Poker Articles
A State's Quest To Legalize Online Poker
By Joseph M. Kelly
Early in 2005, it seemed as if North Dakota would become the first state in
the U.S. to license and regulate online poker.
Its primary spokesman Rep. Jim Kasper stated then, "We only have one chance
to be the first state in the nation that's going to regulate and license this
industry. This is our moment (House Approve Regulations for Internet Poker,
AP, February 16, 2005)." One interesting factor that facilitated online poker
legalization is that North Dakota has the only state owned bank in the United
States.
The legalization procedure was subject to a two step process. First, it required
approval by both the North Dakota House of Representatives and the state Senate
of enabling legislation consisting of two bills, House Bill (HB) 1509 and Concurrent
Resolution 3035. Then the voters would have to approve a law that would amend
the Constitution of North Dakota.
On February 16, 2005 the North Dakota house approved the regulation/legalization
of internet poker by a vote of 49-43 (HB 1509). The bill allowed internet poker
and specified games, such as Texas Hold 'Em, Stud, "or any other similar poker
game." Taxes would be imposed on adjusted gross proceeds in an inverse manner
based on profits ranging from eight percent of the first $1 million, six percent
of the next $1 million and decreasing to a final ¼ percent on any amount
over $58 million. There was also a $10 annual licensing fee for players, which
could be paid by poker companies. Sixty percent of the poker proceeds would
go to property tax relief and twenty percent for public education. The prime
sponsor of the bill, Rep. Jim Kasper, believed the bill could result in an additional
$500 million in state revenue.
House Bill 1509 also proposed a five person advisory commission. An earlier
version of HB 1509 had defined internet live poker as a contest of skill, which,
if it had been approved by the Senate, would not require a constitutional amendment.
As a game of skill, it would not be considered gambling, because it would not
be dependent primarily on chance.
House Concurrent Resolution 3035 would have amended the Constitution of North
Dakota so as to permit licensing and regulation of "Internet live poker establishments."
On March 6, 2005, the House approved the Concurrent Resolution 3035 by 50-44
vote, which would have added the following sentence to the Constitution of North
Dakota: "The legislative assembly shall authorize Internet live poker, located
in the state, and licensed and regulated by the state."
On March 8th and 9th, 2005, the State Senate Judiciary Committee held hearings
on the internet poker bills. Predictably, the gambling proponents and supporters
argued and testified as expected. Gambling opponents opined that the measures
would be harmful to North Dakota. "One gambling counselor called the legislation
'the most egregious, asinine bill I have ever seen presented to the North Dakota
Legislature." There were the usual arguments that legalization would result
in an increase in compulsive gambling and underage addiction. "Former Gov. Arthur
Link, a longtime gambling opponent, said he did not want the Bank of North Dakota's
reputation sullied by acting as a clearinghouse for gambling money (Internet
Poker Arguments Heat Up Capitol, AP, March 8, 2005)." Proponents of the
bill, generally from out of state, stressed that many reputable online poker
operators would prefer to be licensed in a regulated jurisdiction such as North
Dakota. The Interactive Gaming council and eCOGRA (eCommerce Online Gaming Regulation
and Assurance) have also supported the North Dakota bills.
The most important issue was whether the proposed legislation would be a violation
of federal law. The Justice Department had earlier written letters to government
officials in Nevada and the U.S. Virgin Islands, as well as to Congressman John
Conyers, informing them that all Internet interstate gambling was illegal, including
interstate, interactive horse race wagering that had been approved by Congress
when it amended the Interstate Horseracing Act to allow interstate Internet
wagering in 2000. Interestingly, interactive horse racing wagering is already
thriving and licensed in states such as California.
Perhaps the most important North Dakota opinion would be that of the state
attorney general, who claimed he was uncommitted. A North Dakota assistant attorney
general had opined that the Wire Act was inapplicable to non-sports betting.
However, he stated "It will be the determination of federal authorities, and
not state officials, as to whether specific conduct would fall within the criminal
prohibitions of this federal law (Internet Poker Bill: Feds Say It's Illegal,
A.P. March 5, 2005)." In early March, the North Dakota Senate Judiciary
Committee amended the bill to include a defense operating fund financed by non-governmental
entities if the legality of the bill were to be challenged by the US Department
of Justice (Interactive Gaming News; March 9, 2005).
A letter from the U.S. Department of Justice to the North Dakota attorney
general, dated March 7, 2005, was released publicly in mid March. The letter,
which never mentioned poker, stated that Internet interstate gambling would
violate various federal statutes. This simplistic analysis was challenged by
Internet gaming experts, but predictably the North Dakota Senate rejected the
two Internet poker bills by a vote of 44-3. In the opinion of Rep. Jim Kasper,
this letter was the primary factor in the defeat of the bill. The North Dakota
attorney general, after reviewing the Department of Justice's letter, stated,
"Before I would be willing... to establish an Internet gaming program in North
Dakota, I would have to have a ruling from a court that in doing so we're not
violating (federal law) (Interactive Gaming News; March 14, 2005)."
Subsequent efforts to pass a constitutional ballot initiative in North Dakota,
as an alternative to litigation, have not materialized as of this date. Unfortunately,
for the poker proponents, the case of Granholm v Heald (544 U.S.460, 2005)
had not been decided. In that matter the Supreme Court held that state liquor
laws that treated out of state wine sales differently than in state distributors
were unconstitutional and that states could not protect in state wine distributors
by prohibiting out of state wine distributors from doing business in that state.
If applied to online poker, it would seem to prohibit a state that legalized
poker from excluding state licensed interactive poker games.
Presently the Wexler Bill, before the current session of Congress,
would classify poker and other games as games of skill. There is also consensus
among influential organizations, such as the American Gaming Association, that
Internet gaming should be regulated by the individual states and not the federal
government, since gambling has always been a state's right. Perhaps, a future
bill in North Dakota might be more successful if poker were defined as a game
of skill, which would mean poker is not prohibited gambling and therefore, not
necessitate a referendum.
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Joseph M. Kelly, Ph.D., J.D., is a Professor of Business Law at State College
at Buffalo,and an associate of Catania Consulting. He is licensed to practice
law in Illinois, Nevada, and Wisconsin. He is also co-editor of Gaming Law Review.
