WidespreadLegalization of Online Poker
WidespreadLegalization of Online Poker
PartI
Contextand Background
Online poker has been acontroversial topic in the news ever since it began with theintroduction of online gaming in 1998. Yet, it has been promoted bythe increasing internet use promoted by online gambling readilyavailability, internet-enabled technologies and the low-cost ofaccess. Many have taking advantage of this trend to use innovativemarketing strategies to penetrate the new markets (McMullan &Miller, 2010 Lamon, Hing, & Gainsbbury, 2011). This has resultedin increased online gambling revenues from $2.2 billion in 2000, to $15.2 billion, in 2006. This figure reached $43 billion in 2015 (KPMGInternational, 2010 Holliday, 2011 GBGC, 2011). Increasedrecognition of challenges and difficulties prohibiting onlinegambling shows that increased participation may occur as a result offurther liberalization of internet gambling internationally(Gainsbury & Wood, 2011).
This paper will identify the process of legalization in online pokerand the progress that has been made thus far in the United States. It will also attempt to examine the impacts that online poker hastowards people, specifically focusing on the lower income class. This paper will be researched based, while using different forms ofresearch, such as studies, articles and even interview. These formsof research will be explored through the research questions that areprovided below. To delve more deeply in to the topic, there willalso be a literature review looking at studies on the effects ofonline gambling in certain demographics. This will be followed by anoverview of the methodology, and then will move to the findings thatcome out of this research. Finally, it will move to the analysis ofthe research and research questions, and final conclusion of thesefindings.
ProblemStatement
The legalization ofgambling in the United States is a topic that has been quite trickyand controversial throughout time, but has now reached a newforefront. Online gambling is that forefront, and is the most talkedabout issue today when referring to the field of gambling. The UnitedStates government has tried many different tactics since theintroduction of online gambling in 1998 to shut it down, yet stillsites operated behind the lines, in a “semi” legal way. That is,until the Department of Justice finally shut things down in April of2011. Gambling has been a topic that has been allowed in the UnitedStates, as long as it is regulated and controlled. Also, it has beenconfined to certain states. For these reasons, among others thatwill be researched, online gambling has not been able to get off theground. The problem is that people should be allowed to play onlinepoker. It was shut down because it is considered as gambling.
Purposeof the Research
The way that online gambling has been looked at is as a vice in thepast, that people use to relax, have fun, but also lose their moneyand affect their own welfare. The United States seems to have thissame type of mentality. I have experienced this first hand, since Iplay poker myself and have seen the damage that poker and gamblingcan do to people. Although I have also witnessed the success thatpeople have had in poker specifically, that is why I want to focus myresearch on poker, which in my experience is a skill game in whichthe best players are going to always win in the long run, given alarge enough sample size. Both sides will be researched and explored,and it is intended to find a clear answer whether or not poker shouldbe legalized in the United States.
ResearchQuestions
Central Question:
Should online poker be legalized in the United States?
Sub-Questions:
Does online poker prey on lower income people?
Is online poker actually a skill game?
What are people’s perceptions of online poker?
Will the regulation of online poker lead to less crime and more revenue within that given state or government? What are the benefits.
Part2: Literature Review
OnlineGambling
Gambling
Gambling has been in existencedating back to antiquity (Fiedler,& Ann-Christin, 2012).For instance Dice were recovered in Egyptian tombs next to mummifiedbodies, while Romans, Chinese, and Greeks were all known to engage ingames of chance and skill (Walker& Jackson, 2008).Lottery was legal and authorized in 1638 in France and the same yearthe Republic of Venice legalized casinos (Thalheimer,& Mukhtar, 2003). Napoleonlegalized gambling clubs in 1806 and raised millions of funds(francs) for the French government (Scott,& Smaller, 2010).Elsewhere, Scott, andSmaller (2010) revenueraised from gambling has been utilized in financing numerous projectsincluding the American Revolution Continental Army and the Seine(Thalheimer, &Mukhtar, 2003). In fact,people who travelled from Europe to American brought with themgambling, which was used to finance much of country’s initialdevelopments via lotteries. During the modern internet times, it isnot surprising that gambling has grown to become a foothold supportedby the internet.
Overviewof Online Gambling in the United States
The first online gaming to berecorded in the United States occurred in 1996 by Intertops.com waslicensed and based in Antigua (Business Wire, 2005). The number ofonline casinos increased which translated to the growth of the onlinegaming industry. By the end of the first year of the online gaming(i.e., 1996), the number of casinos grew by about 15 casinos. By theend of 1996, the number of online casinos had increased to 650. Bythe end of 2003, there were 1,800 sites (Schwart, 2006). PlanetPokerwas opened in 1998 as online poker room and followed by others(Williams & Woods, 2007 Smith et al., 2007). Online gamingcontinued growing in the U.S., until 2006 when U.S. government passedthe 2006 UIGEA (Unlawful Internet Gambling Enforcement Act) as anadditional to the 2006 Accountability and Security for Every PortAct. This measure effectively illegalized any financial transactioninvolving transferring of funds to online sites that deals in takingbets on “outcomes of any game chance, sports event or a contest(Smith et al., 2007).
The 2006 act did not illegalizean act of betting for consumers. However, it made it increasinglydifficult for financial transactions involving transferring of fundsto online sites that is involved in taking bets. In the eyes of anaverage consumer, this act increased the legal uncertainty ofengaging in online gaming (Rose, 2010). For this reason, the actnegatively affected the demand for online gaming and resulted in someforeign investors to leave the U.S. market. Party Gaming was one ofthe largest operators that exited the U.S. market (Rose, 2010).During that time, it was estimated that about 6 billion was generatedfrom the United States online gaming industry in revenue per year(Christiansen Capital Advisors, 2007). According to American GamingAssociation (2007) about 32 billion was generated from commercialcasino industry in revenue. GamingTaxation Policy
Studies have indicated thatgaming laws and regulation serve the purpose of raising tax revenueand to address budget shortfalls (Smith, 1999 2000 Furlong, 1998).In view of Smith (2000) gaming regulation help politicians avoiddubious tax increases. Alesina, Carloni and Lecce (2010) suggestedthat the fiscal policy changes and their consequences have becomecommon topics of recent debates, and that the application of Ramseytaxation framework in which excise taxes is applied to generatecertain amount of revenue, is now considered reasonable assumptionfor policy practices. Alesina, Carloni and Lecce (2010) furtherindicate that tax rates can be inversely proportional to priceelasticity of demand when cross-effects between demand for goods areignored. However, this axiom is complicated by the cross-effectsbetween goods.
A recent survey revealed that thebanning of online gambling by the federal government goes against theAmerican people’s will, with about 80 percent of the respondentsnot supporting the ban (Franz,2011). It was revealedthat given free choice, most respondents supporting the argumentsthat support the lifting of the ban on online gambling was toincrease tax revenue for federal and state government. Franz(2011) believes that theFederal government has challenges sustaining projected long-termprograms including Medicare, Medicaid and Social security because itlacks sufficient funds (Franz,2011). According toAmerican Gaming Association (2010)states overnments are also performing poorly in running theirprograms. Franz (2011)suggests that state and federal governments could continue borrowingmoney at unprecedented rate, but this borrowing only serves topostpone the burden rather than eliminate the problem. There are waysthrough which federal and state government raise revenue besideprinting money and taxation however, non-tax revenue has itschallenges and problems.
Various governments across theworld have enacted nonsensical taxes with a view to either promotesocial change or raise tax revenue (Ingo,2012). In fact, thistradition has been sustained by the fifty states which impose unusualtaxes with distinctions on various issues including fur, tattoos,blueberries, litigation, nudity and bagels (Ingo,2012). States also oftenimpose many types of taxes including six taxes, Pigouvian taxes andexcise taxes (Ingo,2012). For this reasons,many experts have started urging states to consider adopting newvoluntary tax which is aimed at individuals who choose to engage ingambling (i.e., taxation of online gambling that has been legalized)(Max, 2007).Rose (2008) argues that this proposal is based on the rationale thatstate cannot raise taxes, cut service anymore, and therefore, taxingonline gambling can help such desperate states to raise some money. FederalRegulationInother public policy areas, the local and state governments arerestricted by the federal government imposed conditions. However,with regard to traditional gambling, the federal government hashistorically acted as a passive observer (Kahlil,2011). For example, thefederal government supported majority of states that enactedlotteries, including the quasi-national states such as the Big Gamelotteries and Powerball. In cases where Federal governmentintervened, the law has been designed to largely favor the state law. The federalism concerns are valid within the intrastatemotor-and-brick casino gambling, the argument appears to be lessapplicable when it comes to online gambling. Worth noting is thatonline gambling easily evades a single state’s regulation.Currently, the federal government has not succeeded in its effort todetermine the role is has in the area of controlling online gamblingeven though it was declared in the Wiredmagazine that theinternet is the frontier back in 1990.
TheWire Act
The “Wire Act” of 1961(Federal Interstate Wire Act) banned the use of the wirecommunication to send gambling information or receive bets. For theWire Act to be violated: (1) the defendant should have participatedin the wagering business during the transmission time, and (2) thewire transmission should help place a wager or bet. The FederalInterstate Wire Act has been used in the past to online gambling, anannouncement recently made by the DOJ (Department of Justice) limitsthe its use in sport wagering.
TheTravel ActThe 1961 Travel Act prohibits intentionally use of aninterstate commerce facility to intentionally conduct an unlawfulactivity. This law was enacted with a view to help states oeffectively cub crimes that extend beyond boarders of the states. The government can prosecute a person under this act by proving thatthe individual used an interstate commerce facility or traveledinterstate, and (2) the individual had the intention to promoteunlawful act, and (3) attempted to further an unlawful activity byperforming an overt act. The Travel Act is thus antiquated to thefight against online gambling. The courts have provided theinterpretation of the terminology “facility” to involve the useof telephones, newspapers and mail, it still not clear whether thelaw will apply in the case of the wireless internet.
TheIllegal Gambling Business Act
The Congress created the IllegalGambling Business Act targeted at an organized crime as part of the1970s organized crime control act. The illegal gambling business isdefined by the Illegal Gambling Business Act as an operation that:(1) involves five persons or more persons (2) violates state lawand (3) has a revenue of about $2,000 in a day or has been involvedin continuo operations for thirty days or more.
Clearly most states in the UnitedStates have enacted laws banning online gambling. The federalgovernment uses the IGBA as a tool to cub online gambling operationsthough it has its associated limitations. For example, the Congressenacted the IGBA while targeting business-type operations which areseen to violate state and local laws but not individual bettors.
TheUnlawful Internet Gambling Enforcement Act (UIGEA)
This act was enacted in 2006 toadd o the unrelated to the Safe Pot Act title VIII. It is used toregulate the security of the port. It was reported that this passagewas aimed at addressing concerns about money laundering, underagegambling, pathological gambling, and fraud. However, the UIGEA doesnot regulate directly online gambling. However, it does prohibit anyindividual from receiving or accepting money from individual whoparticipate in the unlawful o illegal internet gambling.
As defined by UIGEA, unlawfulinternet gambling is the wager or bet placed on the internet whichthe state or federal law defines as unlawful. However, thedefinition, excludes many exceptions including intrastate gambling,fantasy sports, and online gambling. Even after passing the UIGEA, ithas been noted that online gambling has continued to grow and becomemore prevalent, in both youths and adults.
The failure of UIGEA toaccomplish the set objectives is based on the vague terms or seriousenforcement, and numerous exemptions that suggest a ban of thecomprehensive online gambling was not intended. The decision was notas such subject to criminal penalties or individual bettors.
State Regulation Stateshave used the authority and police powers to regulate gambling intheir boarder. The states’ right was supported by the Supreme Courtin its ruling in Edge Broadcasting Co vs. United States in when itindicated that the right of gambling was constitutionally protectedthat than states had the right to ban it (Thalheimer,& Mukhtar, 2003). Thisruling enabled the fifty states to take various approaches togambling with some banning it completely while other embracing itsfully (Kahlil, 2011).For example, while New Jersey, Nevada and Delaware have recently madeonline gambling to be legal, all forms of gambling are still illegalin Utah and Hawaii.
ResearchMethodology
This study employed qualitativeresearch methodology to collect and analyze secondary data. itfocuses on reviewing qualitative studies with a view to assess andcompile evidence relating to online poking. Unlike in quantitativeresearch methodology in which emphasis is on gathering and analyzingnumerical data emphasis in qualitative methodology is placed ongaining insight into the issue under investigation and derivingmeaning that is expressed either descriptively or in words (Lomax,2004 Cresswell, 2003). This methodology was deemed suitable for thisstudy because the researcher was seeking to comprehensively gaininsight into the issue on onlinepoker, identify potential impact and benefits of legalized it,identify consumers’ perceptions about online poker based on thepast studies, and discuss within the context of the United Stateswith the view to understand whether to categorize it as a skill orgame. As such, the study was exploratory as it sought to explore theillegality and legality of online poker within the context of theUnited States, the consumers’ perceptions about its illegality, andthe implication of making it legal or illegal within the UnitedStates. In general, this study sought to find rich descriptive dataon implication of online poker in the United States supplement thelimited available primary data, generate new findings on online pokerin the United states by analyzing the secondary data from a somewhat“new” research lens gain further insight into the issue oflegalizing and illegalizing online poker and reflect on previouslyconducted studies on this important issue of legalizing andillegalizing online poker in the United States. In addition, sincethis study was qualitative, it yielded a wealth of information,including analytical and methodological data that were not utilizedin previous studies (Lomax, 2004). This methodology also helped theresearcher to synthesis and generates meaning from multiple studiesfocusing on online poker in the United States. This methodology wasappropriate since the researcher sought to apply a new conceptualfocus and new perspective to original research issue of online pokingas skill and its legalization. It lends new strength to the existingbody of social knowledge.
SecondaryResearch
The present study utilizedsecondary research as data was obtained from secondary sources. Assuch, it was literature-based study. Data was collected from varioussources that were already available on the internet including books,academic journal articles, surveys, university libraries databasesand other academic literature. Research terms used included onlinepoker, online gambling, internet poker, gambling, laws relating toonline poker, online gaming, impact of online poker, implications oflegalize online poker, implications of online gaming, poker as askill, poker as a game, black Friday. Using the secondary researchmethodology, the researcher was able to successfully explore theavailable sources of data and came up with conclusions withoutcollecting data from the field. There were numerous documents thatcontained important information on online poker and its legalizationin the United States. These sources were accessed easily via theinternet. Utilizing secondary data also enabled the researcher tocomplete easily collect and analyze data and thus, complete theproject on time. Again, by collecting and analyzing secondary data,the research was able to cross check and cross-reference informationcollected against multiple sources. This way, the researcher gainedgreater insight into the legal issues surrounding online poker andthe associated implications. The researcher treated data collectedfrom secondary sources with extra care to ensure it covered thegeographical area that was stipulated, it was current and fromacademically recognized sources.
Reliability
In this study, the researcherrealized that failing to examine the collected data from thesecondary sources may lead to biases and erroneous conclusions. Manyarticles that have been published online are not authentic. Anyoneregardless of his or her experience and expertise can publishsomething online. As such, not every article on online poker istrusted. In this study, the researcher ensured that the collecteddata was accurate. The researcher followed a specific process to comeup with authentic data. The researcher investigated the history ofthe data collected to ensure that it was appropriate. The researcherconsidered the type of data that was collected and the manner inwhich it was collected. The researcher also looked into the methodsof publishing and whether the published data was linked to otherdata.
Limitations
In this study, there are somedrawbacks that the researcher experienced in the course of the study.To start with, there limited data and information on online poker.There are minimum documented studies on online poker games. Thelimited literature on online poker is attributed to the fact thatmany persons dealing with data on gambling like the directors ofgambling clubs concealed the information and considered it private.After the UIGEA in 2006, a few authors published some studies. Still,there were limited peer reviewed papers at that time. Until recently,there were no academic reviewed articles on online poker games. Manyresearchers started investigating online poker in 2011 hence leadingto publication of articles. In 2014, a number of peer reviewedarticles came out. It is for this reason that the researcher foundlimited number of articles on online poker.
Resultsand Discussion
Onlinepoker market
A study conducted by theOPD-UHH reported that in the year 2010, over 1,429,943 use residentstook part in online poker with intentions of gaining real money. Atotal of about $981 million of revenue is taken by foreign companies.The revenue collected by these companies is revenue that could beused by the US government. Studies conducted on the number of personsinvolved in online poker reported that California is considered thelargest market for the game. About 178,000 players from Californiaplay online poker rising over $155 million revenue. Such a marketshare is equivalent to about 16% of the total market for onlinepoker. The second largest market for poker in the United States isNew York. Over 83,000 players from New York play online poker raisingrevenue of about $72 million for these sites. At number three isTexas. About 108,000 players from Texas offer $62 million to theonline poker sites. Other states reported to have the highestpercapita for the players include Nevada, and New Hampshire havingvalued at 96% and 97% respectively. In this case, it is highly likelythat persons from these states will play online poker due to the highprevalence level. The rate prevalence in Alaska, Massachusetts, andNorth Dakota is 76%, 72%, and 77%. Some states were found to have anaverage rate of prevalence. These states include Hawaii, Maryland,and West Virginia. Something intriguing about the data, is despitethe fact the most common poker is called Texas Hold’em very fewpeople from Texas play online poker.
Gambling economics
There is a limitation ofstudies that report on the gambling economics in the United States.One of the aspects that contribute to the existence of minimumstudies in this field is the lack of reliable data on online poker orgambling. For last twenty years, one remarkable change in theindustry was the legalization of gambling by the United Statesgovernment. Gambling was legalized by the government due to the tonesof revenue that the government gets from it. The legalization ofgambling in the United States raised some questions on whether thealternatives to gambling like Internet gambling may help or injurethe land based operations. From the economics point of view, gamblingis similar to another commodity. It has a demand and supply just likeother products. As such, the price of gambling is set in a way thatit will affect the demand.
One issue of concern regardinggambling is whether different gambling types are compliments orsubstitutes. A substitute is a product that has a related product inthe market. In this case, if the other product’s demand increases,the demand for the substitute good will decline. Different fromsubstitute products, the complement products are those products forwhich an increase in the demand for one product will lead to anincrease in the demand for another. The examination of the totalrevenue from the taxation of internet gambling requires some clarityregarding whether gambling is a complementary product or a substitutefor other legalized land based forms of gambling. If internetgambling is considered as a substitute, then there would be someoffsets in revenue from the operations in land-based gaming.
Studies conducted on thedemand for gambling in United Kingdom and United States reveal someefforts in creating an economic demand model for different gamblingtypes. These models are created in the form of aggregates that takesinto consideration the demand variations with time and in differentlocations. The limitation in using these models is in theinsufficient data on relevant input models since so much of theonline gambling especially in the United States, occurs in placesthat keep the data very confidential. For example, the Indian tribalcasino preserves all the data and does not share the data toresearchers.
Studies conducted ineconometric models reported that these models do have a price thattests the hypothesis regarding the demand affects. The right pricefor various gambling forms may not be observed directly or may not becalculated. Further, the legalization of gambling has led to theforeign internet sites to operate as some kind of monopolies. Thedemand is mostly driven by the regulation from the government. Theprices of gambling are also set by some bodies in the government.
OnlinePoker Alternatives
The indictment by DOJ may havesucceeded in stopping the largest poker sites in the United States.However, Americans still show interest in playing poker and they areactually playing it now. Those with desires to play online poker haveidentified other areas online that allow them to play the game.Today, there are smaller websites are allow Americans to processpayments. They sites are hoping to absorb players that belonged tothe three poker websites shutdown following the 2006 legislation.LockPoker, Bovada, LockPoker and other websites are still inoperation catering to players in the United States.
In the week that followed BlackFriday, it was expected that there will be a reduction in the trafficon these three popular poker sites following their indictment by DOJ.On the contrary, the parent company of LockPoker, the Merge Networkrecorded increased traffic by 61 percent. The other two sites (i.e.,Bodog and Cake Network) also experienced increased traffic with Bodogexperiencing 32 percent increase in users and Cake Networkexperiencing a 30-percent surge in users. The DOJ indictment of thepoker websites also resulted in increased popularity and subscriptionof these sites. Following the enactment of UIGEA, these pokerwebsites made attempts to get around the legislation by allowingtheir users to play the game without paying using money chips thatwere cashed in per users in order to win prizes. The use of thisbusiness model enabled these poker sites to reclassify poker games.Rather than classify them as gambling, these sites identified them assweepstakes. This made continue operating as legal entities in manystates which consider sweepstakes as legal. This business modelallowed poker players to pay a monthly subscription fee instead ofdeposing their money into the company’s account. This way, playerscould enter the live poker tournament with different types of prizesincluding seats and cars. The cost of subscribing to pokertournaments ranges between $20 and $30 per month.
CurrentLegalization Efforts
Even after the United Statesshutting down the three key poker websites, the debate over makingonline poker legal is just starting. There are many arenas in whichlaws touching on online poker are being addressed. In a recentopinion, the DOJ considered reversing the way the 1961 Wire Actshould be interpreted to apply only to sport betting. Similarly,states have taken their own decision to pass legislation aimed atreinstating online gambling and online poker. There are states thathave demonstrated their willingness to legalize online gambling withother taking the action of making online poker illegal.
FederalLegislation
There are different views amongthe U.S. government members as far as the issue of banning onlinepoker is concerned: some support the banning while other supports itslegalization. For example the U.S. Representative Joe Bartonintroduced a bill following the Black Friday DOJ indictment. The billwas aimed at allowing states to make their own decision with regardto whether their residents should be allowed to play online poker. This legislation required the potential poker operator to acquire agambling license in one of the U.S states. The law was aimed atallowing states to make a choice with regard to online poker.However, the bill was not aimed at making it legal for operators tooffer other casino games online. Representative Joe Barton’s 2011online Act had the ultimate goal of creating a system that ensuresthat individuals who are involved in playing for money are doing itin an honest way and have a fair system that ensures they benefitsthat are accrued are honestly best of the winning. This bills alsoproposed that people with the gambling addiction be protected. Itoffers mandate for the restriction on use by the underage or minors,and bars users from using credit cards in funding bank accounts. There are other U.S. congressmen supporting the debate aboutlegalizing online poker. AL D’Amato, the former New York Senator iscurrently chairing the Poker Players Alliance. AL D’Amato hasindicated that congress needs to regulate but license internet poker.Barton’s bill is also not only attempt to legalize online gambling,as Rep Barney Frank made a proposal in 2009 to regulate and legalizeonline gambling in the U.S. Frank’s bill proposed the congress toconsider putting safeguards against underage gambling and compulsivegambling, fraud, identity theft and money laundering.
The first part of the billprohibits the transmission in foreign or interstate commerce ofwagers or bets using the wire the communication facility on anysporting contest or event. This part of the statute applies to otherforms of gambling but not to online poker. However, the second partof this statute makes it clear that wire communication transmissionthat allows the recipient to receive credit or money from wagers orbets or for assisting information in placing wagers or bets isprohibited. There is no qualifying term in the second part of thestatute (i.e., sporting contest or event) makes this to remainunclear regarding whether it does apply to all wagers or bets or onlythose that relate to sports.
Illinois and New York presented arequest to DOJ seeking for clarity over the Wire Act of 1961. Theywanted to know whether they are prohibited from trading in lotterytickets over the internet within their borders. The DOJ indicatedthat the intrastate transmission involving wire communication thatdoes not relate to sporting contest or event falls outside the WireAct of 1961. This view was offered specifically to intrastateinternet lottery due to the limited scope of the 1961 Wire Act as itapplies to sporting contest or event. However, the opinion hasseveral implications for online poker users. In the past, the DOJ’sposition regarding all forms of internet gambling, including onlinepoker within the U.S were considered illegal. The recent opinion byDOJ suggests that the Wire Act of 1961 may not be an obstacle toother legislations aimed at online poker.
Commercial Clause Concerns
This clause gives powers to thecongress to regulate commerce among states. This clause also limitsthe states in that require states through their legislation not toplace a burden or interfere with the interstate commerce. Theregulation of gambling is an area of state power. However, under thecommerce clause, the Congress has the power to permissibly regulateinternet gambling.
The Commerce Clause was appliedin Pataki v American Libraries regarding the disseminating ofmaterial online. The need for uniformity was cited due to thecyberspace and its unique nature. One of the key concerns for givingthe state the powers to regulate within an area that could be underthe federal government is that non-uniformity in regulations of thestates could lead to increase in the operating costs to the pointwhere business could not be discouraged from engaging in interstatecommerce. It could become virtually impossible for parties to complyin the event there were variations in the state regulations. Thecreating of uniform regulation by the federal government for internetpoker would help resolve this issue and allow for enforcement of anyviolations of the commerce clause.
Impact of UIGEA on OnlinePoker industry outside the United States
In the year 2006, a legislationon online gambling regulation was passed by the United Statesgovernment. The famous UIGEA (Unlawful Internet Gambling EnforcementAct of 2006), prohibited the operations of the gambling Companies inUnited States. All the Gambling firms were prohibited from acceptingpayments knowingly from players during gambling. This law hadnegative effects on the online poker business. Some companies likethe Party Poker withdrew their access to the players from America. Asa result, the company experienced more than 58% loss due to losing amajor market in its business. By 2008, companies like Party Pokercontinued to operate in some European nations that considered thegame legal. Other companies like PokerStars continued their operationin Europe after its agreement with DOJ to buy another company calledFull Tilt and reimburse the company with about $184 million. The costof the agreement between PokerStars and DOJ was $547 million.PokerStar went into an agreement with DOJ so as to establish ways ofpiecing the American Market. The company made assumptions that onlinepoker gaming was going to be legalized in America some years to come.At that time, there were some American companies that were runningthe online poker business in Europe.
The UIGEA legislation wasimplemented due to crimes relating directly to online poker. Thelegislation was similar to the 1961 act that prohibited the use ofwire communication in assisting information in the wagers. If onlinepoker was not burned by the United States government, it would bedifficult for UIGEA to determine the crime committed by theoffenders. The outcome here was highly expected because the law ongambling is managed by the laws of the state.
The challenge in the regulationof online poker was in determination of whatevera player took part inillegal gambling. The three categories of online poker include thegame of chance, hybrids, and skill of the game. A number of laws ongambling set by the States apply the dominant issue in determiningthe types of gambling that do violate the rules on gambling. Hybridgame is a simple chance game for which the success and failure of thegame is determined. The game disregard the level of skill that wouldbe involved by the play.
A study conducted in this fieldmade a comparison between the chance and skill in online poking gameand reported evidence that the key factor is the skill. The studyconcluded that the poker results may be compared to about 25% chanceand 75% skill. Even though, the data shows evidence on online pokergames, the court failed to define poker as a game that requires somelevel of skills. One court in Pennsylvania used a test of thedominant factors and reported that online poker is an interestinggame of chance. The reasons behind these conclusions is that a skillmay be determined, yet in gambling, it is not possible to determinethe outcome of the game.
One club in North Carolinareported that online poker game was a mere chance game. The clubcommonly known as the Joker Club concluded that even though theexperienced players tend to defeat the novices, the novice couldequally do well in the game as a result of luck. In this case, theidea of victory will be beyond the player’s ability.There are somecourts like the New York’s District Court that considered gamblinga skill game. The court came up with such a decision after anextensive interrogation of various testimonies from the recordedstatistics. The court concluded that the players use different typesof talent and skills so as to record a win in gambling. The courtalso concluded that gambling is not depended on the game of chance.The differences in ruling between different courts on gambling depicta need for specialization on the laws on gambling.
Black Friday effect
Black Friday is a point in timewhen the government in America came up with a legislation to regulatethe operation of poker sites in America. The effect of thislegislation was more than the sites losing their money. The pokercompanies were also forced to pay huge tons of money so as to supportthe poker programs on the television. Some of the televisionnetworksthat hosted online poker programs and costed huge tons of money to bemaintained include the Fox, Comcast, ESPN, and FoxSport. The siteshad to pay for advertisement, and spend some money in paying for thewhole program hence the name ‘time buys’. The term ‘timebuys’is the act of using the airtime bought so as to promote aproduct. The poker website had all the time in the television networkto sell their products.
Companies like PokerStars madedeals with EPSN. Some deals costed $20 million, other deals costed$30 million of yearly advertisement. After Black Friday, EPSNcancelled all the Television programs by PokerStars. Even though, theTelevision program was scheduled to display the poker programs, thecompany decided not to air the programs due to the indictment. Othertelevision networks like Fox, equally cancelled all the pokerprograms that were to be aired. It remained uncertain on whetherthese television channels were going to ignite the poker programs intheir network. Some of the players who needed to have layers cashedout by the online poker sites stored their deposited money in thesesites. The management of PokerStars asserted that the accountbalances of all its players had been held in segregated accounts,which are not utilized by the site. Similarly, PokerStars argued thatthe account balances for the players were held in some segregatedaccount sections of the site that were not used for the incurredexpenses by the company. The company added that it is able to satisfythe monetary obligations to the poker players as a result of its modeof storing the player’s account balances. The company offered moreassurance to the players that their funds are safe in their hands.
After black Friday, the Full Tiltand Poker Stars poker companies announced that the money of theirplayers was kept safely. In the same week, an announcement was madethat some poker websites had entered in a domain-name agreement withthe government of U.S to ensure that the companies utilize the seizeddomain in facilitating the process of withdrawal of the players inthe U.S. As a result, the American players were cashed out byPokerStars before the shutting down of the website. Full Tilt, on theother hand, kept the money of the players in a frozen account. In theyear 2011, Full Tilt company still had the money for the players. Thecompany held over $300 million without any promise of repayment.Before the Black Friday, Full Tilt had lost over $115 million due tothe seizures by the government. The company also lost $42 millionthat was stolen by the processor resulting into a saving of about $6in the bank. A number of players from America had deposited largeamounts of money in their accounts. One player, for example, hadsavings worth $2.5 million due to his six years of play. The sameplayer had $50,000 in the Poker Star accounts, $100,000 in Full Tiltaccount. Such a player only received reimbursement from PokerStars,but no money from Full Tilt. The other poker company that failed toreimburse the money of the players is the Absolute Poker. The companywas left bankrupt after the indictment. A commission licensing pokergames like Absolute Poker offered some suggestions that the companyshould sell some assets and have the proceeds distributed to theirloyal players. No action was taken regarding the liquidation of someassets of the company. Given that the company made no efforts inreimbursing the players. The plyers were worried of not beingreimbursed at all.In the year 2012, the company announced some goodnews of reimbursing the players. The company announced that theUnited States entered into some agreement with the U.S governmentFull Tilt and PokerStars into resolving the $3 billion fled lawsuitsagainst the online poker companies. During the settlement PokerStarsdecided to use its $547 million to reimburse the players from Americathat had not received its money. PokerStars also made agreements ofbuying Full Tilt Poker by paying an additional $184 million thatcould help the company to reimburse the players.
Even though,PokerStars settledthe lawsuit, the company was still prohibited from operating inAmerica. The company is prohibited from using real money. Thecompany’s decision to buy Full Tilt showed that the company hadsome hopes that online poker was going to be allowed in the UnitedStates in future. The reasons behind making these adjustments is toensure that PokerStars is in good shape to dominate in the market ofonline poker once the game is legalized.
International implications.
A large number of the onlinepoker games had operations outside America making the injunction ofthe DOJ to affect theeconomics of other nations. The whole issue isnot new since it had been tried by companies like the World TradeOrganization. In 2003, some complaints were made by Barbuda andAntigua regarding the U.S. law that prohibited gambling from themembers of WTO. The case was decided in the favor of Antigua,agreeing that the U.S. was not right to block the Antigua operators,from running their business in America and allow the wagering onlinehorse racing. The United states, however, did not change the law ononline gambling. The WTO gave Antigua $21 million to cater for allthe damages. The rule argued that instead of paying directly toAntigua, the damage was to come from allowing the restrictions ofother products in the United States like the copyright music, andfilms.
Besides Antigua, other 30 nationsfilled claims for compensation by the WTO, due to the stance ofAmerica on online gaming. The government of United States, regulateddifferent settlements with some nations. Other countries like Japanand Australia dropped the claims for an amount that was neverdisclosed. The European Union, also dropped the claims as a result ofgaining other opportunities to trade in the United States. Theopportunities gained by EU were not related to online gambling.
At that time, the industry wasuseful to nations like the Antigua, where the second largest employerof the people of Antigua was online casinos. In this case, theeconomy of Antigua was negatively impacted by the legislation of theUnited states government on online gambling. During the Black Friday,the closure of different poker sites was discussed by the WTO, andissue was revisited to establish whether the industry needed moresanctions. The United States was thought to prosecute other suppliersof the poker service internationally. The United States was going toreceive numerous sanction as a result of its legislation on pokergames.
Alternatives to Online Poker.
Even though the indictment of DOJtook three solid online poker companies, America had a high demandfor poker game. The players in need to play find other sites onlinethat offer the game and they play. Some small sites still continuedto process payment from America players with hopes to take theplayers that came from the big poker companies. Some of thesecompanies that took advantage of the Black Friday were the Cake PokerNetwork, LockPoker, and Bovada. As the site traffic on the three bigpoker companies declined, the traffic on the small poker companiesincrease drastically. For example,Bodog, increased its traffic by32%, LockPoker by 61%, and Cake Network over 30% of traffic increase.There was a high in the subscription to the poker websites. Thesesites played around the UIGEA law by ensuring that their players playfor freewith some chips that were to be cashed out so as to win aprize. The strategy helped the poker games to classify themselves asa sweepstakes and not gambling. The players did not deposit money tothe account, the players payed some monthly subscription fee thathelped them to enter into the tournament having pries such as seats,and cars in live tournaments that are played for real cash. A singlesubscription was between $20 and $30 every month.
TheState Legislation
The UIGEA is a federal statute.As such, it only serves to govern interstate activity. For reason,the state legislators have had to create their own legislations withregard to online gambling within the borders of their state. Manystates are now struggling to manage their budgets and are consideringturning to legalizing intrastate internet gambling as a new source ofrevenue. Despite the crackdown by the federal government on internetpoker, President Obama has on various occasions recognized thestates’ right to determine whether to permit their resident toparticipate in online poker. Indeed, the District of Columbiademonstrated that state have the power to decide whether theirresidents should engage in online porker by passion a LotteryModernization Amendment Bill of 2010 in April 2011. In this Act, theDistrict of Columbia defined a lottery as being “games of chanceand games of skill”, and allowed allow operators to offer thesegames online, on condition that they are limited to the boundary ofthe District. Since online poker falls within the lottery definitionoffered in the Lottery Modernization Amendment Act, regardless ofwhether it is considered a game of chance or game of skill, the planby the District of Columbia was to create a website that would enablepeople to participate in the internet poker for money. The Districtcould generate revenue from the website for supplementing other areasof its budget.
Although the state repealed thelaw allowing online gambling after it had been passed, this does notsuggest that online gambling has not been vindicated in WashingtonD.C state. The key reason that informed that appeal of the law wasthat some council members of the District of Columbia were against inwhich the law was added to the previous lottery contract withoutconsidering the legislators’ notice. To that effect, Nevada alsoopted to allow intrastate online gambling, including internet poker.The Nevada Gaming Commission did approve the legislation forintrastate internet gambling in December 2011. Casinos within thestate were allowed to operate websites that would only be limited toplaying by individuals in the state. In response to this, largercasinos including Caesars and Bally filed application asking thestate to license them to start internet gambling websites. The onlinegambling websites could become the source of income/revenue for thestate as it is expected that the state could raise extra $180 millionfrom these websites.
There are states that want tolegalize internet gambling within their borders by passing laws tothat effect. On the contrary, there are states that have taken theaction of preventing their residents from participating in onlinegambling. In 2006, the law was passed by the Washington state thatmade internet gambling a criminal offense within the state. This lawwas challenge in the Rousso v. State case in the Supreme Court.
Although some states want to passlaws to legalize online gambling within their borders, others havetaken action to keep their citizens from gambling on the Internet. Inthe case, the Washington law was challenged by Rousso on grounds thatit went against the Commerce Clause. However, the Supreme Court ruledthat the law legislation was constitutional. Currently, Washington isthe only state with a law that prohibits its residents from engagingin online poker. However, Utah is another state that is consideringpassing a law aimed at criminalizing participation in onlinegambling.
Oppositionto Online Gambling Legalization
Although there are many Americanswho support the legalization on internet gambling, there are otherAmericans who hold the view that online poker should not belegalized. Several reasons have been offered by the opponents of thelegalization of internet porker. One of the argument is that internetcasino enabled bettors to have unprecedented availability to outletsthat deal with betting, as it does allow online gambling to occurseven days a week and twenty-four hours a day from the home. It isalso argued that online betting is by nature remote with credit cardas the preferred mode of payment. In view of opponents using creditcard may undercut the perception of players about the value ofmoney/cash, and that this may lead to crime, bankruptcy andaddiction. There are also arguments that it is almost impossible toensure the minors to do access the online gambling websites. Othershold that underage gambling can easily be monitored in a mortar andbrick casino however, it is difficult to enforce especially whereplayers place bets at their computers. The owner of Sands Corp, oneof the largest publically traded gambling companies, Sheldon Adelson,opposes the online gambling suggesting that he does not believe thatthe technology that is currently available can help prevent theunderage from making wagers.
Consumer’sAttitudes towards online poker
Online gambling sites face stiffcompetition from illegal offshore sites and other available options.This makes customer loyalty and patronage very important. Offshoresites are online gambling sites found in jurisdictions in whichgambling is not regulated. These unregulated online gambling sitesmay tent not to offer responsible gambling features and consumerprotection. As such, the pose potential risk to users/player. Usertrust and confidence in the operators and regulators, perceptions ofconsumers towards responsible gambling measures, consumer safety, andregulations are all constraint towards the success and growth of theonline gambling (Shin, 2009 Kim, Kim, & Park, 2010 Dinev etal., 2006 McCole, Ramsey, & Williams, 2010). Consumer attitudeplay a critical role in driving their behavior towards onlinegambling including consumer loyalty and online purchases (Mizerski, &Olaru, 2006 McCole et al., 2010 Shergill & Chen, 2005 Forsythe& Shi, 2003). The regulators of internet gambling including theFederal government, State governments should understand thatconsumers’ attitude and perceptions towards online poker in orderto determine whether they should legalize or illegalize the practice.Various studies have explored consumer attitudes towards onlinegambling (Gainsbury et al., 2012 Beldad, de Jong, & Steeholder,2010 McCole et al., 2010 Shin, 2009 Shergill & Chen, 2005Jolley et al., 2006 Woolley, 2001 Kim et al., 2010). According toBeldad, de Jong and Steelholder (2010) the major factors influencingonline gambling include security and privacy, customer service,thirty party endorsement, website reliability, customer satisfaction,and website reliability. Kralj and Solnet (2010) indicate thatcustomer satisfaction is often associated with the performanceindicators of a business, including return intentions, word-of-mouth,and profitability. In view of Kralj and Solnet (2010) dissatisfiedcustomers are more likely to participate in the complaints andnegative word-of-mouth behaviors and tend to show lower levels oftrust than satisfied customers. Kau and Loh (2006) indicate thatsuccessful complain resolutions does not lift and improve thesatisfaction levels of customer and bring it to a pre-complaintfailure level. The ability of the internet site to create trust toits users has consequences on customer retention and loyalty (Urban,Sultan & Qualls, 1999 Reichheld & Schefter, 2000 Ramsey etal., 2007 Johnson & Hult, 2008) Zemke (1999) indicates thatdissatisfied customers tent to relate their experiences with otherpeople. This effect can become amplified when complaints are launchedand made public especially in online forums that are mostly andactively visited by consumers seeking for site reviews by others.
Despite the steady highparticipation rates, there have been increased community concernsregarding online gambling. This increased community awarenessparallels increased public awareness regarding potential negativeconsequences that are often associated with online gambling (Smith etal., 2011 Pew Research Centre, 2006 Gainsbury & Wood, 2011).Problem gambling is associated with difficulties in limiting timespend or money send on gambling, resulting in adverse consequencesfor those who engage in gambling including psychological and healthdisorders, employment disruptions, crime, family breakdown, orbankruptcy (Productivity Commission, 2010 National Research Council,1999). Problem gamblers have been found to have irrational behaviors,including gambling further with a view to try and win losses back,that is chasing loses (Hodgins, Stea, & Grant, 2011). In view ofToce-Gersein and Gerstain (2007) understanding public attitudes withregard to online gambling is important in creating and implementingappropriate public education campaigns and appropriate policies aboutrisks associated with gambling as this may help prevent problemsrelated to gambling.
ResponsibleGambling
Regulators and gaming industrywho gain from taxation, have the responsibility to offer relevantinformation about hazards and risks associated with the use gambling,and implement measures at different levels in order minimizingpossible harm to consumers (Monaghan & Blaszczynski, 2010).According to Productivity Commission (2010), harm minimizationstrategies are aimed at facilitating responsible gambling andminimizing hazards and risks associated with gambling. The publichealth perspective onminimizing harm indicates that strategiesshould be targeted at individuals, gambling environment and gamblingproducts (Korn & Shaffer, 1999). Studies have suggested thatonline gamblers tent to spend much of this activity (Wood &Williams, 2011 Nelson et al., 2008 LaBrie Kaplan et al., 2008).However, a number of studies show that online gambling posses risksto consumers and this risks may exacerbate the gambling problems andcause these consumers to develop into other problems (Wood &Williams, 2011 Volberg, Nysee-Carris, & Gerstein, 2006 Petry &Winestock, 2007 Gainsbury et al., 2012). Operators and governmentshave recognized problems associated with online gambling to introducetools and features aimed at minimizing gambling-related harms.
There are variations in theextent and type of responsible gambling features used. Many gamblingsites lack effective responsible policies towards gambling and to dopromote responsible gambling features (Khazaal et al., 2011Griffiths, 2007 Wood & Williams, 2007 Monaghan, 2009 Smeaton &Griffiths, 2004).
Consumerprotection
Consumer perceived security andsatisfaction with online experiences is a critical issue when itcomes to increasing the use of services and sites and the acceptanceinvolving electronic monetary transactions (Gainsbury et al., 2012Mueter et al., 2003). Research has shown that trust, operatorlegitimacy, and security concerns about payment systems are the keyreasons for people not engaging in online gambling (Woodruff &Gregory, 2005 Ipos Reid, 2005). Online gamblers have been shown tohave significant concerns regarding cheating and fair play practices(Wood & Williams, 2010 Wood & Griffiths, 2008 Gainsbury etal., 2012). American Gaming Associated (2006) revealed that 55percent of internet gamblers believe that internet casinos cheatusers with 46 percent believing that players cheat. In another study,Real Wire (2008) found that gambling consumers believe that onlinegambling sites do not offer appropriate and sufficient levels ofcustomer supports. Real Wire (2008) found that consumer hold thatabout 92 percent of online gambling sites to not provide them withsufficient contacts details and information. Similarly, in alarge-scale survey involving 12,000 online gamblers, Wood andWilliams (2010) found that more than a third indicated that the keydisadvantage of online gambling is difficulty in assessing andverifying the games and their fairness with more than a quarter ofthe participants reporting concerns regarding the safety of monetarydeposits.
Concerns over fair play practicesare considered reasonable because there are several examples ofinternet gambling sites that cheat players or users with unfairgames, do not pay winnings, or steal personal details or deposits(McMullan & Rege, 2010 Gainsbury, 2012). In view of theAustralian Productivity Commission of Gambling and Inquiry (2010),increased regulation and legalization of internet gambling wouldprove more effective than prohibiting consumers with a view toprotect them from harm as this may lead to higher standard of thegambling sites and lead to increased consumer choice. Gainsbury andWood (2011) identified one of the consequences of banning users to beplayers being forced to engage in play in sites that have not beenregulated that may not guarantee adequate consumer security measuresand protection. Gainsbury and Wood (2011) argue that consumers oftenhave minimal measure of recourse whenever there are disputes orcomplaints with the online gambling site that falls outside theirjurisdiction.
Several studies have suggestedthat consumers with high levels of involvement in online gambling aremore likely to engage in disputes with site operators and to displaydisordered behaviors, and are also more likely to encounter problemsrelated to gambling (Hafeli & Schneider, 2005 Schellink &Schrans, 2004 Allcock, 2002). Similarly, Hafeli, Lischer and Schwarz(2011) revealed that online gamblers known to self-exclude fromonline gambling are significantly more likely to report disputes andmake complaint than other customers. This may suggest that disputeswith customers may not be blamed on the operator’s fault, ratherthe customers’ negative attitudes towards online gambling sites orcustomer unrealistic expectations, including customer feeling thatthe lost because they bet more than what they could afford. Securitybreaches and reported disputes damage the reputation of gamblingsites as they tend to reduce consumers’ use and confidence ininternet gambling (McMullan, 2012). Regulators and operators maybenefit from implementing steps aimed at increasing consumer trustand customer protection and resolve disputes to enable the onlinegambling industry to grow.
Poker Players and Internet Casino
Poke sites and casino sitesfollow wagering and represent the third (14% and second (26) largestsegments of the world internet gambling market (Holliday, 2010).Online gamblers have been considered by internet researchers as ahomogenous group (Wood & Williams, 2011 Olason et al., 2011Griffiths et al., 2009). However, studies have found differences inpsychological and demographics between online gamblers depending onthe level of severity of the gambling problem and the preferredgambling activity (Griffiths, Orford, & Volberg, 2011 Wardle etal., 2012 Lioyd et al., 2010 Ledgerwood & Petry, 2006 Shead,Hodgins, & Scharf, 2008).
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