Outlook for lame-duck action on online gambling gets fuzzier

As the 114th Congress enters its lame-duck session between the election and the start of the 115th Congress in January, industry observers speculate that a bill to abolish online gambling could be rammed through.

That might make a nice going away present for longtime U.S. Sen. Harry Reid, D-Nevada, who is rumored to have worked with Las Vegas Sands Corp. Chairman Sheldon Adelson to try to enact a ban in the last lame-duck session in 2014. The Senate minority leader is retiring in January after 24 years in Congress.

But Reid disavows any such effort this time around, and efforts by House lawmakers to take a broader look at the issue of federal gambling regulation might put a crimp in any Senate plans.

Adelson, a major Republican donor who owns the Venetian and Palazzo casinos in Las Vegas, gave $20 million on Sept. 20 to the pro-GOP super PAC Senate Leadership Fund, which is run by Steven Law, the former chief of staff for Senate Majority Leader Mitch McConnell, R-Ky.

The next day, three Republican senators introduced a measure that would ban financial institutions from processing transactions related to online gambling. Similar House legislation failed to gain traction last year.

The Taxpayers Protection Alliance is among a coalition of groups that oppose a federal ban of online gambling in the U.S. David Williams, president of the TPA, told Watchdog.org he’s not trying to take sides on whether online gambling is good or bad, just trying to keep Washington out of what has historically been the purview of the states.

“Basically, the federal government should stay out of it and it should be left up to the states. If a state wants online gambling, they should be allowed to do it. If a state doesn’t want to do it, that’s also their choice,” he said.

Williams chides Adelson for his attempts to use the power of Congress to aid his business.

“He’s trying to stop online gambling because he wants people to go to Vegas and his hotel and gamble down with him,” Williams said. “I don’t begrudge him that, but just don’t use the federal government to try to get legislation passed to protect your own interests.”

Online poker’s roller-coaster ride

Online poker in particular saw tremendous growth in the first few years of the new millennium, aided by the story of amateur player and Tennessee accountant Chris Moneymaker, who won the World Series of Poker Main Event in 2003 after earning his seat into that poker tournament through a qualifier on online poker site Poker Stars.

Poker Stars and its ilk, based in other countries, always operated on the outskirts of American law. Regulators pointed to the Interstate Wire Act, passed in 1961, as banning online wagering of any kind in the U.S.

On Sept. 30, 2006, the U.S. Senate passed the Unlawful Internet Gambling Enforcement Act (UIGEA), a House-passed measure later attached to an anti-terrorism bill, pretty much assuring its passage. President George W. Bush signed it into law two weeks later.

The act was designed to choke off the funds used to play online poker, making it illegal for the transfer of money between online gaming sites and financial institutions such as banks and credit card companies. It didn’t technically make it illegal for people to play online poker for real money, but it certainly made it much harder to do so.

Some online poker sites, such as Poker Stars and Full Tilt Poker, continued to operate in the U.S. but were shut down by federal law enforcement on April 15, 2011, a day known as “Black Friday” among those in the online poker community.

Since then, though, legal actions have muddied the online gambling waters.

It remains unclear if the original Wire Act even applies to most online gambling of today, including poker. It specifically references a bettor using “a wire communication facility” to make “bets or wagers on any sporting event or contest.”

In September 2011, the U.S. Department of Justice issued a legal opinion that “interstate transmissions of wire communications that do not relate to a ‘sporting event or contest’ fall outside the reach of the Wire Act.” The U.S Court of Appeals for the Fifth Circuit ruled that the Wire Act applied only to sports bets and not to other types of online gambling.

Of note is that since the DOJ’s opinion, issued six months after the raids on online poker sites, no other offshore sites have felt the force of the federal hammer despite several online poker operations continuing to accept U.S. customers.

“[The 2006 law] really changed the landscape of online gambling,” Williams said. “There’s a lot of dispute of what it means and what it’s supposed to mean.”

‘The Edsel of gaming’

There was a groundswell of support to enact federal legislation expressly legalizing online poker after Black Friday, but opponents were able to stop it.

But after the DOJ’s ruling on the Wire Act, states began discussing offering games within their borders. Subsequently, Delaware and Nevada passed laws legalizing intrastate online poker, while New Jersey legalized casino games and poker.

Like every politician and advocate in the history of the world, Adelson says his effort to abolish online gambling is aimed at protecting children. It doesn’t take a cynic to suggest that he was also trying to protect his bottom line after Caesars Entertainment started an online site in Nevada under its WSOP brand.

Andy Abboud, vice president of government relations and community development for Las Vegas Sands Corp., characterized American online poker as a flop.

“It is the Edsel of gaming,” he said. “It’s a bust. It’s a lemon. Nevada doesn’t even report [online poker revenue] anymore as a line item.”

He’s not far from the truth: Online poker sites rarely have many games running, and some early operators — like Ultimate Poker in Nevada — quickly dropped out of the market.

Zak Gilbert, an avid poker player from Gainesville, Fla., told Watchdog that when Michigan was considering online poker legislation, he wrote a lawmaker to convince him the games should be interstate so states could pool their players and share the tax revenue.

Observers have noted the reason online poker was successful in the early years was the global pool from which the sites drew players. Low-population states like Delaware and Nevada may not have enough poker players to build successful businesses around.

“I don’t think they realize how much if you had one state in the United States that said we’re going to open it up to the rest of the world and let Poker Stars and any other international company service our state, they’re going to get so many grinders that would [move] in,” Gilbert said. “There’s a good chance I would do it. They don’t understand the benefits of doing that. It’s hard to explain the importance of liquidity in poker.”

To ban or not to ban

Online poker could soon become very illiquid if some in Congress have their way.

The latest bill was introduced by Sen. Tom Cotton, R-Ark., and co-sponsored by Sens. Lindsey Graham, R-S.C., and Mike Lee, R-Utah. Graham led the fight for the Restoration of America’s Wire Act (RAWA) in 2015.

Williams said the legislation “would be a huge blow to states’ rights.”

“It establishes a really bad precedent, because now we’re saying what states can and can’t do, and this should be left up to the states.”

And besides, he said, the bill really wouldn’t eliminate gambling.

“People can use [virtual private networks] to bet through offshore companies. RAWA may be good window dressing for the anti-online gambling people, but how effective it will be is yet to be seen,” Williams said. “You kind of want states to approve online gambling so then it will be regulated at the state level so people will have assurances they aren’t betting from Russia or Estonia, so you know who you’re betting with and what it’s funding.”

Williams also noted that a number of Republicans, largely the Christian right, make a moral case against online gambling, but supporting a federal ban based on that puts them in a bit of a two-faced position.

“The big problem for Republicans supporting RAWA is, this is about states’ rights. Take Lindsay Graham, who says that states should opt out of Obamacare,” Williams said. “Well, fine, then why are you supporting legislation that tells states what to do when it comes to online gaming? If you’re going to claim states’ rights for one issue, you have to be consistent across the board. It’s hypocritical for them to support legislation like this.”

But recent developments cast doubt on the chances for legislative action on a ban, including news that a congressional committee is planning a comprehensive review of federal gambling laws.

U.S. Rep. Frank Pallone Jr., D-N.J., told ESPN on Friday that the House Energy and Commerce Committee will study those laws, and he hopes to consider legislation that would touch on sports betting, daily fantasy sports and other forms of online gambling. He described laws such as the Wire Act, UIGEA and 1992’s Professional and Amateur Sports Protection Act as “obsolete.”

Like Reid, Pallone represents a state that has a considerable interest in regulating competition for casinos. Like Reid, he is also in the minority, at least for now.

“The laws need a wholesale review to see how they can actually work together and create a fairer playing field for all types of gambling, both online and offline, including sports betting and daily fantasy sports,” Pallone told ESPN. “At the same time, we must ensure the laws are actually creating an environment of integrity and accountability, and include strong consumer protections. I plan to continue discussions with the key stakeholders and then will introduce comprehensive legislation to finally update these outdated laws.”

Daily fantasy sports sites such as Draft Kings and Fan Duel rose out of a provision of UIGEA that allowed daily fantasy sports wagers. But that also grew into a legally murky situation when several attorneys general said the sites violated their states’ laws and banned them.

Energy and Commerce held a hearing on DFS sites in May, leading to discussion of the possible overhaul of all federal online gambling laws. If the House goes big, that might deflate the Senate’s more targeted effort.

The 76-year-old Reid recently denied ever working with Adelson on an online gambling ban, in an interview with GamblingCompliance.com, and said he wouldn’t push for one in the lame-duck session.

“I, personally, don’t plan on doing anything,” Reid told the website.

Before he was rumored to be against it, Reid worked on online gambling legislation during the lame-duck sessions in 2010 and 2012, but said he couldn’t get enough support to move a bill aimed at regulating the industry.

“I think it would have been a shot in the arm for Nevada — the whole industry wanted it,” he told GamblingCompliance. “It would have been good for the country to control it because there is a lot of internet poker that goes on that is unregulated.”

The onetime chairman of the Nevada Gaming Commission did add, however, that “it’s so easy to cheat. In my opinion, a person would have to be crazy to play poker online.”

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