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What’s Next? The Future of Online Poker in the United States -- Part 2

Industry Executives Discuss the Possibility of Intrastate Poker

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Intrastate Poker? Industry officials weigh options.Intrastate poker. It’s a term that’s been thrown around quite a bit in recent months, especially since Rep. Barney Frank’s poker-related bills have stalled in Congress. Individual states are starting to wonder — can’t we just do this on our own?

The short answer — yes. But that doesn’t mean there aren’t significant obstacles in their way. iMEGA Chairman Joe Brennan and PPA Executive Director John Pappas talk to Card Player about the likelihood of intrastate online poker, the problems it poses, and how their organizations are working with states that are considering the option.

Opening the Door to Intrastate Poker

When the U.S. third district court of appeals struck down the Interactive Media Entertainment & Gaming Association’s challenge that the Unlawful Internet Gambling Enforcement Act (UIGEA) was unconstitutional, it may have marked the end of the poker industry’s battle to repeal the law on a federal level in court. iMEGA can still fight the ruling, but it has not yet decided if it wants to file an appeal.

But while it appeared to be a gloomy result, Brennan insisted that the court’s decision parted the clouds a bit for states that are considering regulating online poker at the intrastate level.

“In the back of everyone’s mind was: what if we do all this (in terms of regulating online poker at the intrastate level), and the federal government declares it illegal somehow?” said Brennan. “Well, this ruling the other day would put the government is a real precarious position to be able to do that. The court made it clear in upholding the law that it rests with the states, not the federal government. And since there’s no federal government law that outlaws gambling, that leaves efforts in New Jersey, California, Florida, and elsewhere on pretty firm footing moving forward.”

The Department of Justice has long held the position that all forms of gambling on the Internet are illegal, by virtue of the Wire Act. However, most legal experts believe that legislation only applies to sports betting, and Judge Dolores Sloviter in the recent iMEGA/UIGEA case even went so far as to clarify that the UIGEA did not make online poker or any other form of gambling illegal.

“It bears repeating that the Act itself does not make any gambling activity illegal,” Sloviter wrote.

Brennan saw the language that the judge used in the opinion as a positive moving forward, especially at the state level.

“In an odd way, it kind of levels the playing field,” said Brennan. “It takes away the home field advantage the professional sports leagues and groups like that have with their influence in Washington and it negates it. Great, you’re influential in Washington, but how influential are you in Tallahassee, Sacramento, Trenton, Albany, Harrisburg, and all those other wonderful non-cosmopolitan state capitals?”

The case for intrastate poker is relatively simple — it would bring much needed revenue to cash-strapped states. While there have been a few states that have seriously considered the option, no state has passed legislation on the issue yet. Brennan believes that it’ll only be a matter of time.

“These states are bankrupt,” he said. “They need to generate revenue.”

The Problems with Intrastate Poker

The movement to regulate online poker at the state level hasn’t exactly been fully embraced by the Poker Players Alliance, an advocacy group with more than 1.2 million members nationwide.

“We’d need about 10 more million members to be able to bankroll something like that. Quite honestly, it’s a very costly endeavor to try to go state-by-state and try to enact legislation,” said Pappas. “We believe the most rational way of doing it is from the federal level and then allowing states to opt into that.”

If Barney Frank's bills don't come to pass, intrastate online poker may be a possible solution.Pappas has made it clear that the PPA’s primary focus is to push Rep. Frank’s bills to the forefront and to try to rally up support for them. But that doesn’t mean they are ignoring the concept of intrastate poker.

“We don’t oppose intrastate models. We just want to make sure that they are the right kind of models that are going to provide player satisfaction and the competition that players want,” said Pappas.

Recently, the Morongo tribe attempted to pass legislation for intrastate poker in the state of California, but it failed after several groups, including the PPA, expressed concern. Pappas said his organization was ‘hesitant’ because the model didn’t provide competition for players.

“The idea of a single backbone provider limits what is available for California poker players under the current status,” said Pappas. “They’d be restricted from the sites that they like to play on, and forced to play only against people of their own state on a single site. I don’t know how that’s a move in the positive direction.”

Still, Pappas knows that if Frank’s bills are unsuccessful in D.C., legalized and regulated online poker in California could help turn the tide in terms of public opinion.

“So goes California goes the rest of the country,” said Pappas. “But that’s why we want to make sure that any model that is enacted, the first priority isn’t — how do we maximize revenues for that state? That’s not the PPA’s focus. We want to maximize the environment for the player. While we support the idea (of intrastate poker), we’re not going to just blindly support any initiative that would give intrastate licensing to the states. States have a hard enough time running their own lotteries. Giving them online poker seems a bit bewildering.”

Brennan agrees with Pappas that success in California could be a major turning point in the battle for online poker if the organizations are forced to focus on the state level.

“I’m really enthusiastic about this being in the states. I’ll give you one word: Powerball,” said Brennan. “Why is Powerball so huge? It’s because it brings states together who wouldn’t otherwise have a sufficient pool of players to create a really attractive prize pool.

“California is large enough where it can do its own intrastate poker network, and it would be possible because it has critical mass and liquidity…But what do you do if you’re Kentucky? Wyoming? Tennessee? Maine? Delaware? What do you do? If enough states start making money off of this, you will almost surely see a move by the smaller states who want to get in on this to create interstate compacts like you have for Powerball and Mega Millions. That’s the political reality.”

What’s the next step?

For iMEGA, it’s figuring out what to do in the wake of their defeat in the U.S. third circuit court of appeals.

“At the end of the day, I don’t have a bottomless well when it comes to legal funds. I have to decide where is the best place to employ them, based on the likelihood of success, and I don’t know what that is yet,” said Brennan.

Possible options do include an appeal to both the entire U.S. third circuit court of appeal — the original case just heard by three members of the court — or even to the U.S. Supreme Court. However, the chances that either court would accept such a case appear to be slim.

“I do believe the federal litigation approach has probably exhausted itself,” said Pappas. “The idea that the Supreme Court would take this issue up is highly unlikely…I think it’d be an uphill climb.”

Brennan said his organization might focus its attention at the local level in the months ahead.

As for Pappas and the PPA, their focus will remain on the nation’s capital and Rep. Frank’s poker bills. As for when poker players can expect to see action on them, that will be the topic for the third and final “What’s Next? The Future of Online Poker in the United States,” which will debut later this week.

Part 1 of the series, which focused on how the banks are preparing for the UIGEA’s final implement, was published last week.