Online Poker: Industry Expert Predicts The Future of Legalization

Gambling911.com’s Jenny Woo had an opportunity to sit down with someone familiar with the integral workings of online poker from an operations position.  This person, who asked for complete anonymity due to the precarious state of flux the industry is currently in, understands the inner workings of payment processing and how operators (including the owners of some of the world’s leading online poker sites) think.’

Just a few weeks ago, a piece of important legislation, HR 2267, was passed via markup and is slated to go to the House and Senate next.  HR 2267 would essentially make online poker legal through licensing in the United States.  Currently, the activity is not regulated by U.S. authorities and all Internet poker card rooms operate outside the States in locales such as Costa Rica and Gibraltar.

Presently, the sector catering to U.S. citizens has had significant issues dealing with payment processors.

JENNY: Explain the current climate as it pertains to payment processors and how HR 2267 will change things.

INDUSTRY INSIDER: Look what’s happened in the news. You see that all these different people that are starting their own payment processing companies - they’re all either having their accounts closed or having their funds seized. It’s pretty obvious that they’re the ones that have the targets on their back and it’s probably because the U.S. government can’t go after the operators since they’re offshore. All of these current payment processors have to be here in the states or at least have accounts here in the states. So that would be the only exposure or I guess the only root for the U.S. authorities.

And, indeed, Gambling911.com sued the U.S. Government in an effort to have information released by the U.S. Attorney’s Office out of New York pertaining to an funds seizures of various online poker payment processors.  A Circuit Court judge ruled in favor of Gambling911.com.  While specific individual and company names were omitted, the documents eventually obtained by G911 revealed an widespread investigation well beyond the U.S. Attorney’s office in New York. 

A few days after our suit was filed, that office announced the indictment of one Douglas Rennick ,a Canadian citizen. 

According to our industry expert, Rennick ran an online wallet long before he and others went “underground” (post Unlawful Internet Gaming Enforcement Act).  The online wallets were among the most popular methods of depositing and withdrawing funds related to Internet poker, but those became mostly obsolete following passage of UIGEA. 

INDUSTRY INSIDER:Douglas Rennick used to run ATM Online.  In late 2006 ATM Online shut its doors, but Doug Rennick still processed for the sites, but in a low-key non-wallet manner.  This manner ended up getting him indicted buy U.S. authorities. 

Prosecutors argue that Rennick was “simply moving funds” for online poker rooms and that funds were not indemnified (operators were assuming the risk, as opposed to the processor) as they had been pre-UIGEA.  Processors like Rennick could not assume such a risk.  Our expert predicts, with the passage of HR 2267, indemnified funds would be the norm once more, only individuals like Rennick and the infamous Daniel Tzvetkoff (a now imprisoned online poker payment processor) will find themselves pushed aside by more mainstream processing platforms. 

INDUSTRY INSIDER:  If and when gambling, and when I mean gambling I specifically mean poker, is legalized, the scenario that happened in 2006 will return.  The wallets will emerge again.  And leading the pack will be PayPal.  People trust eBay and PayPal and this is going to be the #1 option for Americans.  Now who says that Neteller couldn’t come back into the U.S. Market?  They settled with the U.S. and should be fine to re-enter, as I know many poker players loved Neteller.  The processors can charge a higher fee because they can go back to the indemnified products.  (Indemnified ACH and indemnified credit card) 

JENNY: Are these offshore processors running thin right now? EX. How tough is it to process in the industry right now? 

INDUSTRY INSIDER: I don’t have the answer to that question but I can say that the U.S. government still takes a lot of these payment processors down. However, there seems to be new ones all the time. It’s an industry where payment processors can make a lot and a lot of money.

It is an industry that – even without regulation – takes in billions of dollars.  The sky is the limit through U.S. legalization.  The United States is, after all the world’s most lucrative market as it pertains to online gambling. 

Just about anybody can become a payment processor today and work under the current payment processing structure, which the U.S. Government would contend is to essentially cover up the purpose of online poker and other Internet gambling-related transactions. 

The problem:  Who to trust.

INDUSTRY INSIDER: All the different operators now are very careful on who they’re hiring (to do transactions) only because everything that has happened in the past.  So they’re only hiring people they either know and people who have good references.

JENNY: Do you believe that should a law be passed, the U.S. government will be so intent to go after any offshore processor doing business with offshore sportsbooks and U.S. citizens?  

INDUSTRY INSIDER: I don’t see why they would stop. When they close an account down that’s basically their money now. They almost want to do it like a business too because if the funds are being used for unlawful purposes – it’s theirs. I don’t ever see that stopping as far as offshore sports (betting) goes. But if you’re talking about online poker that could now be taking a different angle by saying “Look because the U.S. is now talking about this – it’s possible that we’re going to now change are efforts to the sports betting industry.”

Here is the one caveat:  Should HR 2267 ultimately pass, the sports betting sector, which is now enjoying significant representation through trade organizations like The Interactive Media Entertainment & Gaming Association, will likely cry foul.  And that is exactly what they are doing on the stateside.  In an upcoming interview, I will be discussing with IMEGA.org founder, Joe Brennan, Jr., any change of strategy by states such as New Jersey in response to legalization of online poker and whether UIGEA still applies. 

JENNY: Don't you think the climate will be similar to what it was the few years pre-UIGEA when online sportsbooks and casino sites operated without much fear from U.S. law enforcement since there was no longer much of a concerted effort to come after them following the indictments of operators back in 1998 and just a few fleeting crackdowns over that next 8 year period (i.e. Spitzer going after PayPal). My point is that over this period of relative calm in the industry, companies like PokerStars, Full Tilt, Bodog and BetOnSports, just to name a few, absolutely flourished.  Could we see an environment like this again?  Can those companies left out cry "MONOPOLY" (i.e. Antigua's World Trade Organization dispute with the U.S.).

INDUSTRY INSIDER: That’s kind of tough as well because – I think – poker players aren’t really worried – because as you’ve seen over the last year or two when everything happens almost every month – all of the offshore illegal poker rooms – I think – they’re at an all time high the other day. People are still playing poker because the sites will always make them whole if anything happens to a processor.  People will continue to play with a site that they trust and regardless of if it’s legal or illegal. Obviously, if the U.S. does pass this law, the sites that are operating in the States that are allowed to – it’ll be a lot easier to put the funds in the account and actually take the funds out. I think that that is the most important part because when you request the payout, you want to get paid ASAP and currently a lot of the offshore books – especially in sports betting - they’re currently relying on doing cash outs through direct transfer methods and those are high fees. Having things be pulled back in the U.S., there will be more U.S. processors and I think people will get paid a lot quicker. 

JENNY: In this regard, you might have an opinion here and I'd love to hear it.   You probably have been following on Gambling911.com that the Costa Rican government is working closely with the U.S. in combating the drug trafficking by allowing Marines in CR.  Costa Rica's President wants to tax online gambling companies.  Do you see a situation where sports betting businesses located in Costa Rica would be permitted to do business with U.S. citizens under these circumstances?

INDUSTRY INSIDER: I don’t think so. However, all these offshore operations have said over and over again, “If you put out a tax and it’s currently legal then we will pay it.” You’ve heard all of these offshore say, “Look we will pay anything you want…just legalize it.”

First of all the U.S. authorities being in Costa Rica – I don’t think any of them are concerned at all. I don’t think it’s anything to be concerned about because it doesn’t really have anything to do with them. But if Costa Rica put out a tax, that isn’t going to change whether it’s allowed in the States.

JENNY: As you know, I recently interviewed Congressman Barney Frank and in the interview he kept reiterating that the U.S. citizens needed to contact their local representatives. We had great success with H.R 2267 but is it that simple? Is there more that people can do out there to see this through?

INDUSTRY INSIDER:  I don’t really know a lot about politics but I think that that’s really the only thing that can be done at this time. I think that Barney has been unbelievable for the industry but he can only do so much. Because of everything that he did in his committee – I mean it’s obviously gotten through his committee but at this point it’s hard to get everybody – all the specific poker players on board because they’re currently playing online –all the players aren’t really having a lot of problems right now so they don’t really have any reason to say, “Oh my God, I have to contact the Congressman.” It would be until things happen where if a company like PokerStars was down. If you recall during the NETeller thing when everybody’s players – when all the funds were being held – so everybody said, “I have all these thousands of dollars being held up.” That caused everybody to go insane and that caused everybody to call the Congressman and say, “Look they have all of the funds.” But the issue is that people aren’t really going crazy right now. They don’t really have any purpose because they’re currently online. They’re currently playing. They’re not really experiencing a lot problems. So the only people actually stepping up are the people that are truly interested in having this online poker environment here in the states. Other than that, I don’t really know what else can actually happen.

What I can tell you is that it’s been very interesting the last two years because I’ve been hearing all these hearings. Every time they have a hearing, I’m here and I hear everything. It’s just like you’re starting to hear now everybody saying, “Look all of these people are going to play regardless. We cannot stop people from actually playing online. It’ll happen anyway.” As the U.S., let’s take a part of that.

JENNY: PokerStars and Full Tilt poker (the two biggest online poker rooms) still to this day don’t have phone support. Do you think that PS and FTP do that on purpose to avoid situations (with the U.S. authorities)?

INDUSTRY INSIDER: I’ve had this conversation with each of them – it was years ago – but I just think it’s insane. If you see Absolute Poker and Ultimate Bet, you can call them and ask them about anything. They’re always there for you. I can’t tell you how many times I’m on Two Plus Two -  if you have a problem and you don’t hear back all these days and weeks and it sucks and I don’t understand it. I think personally the question can be put into two answers. I think the first answer is that PokerStars and Full Tilt are so big as far as how many customers they have that they don’t have the power to take all those inbound calls. They would have to hire all these people and do the call center and all of that. As operations, they don’t have a lot of employees. So how could all of these employees take all of these calls? I think it’s that also that they became so big so fast where they just don’t have the power to actually do it. And then there’s the whole idea of I don’t think they really want any calls going in and out of the States like that. There’s all kind of issues that these people have – whether a person has their password or their account got closed down. There’s all these different things going on and to have them have the ability to not actually talk to anybody about it – I would be furious. I believe that if any of these companies came to the states through an acquisition or if there was a company in the states that were to actually to purchase them but because there aren’t any problems or there aren’t any payment processing issues because everything is above board that they would have people there on the phones.

Jenny Woo, Gambling911.com Senior International Correspondent