only time will tell whether U.S. brands such as Poker Stars and Full Tilt Poker will be able to operate in the United States. It is clear to most though this puts brick and mortar casinos like Harrah’s Entertainment and MGM and non U.S. facing brands like Party Poker and Betfair in a better position than sites that continued to service U.S. players after the UIGEA passed. This amendment has been a subject of heated debates and could change before becoming law.

Another major amendment made it so the minimum age to play on the licensed sites would be 21, not 18 like it is now. This would bring the minimum age in line with most states that offer brick and mortar poker. The problem is that this excludes a large demographic in online poker. This could also change. There has been some speculation that this would be left up to the states but currently the amendment leaves it at 21 and up for all states that participate.

The last major amendment says that states would have until the end of their first legislative session after the law passes to opt out. This means states are automatically opted in and must opt out on their own before they adjourn their annual legislative session. This should mean more states will be opted in by default.

A few other last minute changes include banning players that are late on child support payments. There will also be provisions to exclude problem gamblers and underage gamblers. Also sports betting will not be permitted.

Of course there is a long road ahead for the regulation. This bill needs the companion tax bill to go through the House Ways and Means Committee, it needs to win in a House floor vote and then go through the same course in the Senate. It also would have to be signed by the President. Currently the White House does not appear to have a stance on this bill. The online poker industry is celebrating at the moment but we all know there is a long road ahead of us. Make sure to contact your representatives in Congress to let them know how you feel. We will keep a close eye on this topic and post more news as it becomes available.