Who Profits from Online Poker Prohibition?

Besides the poker and gaming industry, many mainstream media have questioned the passage of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) that was attached to the Safe Port Bill in the last minutes of Congress before their October election recess and that was signed into law October 13, 2006.

Below are 2 interesting commentaries that ask the question: 'Who Benefits?'

Summary of UIGEA for latecomers: the UIGEA makes it illegal for banks and financial institutions to handle transactions from US residents going to online gambling sites. It specifically exempts wagering on Horseracing, Intrastate Lotteries, Intrastate Gaming (where legal), Indian Reservations, and playing Fantasy Sports. A government board has until July 10, 2007 (270 days from signing of bill) to come up with new regulations for the banks and payment processors to follow. Banks and payment processors will likely need time to add systems to comply with the new regulations.

One poker blogger asked: "Why do bills like these get passed in Congress?"

Three admittedly 'cynical but regrettably realistic' answers cited were: "1) most often to satisfy a special interest group 2) to forward someone's political career, 3) for the unfortunately least-frequent reason of benefiting the people Congress is supposed to represent."

Other articles have noted that Senator Frist may have pushed the bill through to forward his presidential election hopes by playing to conservative groups, in line with reason #2.

Many supporters of the UIGEA stress that the bill protects minors and compulsive or casual gamblers, addressing reason #3 (ignoring that the UIGEA exempts wagering on Horseracing, Intrastate Lotteries, Intrastate Gaming (where legal), Indian Reservations, and playing Fantasy Sports).

But what about question #1: to satisfy a special interest group??

A popular quote says, 'Follow the Money' when looking for motives.

The article by Pulitzer Prize-winning writer George F. Will for Newsweek's Oct 23rd issue is reprinted below since it is such an insightful (and entertaining) article answering which special interest groups benefit from the bill's passage.

For Readers Digest readers, the article points a finger to existing gambling interests, state governments being the biggest ones! Not surprisingly the strong racehorse lobby comes second by a nose.

Will also points out that physical casinos understand that online gambling whets the appetite for people to attend physical casinos.

The American Gaming Association (AGA), which lobbies for the U.S. casino industry, took a neutral stance on the UIGEA even though several prominent members, such as MGM Mirage (MGM), have said they would like to start online sites.

AGA president and CEO Frank Fahrenkopf says the organization does not believe the act eliminates the possibility for U.S.-based casinos to open online sites, regulated by states or the federal government, in the future. "This bill did not make anything legal or illegal," says Fahrenkopf. "What it did was affect the mechanism by which Internet gambling takes place, and there is some question as to whether or not that will be effective."

It is no surprise to think that physical casinos want online gambling action for themselves if it were legal and regulated, so as not to jeophardize their existing licenses. Hence their desire for regulation of the online gambling industry. UIEGA's passage would make a lower barrier to entry for them to enter with the topsy turvy state of the online gambling industry...

So chew on that thought and enjoy George Will's article:

Prohibition II: Good Grief

When government restricts Americans' choices, ostensibly for their own good, someone is going to profit from the paternalism.

By George F. Will

Newsweek Oct. 23, 2006 issue - Perhaps Prohibition II is being launched because Prohibition I worked so well at getting rid of gin. Or maybe the point is to reassure social conservatives that Republicans remain resolved to purify Americans' behavior. Incorrigible cynics will say Prohibition II is being undertaken because someone stands to make money from interfering with other people making money.

For whatever reason, last Friday the president signed into law Prohibition II. You almost have to admire the government's plucky refusal to heed history's warnings about the probable futility of this adventure. This time the government is prohibiting Internet gambling by making it illegal for banks or credit-card companies to process payments to online gambling operations on a list the government will prepare.

Last year about 12 million Americans wagered $6 billion online. But after Congress, 32 minutes before adjourning, passed its ban, the stock of the largest online-gambling business, Gibraltar-based PartyGaming, which gets 85 percent of its $1 billion annual revenue from Americans, declined 58 percent in one day, wiping out about $5 billion in market value. The stock of a British company, World Gaming PLC, which gets about 95 percent of its revenue from Americans, plunged 88 percent. The industry, which has some 2,300 Web sites and did half of its business last year with Americans, has lost $8 billion in market value because of the new law. And you thought the 109th Congress did not accomplish anything.

Supporters of the new law say it merely strengthens enforcement; they claim that Internet gambling is illegal under the Wire Act enacted in 1961, before Al Gore, who was then 13, had invented the Internet. But not all courts agree. Supporters of the new law say online gambling sends billions of dollars overseas. But the way to keep the money here is to decriminalize the activity.

The number of online American gamblers, although just one sixth the number of Americans who visit real casinos annually, doubled in the last year. This competition alarms the nation's biggest gambling interests - state governments.

It is an iron law: When government uses laws, tariffs and regulations to restrict the choices of Americans, ostensibly for their own good, someone is going to make money from the paternalism. One of the big winners from the government's action against online gambling will be the state governments that are America's most relentless promoters of gambling. Forty-eight states (all but Hawaii and Utah) have some form of legalized gambling. Forty-two states have lottery monopolies. Thirty-four states rake in part of the take from casino gambling, slot machines or video poker.

The new law actually legalizes online betting on horse racing, Internet state lotteries and some fantasy sports. The horse-racing industry is a powerful interest. The solidarity of the political class prevents the federal officials from interfering with state officials' lucrative gambling. And woe unto the politicians who get between a sports fan and his fun.

In the private sector, where realism prevails, casino operators are not hot for criminalizing Internet gambling. This is so for two reasons: It is not in their interest for government to wax censorious. And online gambling might whet the appetites of millions for the real casino experience.

Granted, some people gamble too much. And some people eat too many cheeseburgers. But who wants to live in a society that protects the weak-willed by criminalizing cheeseburgers? Besides, the problems - frequently exaggerated - of criminal involvement in gambling, and of underage and addictive gamblers, can be best dealt with by legalization and regulation utilizing new software solutions. Furthermore, taxation of online poker and other gambling could generate billions for governments.

Prohibition I was a porous wall between Americans and their martinis, giving rise to bad gin supplied by bad people. Prohibition II will provoke imaginative evasions as the market supplies what gamblers will demand - payment methods beyond the reach of Congress.

But governments and sundry busybodies seem affronted by the Internet, as they are by any unregulated sphere of life. The speech police are itching to bring bloggers under campaign-finance laws that control the quantity, content and timing of political discourse. And now, by banning a particular behavior - the entertainment some people choose, using their own money - government has advanced its mother-hen agenda of putting a saddle and bridle on the Internet.

Gambling is, however, as American as the Gold Rush or, for that matter, Wall Street. George Washington deplored the rampant gambling at Valley Forge, but lotteries helped fund his army as well as Harvard, Princeton and Dartmouth. And Washington endorsed the lottery that helped fund construction of the city that now bears his name, and from which has come a stern - but interestingly selective - disapproval of gambling.

Thanks to MSNBC for this article.

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