High-stakes hand for online poker
In the next few months, online poker players in the United States will be wagering in one of their highest-stakes hands, but this showdown won't take place at the World Series of Poker final table in November.
At issue is a federal lawsuit that could decide whether Internet poker players -- and the companies that sponsor pros such as Phil Ivey and Chris Moneymaker -- are breaking the law with every online wager they make.
"It could be the battle of the O.K. Corral for Internet poker -- to determine, once and for all in a federal court setting, the legality of the game, which we contend is legal under current federal law," says John Pappas. Pappas is the executive director of the Poker Players Alliance, an industry lobbying group that will be on Capitol Hill from Monday through Wednesday with several big-name players, urging Congress to pass pending legislation that supports online poker.
Internet poker's legality always has been a murky issue mired in a mix of federal statutes and state laws, some dating back to the era when poker was played primarily in smoky pool halls, and when the most sophisticated technology employed in betting was a telephone call to a bookie. Although the U.S. Department of Justice states that online poker is illegal, and some states, such as Washington, have explicitly outlawed online gambling, including poker, nevertheless, the online game's supporters say many existing laws apply to other types of gambling, not Internet poker.
The legal ambiguity doesn't stop more than a half-million Americans from playing each month on sites such as PokerStars.com and FullTiltPoker.com.
In early June, thousands of those players got a wake-up call when they tried to cash in on their winnings and couldn't access their money. Federal prosecutors in New York had ordered four U.S. banks to seize at least $30 million in payments and deposits belonging to about 27,000 online poker players.
The government's case
The U.S. Department of Justice cites the following statutes of Title 18 of the United States Code as to why it determines online poker is illegal. Following each is a response by I. Nelson Rose, a law professor at Whittier Law School in Costa Mesa, Calif., and a gambling-industry consultant.
Section 1084: Also known as the Wire Act. This prohibits anyone in the business of betting or wagering from using a wire communication facility in interstate or foreign commerce to transmit bets or wagers.
Rose: "A court of appeals has determined this law applies to sporting events and races only and would not apply to poker."
Section 1955: Part of the Organized Crime Control Act. Prohibits five or more persons from conducting, financing, managing, supervising, directing, or owning all or part of an illegal gambling business that operates in violation of state law.
Rose: "This statute relies on state laws on gambling, which are ambiguous in most states."
Section 1952: This prohibits the use of interstate facilities, interstate travel or use of the mail either to distribute proceeds or to promote, manage, establish, carry on or facilitate unlawful activity, including a business enterprise involving gambling in violation of state or federal law.
Rose: "Nobody is traveling, and they're not using the U.S. mail. This law has never been applied to the Internet."
The Unlawful Internet Gambling Enforcement Act: This prohibits the acceptance of the specified forms of payment for unlawful Internet gambling by a business of betting or wagering. This statute relies upon existing federal and state statutes to determine what activity is "unlawful Internet gambling." The law also makes it a crime to be a gambling business that accepts money for gambling.
Rose: "It only applies if you are violating some other federal or state law, which brings us back to the original problem. It does not define what constitutes unlawful Internet gambling. On the criminal side, the U.S. DOJ has never indicted anyone under UIGEA."
The action targeted U.S. companies that process payments for the online sites, which are based overseas and so can dodge federal regulations. On July 10, one of those third-party processors, Account Services Corporation in San Diego, filed a lawsuit demanding the government return $14 million that the processor claims was seized illegally. (Read the lawsuit here.) The motion is scheduled for a hearing on Aug. 21.
Yusill Scribner, a spokeswoman for the U.S. attorney for the Southern District of New York, which ordered the banks to freeze the money, declined to comment.
Online poker advocates are confident the suit will set a precedent that clears up the hodgepodge of ambiguous laws.
Perhaps because of the lack of legal clarity, FBI agents haven't been busting into people's homes and dragging them away from their laptops in handcuffs. The federal government has never filed charges against anyone based solely on online poker.
However, in 2008, the Indian owner of an online gambling site called PartyGaming, based in the U.K., agreed to pay the U.S. government $300 million after pleading guilty to violating the federal 1961 Wire Act. It's one of the statutes the Justice Department cites as outlawing online poker, even though federal court justices have declared that the Wire Act applies only to sports betting -- not online poker.
"There's no law against online poker," says Greg Raymer, a former patent attorney who won the 2004 World Series of Poker Main Event and is now a member of the PokerStars Pro team. He says that even though the government's finger-wagging at online poker might scare some people from logging on, the number of online poker players continues to grow.
"If we look just inside the United States, the vast majority of the professional poker players out there are primarily online players," Raymer says. "Even someone like me, even though I'm known from my live playing, I still make quite a bit of my income by playing online poker."
The glitzy, glamorous and nationally televised tables of the World Series of Poker in Las Vegas are far from the Monroe, Mich., basement where you can find Josh Lewis. The 26-year-old software developer is typical of the players who ascend to the championship event after honing their skills online.
For a couple of hours almost every night, Lewis settles into his recliner, fires up his IBM ThinkPad, logs on to PokerStars.com and starts playing $1/$2 no-limit hold 'em, watching television in between hands.
"I'm pretty sure I could make a decent living if I played eight or nine hours a day," he says. "My fiancee might kill me, though."
A stroke of bad luck prompted Lewis to start playing online poker about five years ago. Just two weeks after he had upped his auto-insurance deductible from $100 to $500, someone backed into his 1997 Dodge Stratus. At the time, he was a college student without a lot of disposable income.
"I figured, I'll just win this back playing poker on the Internet," he says.
When he isn't playing online, he's posting messages in the forums where poker fans gather to kvetch about the government's demonizing of their game. When players' money was seized last month, the forums lit up, Lewis says.
"I would like them to direct me to some sort of law that tells me I can't play online poker, and I don't think they'll be able to find one. If you're going to ban things some people might abuse, then ban alcohol," says Lewis, noting that Prohibition didn't work so well, either. "If I can do something in a building, why can't I do it on the Internet?"
The ranks of online poker players are full of people like Lewis -- engineers, accountants, attorneys, scientists and others who have a penchant for numbers, patterns and strategy -- who dream of becoming sports pros.
"It's not like baseball or basketball, where you're just born with this talent," Lewis says. "No amount of practice in the world is going to make me a professional baseball player. With poker, anybody can do it."
Raymer, also known as "Fossilman" for his habit of using fossils as card protectors, ditched his career in the law of biotechnology patents to become a full-time professional poker player. In his 17 years of sitting at the tables, he's seen online players revolutionize the sport. Players used to ask one another where they're from; now, according to Raymer, they ask for one another's online names.
"And you go, 'Oh, you're him. I've played against you before,'" he says.
Before the explosion in online poker, unknown players -- the ones who were able to buy their way into tournaments with the pros or get there through winning local satellite tournaments -- usually fell flat, Raymer says.
"It used to be if you recognized four of the eight opponents at your table, you knew the other four were pretty bad. Therefore, that would dictate a lot of your strategy," he says. "Now, when I don't recognize someone, especially with a younger guy, I tend to assume they're a regular online player and therefore they're pretty good."
It's the Chris Moneymaker phenomenon, of course. Ever since the accountant from Tennessee and amateur online poker player came from nowhere to win the 2003 WSOP main event, every online poker player became a potential contender.
Last year, about 1.6 million Americans played at least one hand of online poker, according to numbers from PokerAnalytics.com, which mines and measures online poker data. That's about the same number of people who cross-country ski each year, but only about 6 percent of the number of Americans who golf, based on participation data from the National Sporting Goods Association. Some statisticians expect online poker to grow by at least 16 percent in the next few years -- and even more if a court ruling or a new law makes it clearly legal to play.
Some of that growth would come from people who currently suppress their desire to play Texas Hold 'em on their laptops for fear of prosecution, but even more could come from mainstream advertising of online sites currently dampened by legal uncertainties, poker advocates say.
PokerAnalytics.com estimates that U.S. players are generating $1 billion in revenue each year for the overseas online poker sites. That's money that could come to the U.S. if the government legalized online poker, says Pappas, director of the Poker Players Alliance.
The lost-revenue angle is just one hand that poker advocates plan on playing this week when they're in Washington to advocate for the pro-poker legislation, which is sponsored U.S. Rep. Barney Frank, a Democrat from Massachusetts.
Frank has become such a hero in poker circles that he was invited to kick off the World Series of Poker in Las Vegas with the traditional "Shuffle up and deal" command, akin to "Gentlemen, start your engines."
Frank has never played a hand of online poker, but he's a big fan of personal liberties, including the freedom to possess small amounts of marijuana. In May, he introduced legislation that would specifically state that all Internet gambling is legal.
"My main reason for getting involved is to let people do what they want without the government interfering in their lives," he says.
Frank's bill also would subject online gambling to federal taxes and regulation, which the Poker Players Alliance supports as a way of protecting players from scams. States still would be allowed to enact their own laws as well. Frank says he plans to bring it up for discussion in October in front of the House Committee on Financial Services, of which he is the chairman.
The legislation will come up against opposition from some in Congress, primarily Republicans supported by religious groups that believe gambling is immoral.
At the forefront of those efforts is Focus on the Family, a national Christian advocacy group based in Colorado Springs, Colo.
"We're opposed to all forms of gambling. It causes addiction, bankruptcy, crime, destruction of families, economic destabilization, suicide, domestic violence and child neglect," says Chad Hills, the group's analyst for gambling research and policy.
Online gambling offers players 24/7 access anywhere, which makes it more addictive and risky than playing in casinos, Hills argues.
"You can lose your house with the click of a mouse," he says.
Hills and others who oppose online gambling believe they scored a victory in 2006 with the passage of the Unlawful Internet Gambling Enforcement Act, which, among other things, penalizes banks for handling any transactions related to online gambling. Banks have until Dec. 1 of this year to be in full compliance, which is just weeks after the World Series of Poker main event declares its champion.
Depending on whom you ask, though, that law could have no effect on online poker, or cause a headache for online poker, or bring an end to online poker altogether. The Unlawful Internet Gambling Enforcement Act doesn't define what type of Internet gambling is illegal, say attorneys who study gambling law.
Poker advocates fear that the banking industry -- which isn't really in a position right now to anger the federal government -- will err on the side of caution and prohibit any transaction even remotely linked to online gambling. If that happens, it's unclear how online gamblers will make deposits to play or receive their winnings.
Rep. Frank is trying to get that December deadline pushed back, because he's hopeful he can get his bill through the House and to the Senate by the end of the year. In the meantime, online amateurs such as Lewis and pros such as Raymer are becoming activists.
When Raymer is in D.C. this week, he plans to meet with members of Congress from North Carolina, where he now lives. He's also promoting a petition sponsored by the PPA that calls for the explicit legalization of online poker and is being prominently advertised on the Web sites of online gaming companies, pro players and the World Series of Poker. The poker petition's Web site claims to have collected 336,000 signatures by the end of last week.
Poker advocates say the sport's popularity bodes well for its chances in Congress and in court. Raymer puts it in terms that a true poker fanatic would understand:
"Well, we're the nuts on the flop. There's a chance, as things develop, we could lose right now, but we've got the nuts," he says. "And there's no reason to think we aren't going to be winning at showdown."
Paula Lavigne is a reporter in ESPN's Enterprise Unit and can be reached at email@example.com. Her work appears on "Outside the Lines."
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