Online Legislation for 2012 Dead on Arrival; Henderson’s Year in Review Pt. 1; Bitcoins = Virtual Currency

 

It’s Official: Federal Online Poker Legislation Dead For 2012

By Earl Burton

Late this afternoon, the official word came from the offices of Nevada Senator Harry Reid regarding the drive for federal online poker legislation: he’s pulling the plug.

With only about one week left in the 112th session of the U. S. Congress (the new Congress will be seated on January 2), Senator Reid issued a written statement regarding the proposed legislation that he had worked on with outgoing Arizona Senator Jon Kyl. “We have simply run out of time in this legislative calendar,” Senator Reid’s statement read. The current Congress only has a handful of bills that have the opportunity to pass and linking a federal measure for online poker regulation would jeopardize passage of those bills.

“I am disappointed,” Reid added in the statement, but he did offer what might be a glimmer of hope for the future of federal action. “Senator Dean Heller (Reid’s Republican partner from Nevada) and I remain committed to this issue and it will be a priority for us in the new Congress.”

While Reid, Kyl and Heller proposed to be at the forefront of moving the issue through the Senate, they were facing more opposition to the issue than they previously had thought. Reid and Heller were looking to ensure that Nevada would be the epicenter of a federal online gaming outlet (with the Nevada casinos providing the action), while Kyl, a longtime anti-gambling zealot, was looking to actually limit online gaming (the proposed Reid/Kyl bill would have virtually outlawed any other online gaming) before he retired from Congress. The push back from fellow Senators – not to mention the Governors of the individual states and Indian tribes – proved to be too much to overcome.

When the new Congress is seated come January, the opportunity for new legislation to be proposed (the Reid/Kyl bill was never introduced; Texas House of Representative’s member Joe Barton’s online poker regulatory bill will “die” with the end of this Congress and will have to be reintroduced) could very well be a short one. “Our goal is to definitely try again next year,” David Krone, the chief of staff for Senator Reid, “but Senator Reid’s feeling is that, after a while, there comes a time when you’ve lost the consensus that you’ve built. There will be a window next year, but I don’t see it going long.”

The journey of federal online poker legislation has been one fraught with starts and stops virtually throughout the entirety of this Congressional session. Although Rep. Barton introduced his bill last year, it received little attention save for two House subcommittee meetings. A vote was never taken on Rep. Barton’s bill and, as such, it never reached the floor of the House of Representatives for consideration.

The Senate did not even take up the issue of federal online poker regulation until after the U. S. Department of Justice ruled in December 2011 that the Wire Act of 1961 – the law most often used to state online gambling and poker were illegal – only applied to sports betting. This opened the floodgates for the individual states to start offering online gaming, from lottery ticket sales in Illinois to Nevada’s efforts to open an intra-state online poker network to Delaware’s passage of a full online casino gaming law.

The Reid/Kyl bill would have shut all of those operations down, just as Rep. Barton’s bill would have. While opening up online poker for American players (the players would not be allowed to play internationally), virtually all other forms of online gaming (bingo, slots, table games, lotteries, etc.) would have been banned. The Reid/Kyl bill, however, seems to have never gotten out of the gate, leading to infighting among the two Nevada senators as to who really had the best interests of their constituents (and potentially the powerful Nevada casino industry) in mind.

With the failure of federal online poker regulation for 2012, the states are now the last option before the calendar flips. Although Nevada has their regulations in place and has awarded licenses, it isn’t until the spring of 2013 that the first sites are expected to go online. California seems to be “warming the engines” to push for online poker regulation, while New Jersey is expected to make their moves on the issue of full-fledged online casinos before the New Year. Even with these options in motion, however, it will be much longer before Americans can warm up their computers for a regulated online poker world in the United States.

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Hartley Henderson
2012 Year in Review – Top 10 Gambling Related Stories (Part 1)

By Hartley Henderson – Exclusive to OSGA.com

2012 Year in Review – Top 10 Gambling Related Stories (Part 1)

The year 2012 turned out to be a fairly important year for the gambling industry primarily because of the U.S. election and the possible impact on the industry’s future. The election highlighted the news stories but there were other stories across North America that caught the eyes and ears of Americans and the top 10 will be examined in this 2 part article.

1. The 2012 Presidential Election:

Without question the election was the top story of 2012. Obama had never actually come out in favor of online gambling but there was a real movement to legalize poker in numerous states like Nevada, California and Iowa and there didn’t seem to be much interest by the Democrats to stop it. In fact, there was some suggestion that the Black Friday seizures in the previous year were conducted to clean the street of major offshore poker operators and pave the way for the likes of Caesars and MGM to start offering online poker without the competition. While Wynn had partnered with PokerStars to offer legal poker in Nevada and Station Casinos had partnered with Full Tilt, MGM and Caesars were left looking at other options and chose Bwin.Party and 888 Gaming respectively. The problem was that over 90% of Americans playing online were already doing so with PokerStars or Full Tilt so the partnerships clearly put Caesars and MGM (the 2 biggest Nevada stalwarts) at a disadvantage. So many industry insiders believe that the Black Friday seizures occurred because the big casino conglomerates asked the federal government to do something before Nevada legalized online poker and they were already in catch up mode.

To fuel the belief that the federal government was not prepared to fight the states regarding online poker, the DoJ under the Obama administration issued a statement at the end of 2011 that in its opinion the Wire Act only applied to sports betting. That opinion was contrary to the one from the previous DoJ which stated that in its opinion all online gambling was illegal and states couldn’t offer an intrastate product since the Internet was interstate in nature. The Democrat DoJ opinion however, was clearly a bone thrown to the states, telling it to go ahead with online gambling so long as it doesn’t involve sports.

While Obama seemed to be moving away from federal interference with gambling laws, Mitt Romney’s message was clear – if he were elected gambling expansion would be stopped in its tracks. In fact Romney stated so at a meeting in Las Vegas, where opposing gambling expansion was clearly not going to be popular with the electorate so one could only envision the degrees he was prepared to go to in order to ensure that online gambling would never be legalized in any form under his regime. Romney also received millions of dollars in campaign support from Sands Corporation CEO Sheldon Adelson who has been vehemently opposed online gambling legalization since he believes that online gambling will kill the land based businesses. In fact it’s notable that Sands was one of the few Nevada companies that didn’t set up a partnership for poker.

Americans, however, voted in numerous polls that they were in favor of expanded gambling and one survey conducted by USGamingSurvey.com to visitors of the Poker Player’s Alliance website revealed that almost 50% of respondents were willing to switch their votes to the party they aren’t affiliated with if the other candidate came out in support of online poker. And the figures were even higher for Congressmen and Senators that were willing to come out in favor of legal and regulated online poker. In the end, Obama won the election quite handily and the Senate remained in Democrat control while the House of Representatives remained in Republican control. So the path is now clear for legal and regulated online gambling if Obama continues with his hands off decisions regarding state run online gambling. And since this is the last term Barack Obama can run there is no reason for him to hold back in supporting the initiative. The public clearly wants it and the states need the tax revenues. Fortunately for online gamblers they won’t have to find out what was in store had Mitt Romney become the President.

2. New Jersey’s Decision to Offer Sports Betting:

In 2011 New Jersey Governor Chris Christie blocked a bill introduced and passed in the New Jersey Senate that would have allowed online gambling in the state. Many in the industry threw up their hands wondering what was going through Christie’s head although others suggested that Christie simply wanted the issue to be put to a referendum. The truth probably was that Chris Christie had Presidential aspirations and he didn’t want to be dismissed by the Tea Party and neo Conservatives in the party for being the first Republican Governor to allow online gambling. When Christie decided not to run, however, his whole demeanor changed. He wasn’t anxious to bring the online casino issue back to the table but did announce in early 2011 that he was prepared to allow New Jersey residents to vote on a referendum asking whether the state should ignore PASPA and introduce sports betting. Christie himself said he would vote in favor. The motion to allow sports betting passed by almost a 3-1 margin and in January of 2012 Christie signed the sports betting bill into law that would allow New Jersey racetracks and Atlantic City casinos to offer sports betting to help boost interest in the other products. Not surprisingly, the leagues cried foul and threatened to take away games and possibly even teams from the states. The NCAA was the first to make a move by removing some minor NCAA tournaments that were to take place in New Jersey. Undeterred, Christie announced that sports betting would go ahead in New Jersey by early 2013 and the leagues have been opposing the motion since.

Perhaps what is most notable in the announcement is the fact that the DoJ has taken no action and in fact 2 Congressmen from New Jersey Frank Labiondo and Frank Pallone Jr. introduced 2 federal laws aiming at overturning PASPA. The bills were titled H.R.3809, “the New Jersey Betting and Equal Treatment Act of 2012?, which seeks to exclude the State of New Jersey from PASPA and H.R.3797, “the Sports Gaming Opportunity Act of 2012?, which would allow a 4 year period for states to enact statutes for wagering schemes involving professional and amateur sports. It’s unlikely the bills will pass the House since it is still controlled by the Republicans but the bills just give one more headache to the sports leagues. If New Jersey is going to be stopped it will have to be done through the federal courts. This suits New Jersey and Christie just fine because the state believes that as the New Jersey law moves through the courts, the judges will have no option but to find that PASPA is an unfair law and unconstitutional since it discriminates against the 46 states that are prohibited from offering sports betting. Most industry lawyers concur. What’s also notable is that Chris Christie is still one of the favorites to become the next Republican Presidential candidate and has gotten much notoriety and support by many Americans for his demeanor and actions after Hurricane Sandy. In fact Obama and Christie who were on opposite ends of most issues seemed to bond over the disaster and there is belief that Obama is prepared to do a tit for tat with Christie and that Obama will pull sway for New Jersey’s gambling initiatives in exchange for Christie’s support for some of Obama’s main initiatives. What is clear is that Christie no longer believes that being a Republican governor supporting gambling expansion will harm his Presidential aspirations.

3. The Purchase of Full Tilt Poker by PokerStars:

At the end of 2011 one of the main news items was the expected purchase of Full Tilt Poker by Groupe Bernard Tapie. The sale had the approval of the Alderney government and it seemed that all that was left was to cross the t’s and dot the i’s. But it became evident that the DoJ wasn’t happy with the sale for whatever reason and in the end the Bernard Tapie group backed out. In 2012 the reasons became apparent. At the encouragement of the DoJ, PokerStars purchased Full Tilt Poker for $731 million. As part of the agreement, PokerStars was to get the assets of Full Tilt including their popular Rush poker software; they would pay back all American and non American customers owed money by Full Tilt; and they would pay a hefty amount to the DoJ as a fine. In return the DoJ was prepared to drop charges against PokerStars for past wrongs and more importantly was willing to give the company immunity which would allow it to cater to U.S. customers if and when online poker was legalized in the U.S. Ironically the former owners of Party Poker seemed prepared to offer up to a billion dollars to the DoJ under the last administration for a similar opportunity.

As it stands, PokerStars has paid back Rest of the World customers and has given the DoJ the money to pay back American Full Tilt customers but for some reason the repayments haven’t occurred. The DoJ has stated that it could take some time since they have to find a company to initiate the payback but one can’t help but feel that the DoJ is stalling for time. There is no reason they couldn’t just use Navigant Consulting, which arranged for the repayment of NETeller customers after the DoJ confiscated EFTs from that company in 2007. Nevertheless, the fact the DoJ was prepared to work with an online poker company is more indication that the current government has taken a new direction with regards to its position on online gambling.

As for the previous owners and shareholders of the companies, Ray Bitar was arrested earlier but released on bail in July. His case is set to be heard in 2013. Howard Lederer forfeited over 2 million USD to the DoJ as part of a settlement in a civil suit just this month and Isai Scheinberg (the founder of Poker Stars) appears set to settle with the DoJ as well. Full Tilt has reopened to the rest of the world and FullTiltPoker.net is open as a free pay for fun site to American citizens. PokerStars has retained Tom Dwan, Gus Hanson and Viktor Blaum as the professionals representing the site but has told Phil Ivey to take a hike after his negative comments about the company in 2011.

4. New Virtual Currency for Wagering:

Since the passing of the UIGEA and the difficulty getting payments to and from offshore gambling sites, many in the industry believed that the only real solution for U.S. facing gambling sites would be for the offshore sites to coordinate their own type of banking system or use a currency that can’t be seized by the DoJ. In 2012 that currency became a reality for some offshore sites. Bitcoin has been around for a few years but the complexity of how the system works and the huge fluctuations in valuation have made it unfeasible for most. Last year Switch Poker decided to offer Bitcoin as a payment option and numerous bitcoin only sportsbooks, poker rooms, bingo sites and casinos became quite large and profitable. Seals with Clubs, Strike Sapphire and BC Casino had revenues that were as large as many offshore casinos and poker rooms and Satoshi Dice, which only launched in April of 2012 has processed over $15 million in bets, averaging over $50,000 a day in wagers and the projections just soar from there. There are indeed some limitations to bitcoin, but the currency can be bought and sold like any other currency and all transactions are open source and are verified by bitcoin users making it impossible for customers to contend they didn’t actually place a wager. Consequently charge backs don’t happen. Most importantly all bitcoin transactions are anonymous so it would be impossible for the DoJ to determine if a transaction has taken place in the United States, Europe or even Antarctica. Winnings are always paid back in bitcoin from the casinos and the customers have to use one of many bitcoin currency exchanges to sell it back for real American dollars. Consequently the banks can’t block the transactions under the UIGEA because payments don’t come directly from an offshore gambling establishment but rather from a bitcoin trader. And using a currency exchange isn’t illegal under the UIGEA or any other American law. For that reason after my article was written about bitcoin on OSGA.com, numerous U.S. facing offshore operators sent emails asking for more information on the currency and ways that they could incorporate it as a payment method into their existing sportsbooks, casinos or poker rooms.

Check out part two next week

Contact Hartley via email at Hartley@osga.com.

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Hartley Henderson

Bitcoin Betting Grows in Popularity

By Hartley Henderson – Exclusive to OSGA.com

About a year ago I wrote an article suggesting that betting by way of virtual currency like bitcoins could be the future of the industry. One small poker site accepted bitcoin as payment and about 5 bitcoin only gambling sites were in existence at the time. Some offshore gambling companies considered offering the product as payment but confusion about the currency and the huge fluctuation in its value caused most sites to shun the virtual currency. Not long after I wrote the article, the CBS show The Good Wife featured the product in an episode titled “Bitcoin for Dummies.” The show’s plot saw the Treasury Department suing a lawyer for the creator of bitcoins for refusing to reveal the true identity of his client. In the show the lawyer for the U.S. Treasury argued that creation of a new currency was illegal particularly since it was being used for illegal purposes such as drug purchases and online gambling. In the end the Treasury lost the case because their lawyer could not prove who actually created bitcoins. The show revealed that there were at least 3 creators of bitcoins so no single person could be held liable. In real life Bitcoin’s creator is listed as Satoshi Nakamoto, but he has never come forward and there are suggestions that Nakamoto is really several creators rolled into a pseudonym.

The Good Wife episode wasn’t well received by critics due to the complexity of the show but the number of Google and Wikipedia searches soared after the episode and the value of bitcoins quickly rose but then dropped again. At the time of the writing one bitcoin was worth USD$6. It climbed to USD$8 then down to about USD$5 where it stayed for almost 5 months but it is now worth about USD$13. More importantly it brought awareness to a product that was pretty much unknown. I spoke with “RC” – the proprietor of btcsportsbet.com who informed me that the product has taken off in recent months.

“Our business has done very well over the last year. Clearly there is a lack of understanding among established gaming operators. We have discussed a partnership with a major US-facing offshore sportsbook where we would process and handle their bitcoins, but unfortunately we could not agree on terms. It is a very hard concept to explain to people who have been in the business a long time. Perhaps (it will happen) in the near future.

We now have several hundred active customers from all over the world and are certainly busier than this time last year. Soccer is extremely popular, as well as the US sports. Using bitcoin keeps overhead very low. Our staff mainly handles email enquiries, often from users new to bitcoin – the actual deposit and withdrawal processing requires no human intervention. No dodgy payment processors, no middle-man fees, nothing that has to clear or can be charged back. It really is the perfect currency for our needs. It is safer for our users as well – no need to keep large balances as deposits/withdrawals are unlimited and free. Sent bitcoins in the morning, bet a few games, then withdraw. Much lower risk than keeping large balances at an offshore book because funding is so difficult.”

I actually talked to a couple of U.S. facing sportsbooks and poker site operators about bitcoin and they did acknowledge that they were seriously considering offering the currency as a form of payment but were concerned about the fluctuations in price.

“Payment issues are definitely becoming more of a concern and we’re always looking for new ways to get money in and out but bitcoin is a bit scary since we don’t really understand it and the price goes up and down like a yo-yo,” one operator said to me. “If we had a way to hedge the bitcoins like any currency it would be a more viable option. At the same time it could be a last resort for survival.”

That said traditional offshore sites catering to Americans may become a dodo anyways if bitcoin usage becomes more prevalent. And RC believes some offshore operators may decide it’s just easier to become a bitcoin only operation:

“I see a future for online gambling in the USA – it is a matter of time before poker/sports betting become legal as the government is desperate for revenue. Bitcoin is simply the most efficient way to handle payments online. There is no risk on the merchant side (no charge backs) and benefits to the user side as well (do not have to provide personal information that may be misused, and do not have to rely on a third party bank or processor). There are also no “he said/she said” arguments around payments, meaning someone saying “I sent it, how come you didn’t get it?” All bitcoin transactions are public and it is simple to tell what has or has not actually been sent based on the addresses involved, so there are no disputes.”

One traditional style operation, Switch Poker, does accept bitcoins as payment along with credit cards and other common methods. Switch Poker doesn’t accept U.S. customers but they decided to offer bitcoins as a test and it has paid off. Management at Switch Poker has stated that there are some challenges and no payments to an account using bitcoins can be cancelled but the upside vastly outweighs the negatives.

As for bitcoin only gambling operations, according to betwithbtc.com there are currently 52 sites offering betting using bitcoin albeit many have little action and some are down.

The most common sites are btcsportsbet.com, sealswithclubs.eu (a bitcoin poker site), btcsportsmatch.com (a peer to peer betting site), strikesapphire.com (a bitcoin casino), btc-play.com (another casino site) and bitlotto.com (a bitcoin lottery site). And some bitcoin pundits have suggested there could be as many as 500 bitcoin gambling sites in operation by 2015.

The reason for bitcoin’s sudden popularity is uncertain but the most logical explanations are the ability for new adults to mine coins and understand its value and also the decision by some mainstream online companies to accept the currency as payment. “For the longest time, many companies refused to accept Euros as payment but the currency’s popularity took off once more European companies made it a preferred form of payment.”

Last month WordPress, the open source blogging company that ranks as the 21st most popular sites on the web decided to accept bitcoins as payment for their extra services. WordPress is free to use but to get an ad free version, upgrades, extra storage etc. people need to go to the store and purchase the features. WordPress argues that other funding methods block payments from some countries and WordPress considers it unfair. Consequently they decided to allow payment in bitcoins which can’t be blocked. The following was in WordPress’ release:

“At WordPress.com, our mission is making publishing democratic — accessible and easy for anyone, anywhere. And while anyone can start a free blog here, not everyone can access upgrades (like going ad-free or enabling custom design) because of limits on traditional payment networks.

Today that changes: you can now buy WordPress.com upgrades with bitcoins.

PayPal alone blocks access from over 60 countries and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons. Whatever the reason, we don’t think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can’t control. Our goal is to enable people, not block them.

Bitcoin is a digital currency that enables instant payments over the internet. Unlike credit cards and PayPal, Bitcoin has no central authority and no way to lock entire countries out of the network. Merchants who accept Bitcoin payments can do business with anyone.”

Also helping bitcoin to gain acceptance is their willingness to fix major concerns. Many bitcoin merchants and customers have acknowledged that the currency has received some bad press in the last while and has been shunned by Libertarian groups and activists that one would expect to embrace the currency. Helping create this bad press was a heist where $270,000 worth of bitcoins was stolen from mtgox.com (a trader and seller of bitcoins) as well as concerns that some bitcoin sites promote money laundering, tax evasion and criminal activity. Without question Silk Road, the tor based site that sells and mails out all contraband like heroin, lsd and cocaine (and many suggest things like sawed off shotguns aren’t far behind), has tarnished the reputation of the currency. As a result, some bitcoin users formed the Bitcoin Foundation, headed by its Chief Scientist Gavin Anderson. The Bitcoin foundation is a member based site whose mission is to standardize, protect and promote the currency. The following quote is from its website:

“As the Bitcoin economy has evolved, we have all noticed barriers to its widespread adoption—botnets that attempt to undermine the network, hackers that threaten wallets, and an undeserved reputation stirred by ignorance and inaccurate reporting.

To us, it became clear that something had to be done. We see this foundation as critical for bringing legitimacy to the Bitcoin currency. Only then can we increase its adoption and positive impact on the world’s finance.”

Whether or not the foundation will have any luck in shutting down operations like Silk Road, which has attracted the attention of the DoJ and DEA, is uncertain but at least having a contact person who will stick up for the currency is a good first step.

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