Crony Capitalism in the Digital Space: The Future of Online poker in the United States

January 20, 2015 Updated: April 23, 2016

Poker is inextricably interwoven into the fabric of the American experience. In each generation, the game has acted a mirror, reflecting back the values that defined that age. It was the leisure activity on the decks of the steamboats that tamed the Mississippi River; a symbol of the daring and rugged spirit that conquered the American West; the Everyman’s path to riches that minted a new millionaire at the World Series of Poker Main Event in Las Vegas in 2003.Conqueror; Pioneer; Capitalist. Each American generation has expressed itself through poker, and the “digital” one is no different.

Where previous generations saw the self-assured confidence or audacious bravado of their times, the digital one saw the raw data analytics that characterize its own. This generation re-branded poker as a “skill game”, whose essence requires a player to use statistical analysis to optimize decision making in situations where they only have incomplete information — a perfect metaphor for the information economy.

It also made poker a strong American contribution to the new globalized pop-culture being carved out on the internet. The game grew rapidly there, with new online poker rooms popping up on a daily basis. By the time 2006 rolled around, offering this most American of activities to the world had turned into a billion dollar a year industry with no signs of slowing down.

That is of course, until Congress decided it needed to get involved.

An American Pastime Banned

Technology proliferation has brought culture wars to the entire landscape of American society — and here too, poker found itself firmly in the crosshairs.

Poker, like all forms of gambling, had always been regulated at the state level — but the internet rendered this model functionally obsolete. With games now being delivered directly into the home of the gambler, it became impossible for states to enforce both gambling regulations and prohibitions alike.

“Values voters” especially looked on in horror as the unregulated gambling industry bloomed in the digital space. Banning it quickly became a cause célèbre in those circles, and in 2006 the Unlawful Internet Gambling Enforcement Act (UIGEA) was attached secretly in the middle of the night to a “must-pass” piece of legislation on the last day of a lame duck Congress.

UIGEA made it a crime for banks to process payments to and from online gambling sites in violation of federal or state law, crippling the industry overnight. Many operators left the US market, and the few that remained operated in an extremely tenuous, quasi-legal, space.

That situation continued until April 14, 2011 when the Department of Justice (DOJ) seized the domain names of the last remaining large sites outright — a day dubbed “Black Friday” by the poker community. In a bizarre irony, the American government had now barred Americans from participating in a global community they had built around an American cultural export.

And yet, from the moment the DOJ seizures became known, the question was when — not if — online poker would be back in the United States.

After all, the regulation of traditional, intra-state gambling — a proven revenue generator — had always been the prerogative of state governments. How long could they really be expected to stand idly by while the federal government barred them from cashing in on the same activities online?

No Representation without Taxation

The answer was, of course, not long at all.

Speculation about the projected revenues of a legal US online poker market for state treasuries ran rampant in the aftermath of Black Friday. Poker players themselves formed a lobby — the poker Players Alliance (PPA) — to make sure they could hammer home those figures to any legislator or governor who would listen.

The strategy worked. Within eight months of the April seizures, the DOJ had issued a revised opinion on the Wire Act of 1961. Originally interpreted as banning internet gaming outright, the new understanding limited its scope to sports betting. All other types of intra-state gambling were left solely in the purview of state governments.

After that change, it took Nevada all of two months to legalize online gambling. New Jersey and Delaware quickly followed suit; California, Pennsylvania, and even New York began to discuss the idea. It appeared as if the flood gates had opened, and that American’s were well on their way to once again having a viable, robust, atmosphere to play poker on the internet.

However, it quickly became clear that the nascent industry was far from secure. After winning the fight for legality, online poker would now have to reckon with the political capital of land based casino interests.

The Politics of a Special Interest of One

Truth be told, most of the US casino lobby believes it can use its influence to guide online gambling legislation to a place that ensures the dominance by existing market leaders. However, one very important player remains unconvinced — republican political super donor Sheldon Adelson —who has made the reinstitution of a federal ban on online gambling a personal mission.

His quest produced some quality political theater as recently as last month, when online gambling advocates feared the “Restoration of America’s Wire Act” (RAWA) he had legislators introduce would be passed in another midnight session of a lame-duck congress, re-criminalizing the game overnight.

Leading up to the vote, the PPA made sure that the key players in the conservative and libertarian movements — Grover Norquist and Ron Paul — understood that a single donor was seeking to use congress to legislate away business competition. Paul went so far as to actually call it “crony capitalism” on his website.

The message got across. Fearing a backlash from grassroots conservatives in the House leadership did not attach RAWA to a “must-pass” bill. Online poker remains legal in states that choose to allow it…for now.

California Key to Momentum

So what is the future of online poker in America?

For the time being, most of the attention has currently shifted to online poker in California, where state lawmakers are considering options to legalize online gambling.

Adding California to the list of states with a financial stake is considered essential for advocates; it is the largest state in the union, and can be expected to defend its revenue streams in Congress. The future remains uncertain, however, as warring factions within the state — including Native American tribes — all jockey to get their piece of the pie.

Adelson, meanwhile, has made clear his intention to continue to push for a federal ban clear. Whether or not he is successful, will largely depend on if the momentum to grow the reach of legal markets continues. If it stalls, it is possible that poker will simply continue on in the three states that have already regulated it. However, it’s also possible that the lack of political to continue building the project will result in a reversal of the gains made since 2011.

If that were to happen, it would be a victory for the current scourge of American “crony capitalism” over one of the great constants of American culture as it seeks to enter the digital space – and that truly would be a shame.