Harry Reid’s Online Poker Folds on Freedom

The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012, which Senate Majority Leader Harry Reid (D-Nev.) is expected to introduce soon, is being touted as a way to legalize online poker. In fact, it is a self-serving piece of legislation that protects large Nevada-based casinos at the expense of consumer choice. The bill in effect criminalizes just about any other form of online wagering, while providing a tiny carve-out for online poker companies in a way that protects Nevada against competition from any other state in the nation.

The bill, co-authored by Sens. Reid and Jon Kyl (R-Ariz.), has not been officially introduced to the Senate, but copies have leaked to the media over the last two months. There is intense interest among former online poker players in any bill that would re-open the online gambling market. While the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) was supposed to kill online gambling in the U.S., the death knell really rang on April 15, 2011 or “Black Friday” as it’s called by those in the poker community, when the U.S. Department of Justice (DOJ) shut down the remaining websites still taking wagers from Americans. While it’s understandable that those players—many of whom made part or all of their income playing poker online—would support any bill that would allow them to play again, this bill will do more harm than good.

First, Reid’s bill would amend laws going as far back as the 1961 Wire Act to reaffirm the illegality of all online gambling in the U.S., except for horse racing and online poker. Yet, even for poker, the bill doesn’t exactly create an open market. Instead, it would create a brand new bureaucracy within the Treasury called the Office of Online Poker Oversight (OOPO), which would assign licenses to online poker platforms and approve states and tribes as “qualified bodies” to issue licenses. For the government, this would be a lucrative operation. Licensees would have to pay a 16 percent online poker activity fee, with 14 percent going to the issuing state or tribe and 2 percent to the feds. The fee is calculated from the eligible online poker receipts.

Then there’s the matter of which parties can become “qualified bodies.” Based on the most recent version of Reid’s proposed bill, it appears that Nevada alone would make the cut. While earlier versions of the bill required would-be licensers to “possess substantial experience in regulating land-based gaming,” the newer version requires the state or tribe to have “demonstrated capabilities relevant to the online poker environment.” As Politico recently noted, the only state that would likely meet the new criteria would be Nevada, since it began issuing online gambling licenses last year.

Under Reid’s bill, any state considering getting into the online gambling regulation game would be out of luck. Back in December 2011, the DOJ announced that it no longer interpreted the 1961 Wire Act to apply to all online gambling—only sports betting. Since the DOJ had relied on the Wire Act in all its illegal online gambling prosecutions, the decision spurred many state legislatures to begin discussing how they might regulate online gambling. But such discussions, presumably, would not qualify as a "demonstrated capability" for regulating online poker.

And under Reid’s bill they’ll never get that chance. The bill sets a cut-off date at May 1, 2012, after which any state law regarding online gambling would become invalid. Apart from Nevada, Delaware was the only state to pass an online gambling law—in June 2012.

Furthermore, Reid’s bill would prevent states from looking for new ways to increase revenue by prohibiting online lotteries from offering casino-style games and limit them to only selling online tickets for jackpots where winnings are determined not more frequently than daily.

As if that weren’t enough, this bill will also damage international trade. Antigua, for instance, has already announced plans to extract penalties from the U.S. as a result of a 2007 World Trade Organization (WTO) ruling in favor of the island nation. Antigua had claimed that the U.S. violated trade agreements by prohibiting Antiguan companies from offering online gambling to U.S. residents. As a result of the WTO ruling, Antigua has a right to exact penalties from the U.S. to recoup some of the lost revenue, but had chosen not to do so, until recently.

So how does Reid’s bill seek to avoid disputes like this? By damaging America’s trade relations even further. First, the proposed bill would withdraw the United States from remote gambling commitments under the General Agreement on Trade in Services—making the Antigua claim moot. Second, it would institute a five-year block for any company that offered online gambling to Americans after 2006, when the Unlawful Internet Gambling Enforcement Act was passed. Since UIGEA was so vague that no company could suss out what types of gambling it considered “unlawful,” many online poker companies based outside of the U.S. (where online gambling is mostly legal) continued to accept wagers from Americans. Reid’s bill would lock them out of the legal U.S. market for at least five years. Even those gambling platforms, both U.S. and foreign, that were not offering online wagering in the United States post-UIGEA would have to wait for at least 15 months after the bill is enacted before they are allowed to begin operations.

Nobody really expects to see an online gambling bill that will please everyone. But this piece of work—with its blatant protectionism for established gambling entities and its complete disregard for the rights of individuals and businesses—borders on scandalous.

Writing legislation to allow Americans to gamble online should be an opportunity to undo the mistakes of the past—laws that codified the morality of the few to restrict the freedom of all. There is no legitimate reason why the federal government should be able to tell Americans how they can spend their money online, so long as they don’t violate anyone else’s rights. Reid’s bill does nothing to address this problem, and instead protect the special interest of donors and favored voting blocks.