Poker industry looks forward
There is no entity in the poker industry whose fate did not take a sharp turn Friday.
As we learned Friday, the Department of Justice arraigned 11 prominent members of the poker industry for fraud and money laundering to the tune of billions, among other charges, seized five URLs, froze more than 75 bank accounts and effectively jettisoned PokerStars, Full Tilt Poker and Absolute Poker from American culture. Now, as the dust begins to settle, we take stock of events as they've unfolded, try to answer some of the questions raised and do some educated guesswork on what tomorrow's poker industry may look like.
Since the announcement:
• DOJ spokesperson Caroline Sullivan confirmed to ESPN.com that Chad Elie and John Campos were taken into custody early on Friday and Bradley Franzen was arrested after the DOJ statement was released. Franzen will be arraigned on Monday in the Southern district of New York.
• Some two weeks after announcing partnerships with PokerStars and FullTiltPoker, respectively, Wynn Resorts and Station Casinos each announced they had terminated their alliances.
• Full Tilt Poker issued a statement assuring players' funds were safe and withdrawal requests would be honored.
• PokerStars made a similar announcement to their clients, adding "outside the US it is business as usual." They also moved their online base of operations to www.pokerstars.eu. Similarly, FTP moved to www.fulltiltpoker.co.uk.
• FTP issued a news release in conjunction with CEO Ray Bitar (who was also charged) in which Bitar voiced his disappointment with the DOJ's decision to bring charges. FTP voiced support for Bitar and the company announced it was suspending "real money" play in the United States, but was continuing to provide peer-to-peer play elsewhere.
At present, there have been no statements from UB.com. PS and FTP have left the U.S. market along with some 25 to 40 percent of their respective customer bases. What now?
For the market:
While the events of the past month (namely, the partnerships between land-based and online casinos and the recent experiments in limited legalization in the District of Columbia) suggested forward momentum for the online poker industry as it was constituted then, now that momentum shifts back to land-based casinos and online operators that have stayed out of the U.S. market or have limited U.S. play to non-real-money play. Both bwin.party digital entertainment and Zynga appear to be in good shape to capitalize on Friday's developments, with the former's reported search for partnership with a land-based giant seemingly intact.
The departure of Poker Stars and Full Tilt Poker leaves a large gap in the U.S. poker market which other operators may seek to exploit. While the threat of additional arraignments looms large, we may see reflections of late 2006, when Party Poker's departure from the U.S. market in the wake of the Unlawful Internet Gambling Enforcement Act's (UIGEA) passing was seized as an opportunity by PS and FTP, among others. It's been almost five years since PS and FTP made the decision to continue their operations in the U.S., and it took that long for the DOJ to build its cases against them. 2011's renditions may see that as plenty of time to build their coffers.
For legalization efforts:
While some are seeing Friday's events as a step backward as legalization/regulation goes, not everyone is taking that point of view.
"If the legal goal was to get a legalized federal landscape, it still is," said Alexander Ripps, legal analyst for GamblingCompliance.com, a group that focuses on the independent analysis of gambling operations. "This just provides more incentive to get things done. This could long-term be a good thing for those efforts. It could press action and ultimately in the long term, that's in [the poker industry's] interests."
Ripps' assessment suggests Friday's events could act as a call to action. This marks the first time that American players have been left without what many consider to be secure options as online play goes. A resulting outcry could serve to inspire politicians to action.
The removal of PS and FTP from the equation also gets legislation over a tricky hump, trying to create the infrastructure of a new industry where one was already in place. Where past legislation has often tried to incorporate the industry as it was, the guess is that will no longer be the case.
For organized poker:
Less than 24 hours after the DOJ's announcement, PokerStars was cutting guaranteed tournament purses in half to account for the lack of U.S. player involvement. The educated guess is that online tournament play, while continuing on outside the U.S., will see player and prize pools shrink.
Studies have shown the affect of online poker on live poker room numbers is minimal, but for centers like Las Vegas, which have seen a recent dip in travel and tourism dollars, this could provide a small boom. Not all live poker will benefit, though.
From 2009 to 2010, the World Series of Poker main event saw attendance increase by more than 800 players, but a portion of their entries came from online satellite tournaments that allowed winners to qualify for a fraction of the price. With the U.S.-based WSOP now forced to be vigilant against such qualifications and so many of their customers faced with suddenly unavailable poker bankrolls, many are preparing for reduced attendance. Professional poker player Tom Dwan put his guess for attendance at 5,144 on Twitter and many have suggested even fewer.
Where the WSOP leads, others will follow. The end of the satellite system for U.S.-based tournament circuits like the World Poker Tour and North American Poker Tour will likely lead to reduced attendance. FTP said its recently announced ONYX Cup has been canceled and other similar PS/FTP related entities seem likely to follow suit.
For the sub-industries:
A loss or decrease in advertising revenue from PS and FTP will send shockwaves through the sub-industries built around online poker. Many poker television shows, deprived of sponsorship and advertising money, will be forced to make do with greatly reduced budgets or fold up shop. Similarly, most poker media have been financially supported by the sites in banner ads and advertising pages. As such, revenue -- and therefore jobs -- will be lost.
In addition to media, other businesses like poker training sites could see business suffer. "It definitely can't be good," admitted Phil Galfond, one owner of poker coaching site BlueFirePoker.com. "I have to think we'll be hurt. We have a lot of U.S. customers who won't be able to use what we teach them now."
For the poker star system:
It became evident when PokerStars ended its agreement with 2004 WSOP champion Greg Raymer the company was tightening its belt as far as player sponsorships went. Now, the real tightening will likely begin. PS and FTP both have a number of American pros under contract whose sphere of influence is no longer a viable market. Many American pros, especially those who wear the FTP patch, had deals that paid them based on the number of hands they played on the site. As they can no longer do so while staying on U.S. soil, if those players are allowed to continue with their agreements, they'll need to move out of the U.S. in order to continue collecting.
For the biggest stars, there could be bigger issues based on the close relationships they have with the sites. This is a part of the story many industry insiders will watch intently.
For the players:
Friday's events have left players with more questions than answers, most of them concerning the status of the money they have online. While both PS and FTP have issued public statements assuring that payments will be processed, a number of players found themselves unable to withdraw funds Friday. This may be due to the number of requests that needed to be processed.
For professional players, the choices are limited. Some, such as 25-year-old Aze Gallo of Florida, are considering moving out of the country. "Honestly, I'm mostly thinking about it because of being disgusted about living in a country that would ban online poker," Gallo said when contacted by ESPN.com. "I'd rather play poker abroad than do something else in this country at this point. I feel like my country is trying to make money in the guise of holding my hand."
Galfond, who plays cash games at the Internet's biggest tables, said it will likely be some time before the high-stakes games are up and running. "As of now, I don't feel comfortable having a large amount on any site other than Stars or Tilt, so I don't know if the games will move over somewhere. I assume things will take a while to work themselves out. I think there's just a ton of uncertainty."
There may be grounds for the belief money will be returned in the way the DOJ's 2007 case against Neteller played out. In that case, funds at Neteller, an e-wallet where users at that time were able to deposit money into online gambling accounts, were frozen after the U.S. Attorney's office filed charges and arrested the company's founders on money laundering charges. The DOJ and Neteller negotiated a deferred prosecution agreement that allowed Neteller to reimburse customers. Paul Hugel, a defense attorney with Clayman and Rosenberg in New York, represents several online gaming companies. He weighed in on the Neteller comparison:
"From the players perspective, my sense from the Neteller prosecutions is the government had a lot of leverage because they had people in custody," he said. "I don't know that's the case here. Eight of 11 defendants are outside the US, still at large. I don't know if the jurisdictions in which they're presently located will be cooperative in their extraditions and you can't tell from what the government made public how much money they actually seized. It looks like the only money seized was that in the U.S. It may be the companies are still in control of the players' funds or the government may control some of them. That would make a big difference from the players' perspective."
"The DOJ could in theory take the position that all this money is subject to forfeiture," he continued. "Even though the players committed no crime, the government's position could be that once the money is sent to the online companies, that money becomes proceeds of unlawful activity and subject to forfeiture. That said, I'm not sure the government would try to seize money that is clearly in player accounts, it's just that they could try to do that. I think at the end of the day, it's more of a political decision than a legal decision."
There are more bases to cover in the days that lie ahead for an industry shaken to its foundation. We'll continue to bring you coverage as the poker industry's new face emerges.
Gary Wise is ESPN.com's poker columnist.
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