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Coming Up Aces

9/11/09 - American Conservative - View Source

By Freddy Gray

Inside the glitzy offices of the Poker Players Alliance (PPA) in Washington D.C., the furniture looks impressive, but the employees do not. Staff saunter about in Bermuda shorts and flip-flops. The atmosphere is one of easily gained affluence. 

But don’t be fooled by appearances. This is a dynamic organization that wields impressive financial and political clout. The PPA is a leading force in the struggle to legalize and regulate Internet gambling in the United States—a fight it seems to be winning.

Executive director John Pappas is clearly a sharp operator, too shrewd to be drawn into making predictions about when U.S. restrictions might be lifted. “We’re not at that stage yet,” he says with a shrug. “There’s a lot of work to do.” 

But the PPA and its partners in the online-gambling lobby appear to hold the legislative aces. In Barney Frank (D-Mass.), chairman of the House Financial Services Committee, they have an influential and committed ally. Since the Unlawful Internet Gambling Act (UIGA) was passed in 2006, Frank has been a zealous advocate of the right to wager on the Web. Earlier this year, he introduced the Internet Gambling Regulation and Taxation Act to repeal—or at least significantly relax—the UIGA and remove online betting from legal limbo. A hearing is expected in September.

If Frank’s bid fails, supporters of online betting can turn to Sen. Robert Menendez’s (D-N.J.) bill, introduced on Aug. 6, which focuses more narrowly on legalizing Internet poker—the PPA’s primary concern—and other “games of skill.” “We love both bills like they are our children,” says Pappas. “We hope they get through.”

Gambling websites are gearing up for full entry into the U.S. market. In January, Betfair, the hugely successful UK-based Internet betting exchange, announced its $50 million acquisition of the Television Games Network, America’s leading interactive racing channel. Asked if this signaled the company’s intention to establish itself in the U.S. ahead of a change in the law, a Betfair spokesman refused to comment. Such tightlippedness could be telling. In July, Goldman Sachs advised investors to expect U.S. trade limitations on Internet gambling to be removed, prompting a surge in the share price of certain online operators. The smart money, it seems, is on gambling reform sooner rather than later.

At any rate, it is widely accepted that U.S. gambling laws as they stand are ambiguous and ineffective. The UIGA does not technically ban online poker or games of chance, but prohibits financial organizations or individuals from knowingly accepting payments made in connection with Internet gambling. More reputable websites have complied by abandoning U.S. operations, but plenty of other companies—based in places like Antigua—have fewer scruples. “It’s a total gray area,” says Pappas. “There is no definition of unlawful gambling anywhere on our statutes.”

Online wagering on sports is more obviously illegal. In 2002, the Fifth Circuit Court of Appeals ruled that such activity is forbidden under the 1961 Federal Wire Act. But again, the pervasive nature of the Internet renders the law all but futile. Like drinkers in the Prohibition era, online gamblers find ways of indulging their habit. 

For Pappas, the right to bet through a computer or a cell phone is a matter of individual liberty. “This is not about making money for offshore gambling sites who want to get into the American marketplace,” he insists. “This is about the rights and freedoms of individuals who like to play something online and don’t want government coming in and taking that right away from them. For me, that’s antithetical to what a conservative philosophy is supposed to be about.”

He would say that, of course. Yet the Republican-led passage of the UIGA in 2006 did turn many libertarian-minded American gamblers against the GOP. “After that,” Pappas recalls, “our membership grew quickly from 75 or 100,000 to over a million members. It’s not just about poker players: lots of people have gravitated toward us because they see this as the camel’s nose under the tent.”

Pappas says that members of the online gambling sector felt “mugged” by the 2006 ban: “It was kind of ramroded through. There was never any proper or legitimate debate.” He has a point. The law was attached to the bigger and unrelated Security and Accountability for Every Port (SAFE) Act. Former Majority Leader Bill Frist (R-Tenn.) inserted the UIGA clauses at the last minute before Congress adjourned for the 2006 elections—what politicos call a “midnight drop.” The SAFE Act itself was a late “must pass” bill, designed to safeguard ports from terrorist infiltration. Any politician who objected to the legislation risked being branded soft on national security.

Regardless of the moral case against gambling, there can be little doubt that this was an act of dubious legislative legerdemain, one that justifiably prompted cries of foul play. Pappas argues that Frist was currying favor among social conservatives in anticipation of a run at the 2008 Republican presidential nomination. Others point out, more darkly, that several of the politicians behind the ban, campaigning under the banner of the GOP’s “American Values Agenda,” were being paid off by Las Vegas-based casino groups and sports agencies that felt threatened by the rise of the Internet. Rep. Bob Goodlatte (R-Va.), a leading campaigner against gambling, reportedly received $40,000 from the horseracing lobby.

Yet online-gambling advocates who felt legislatively hijacked three years ago are now much wiser—and much richer. Internet gambling is a rapidly expanding global business. A recent PricewaterhouseCoopers survey predicted that in 2011, the industry’s worldwide revenue would reach $144 billion.

With such riches floating around the virtual ether, it isn’t surprising that the U.S. government is taking notice. Frank’s new bill seeks to impose a 2 percent “licensing fee” on deposits for all Internet gambling companies operating in the United States. Such a tax could generate $51 billion over ten years, according to PricewaterhouseCoopers. As federal and state governments struggle with expanding debts in a recession, the impetus to levy the burgeoning Internet trade is greater than ever.

Moreover, as government resistance to online gambling is weakening, hostility from America’s domestic gambling industry is disappearing. A few years ago, Harrah’s Entertainment, the Las Vegas casino giant, employed Washington lobbyists to protect its interests against the encroaching online sector. Today, the company has diversified into the Internet market and backs Frank’s bill. 

“The bricks-and-mortar folks are definitely coming around,” says Pappas. “They are beginning to see a bottom line, particularly when they look at what’s happening with poker.” In parts of the world where online gambling is legal, he explains, the explosive growth of Internet poker, combined with the rise of poker TV, has proved a boon for casinos: “People are learning to play the game online, getting comfortable with it, and then saying, ‘Alright, now I want to go to try it for real.’ ... Harrah’s have the rights to World Series Poker. If the law changed, they could monetize that and become $1 billion richer.”

In contrast to the casinos, America’s sports establishment still presents a formidable obstacle. The NFL, for instance, spends millions each year opposing gambling reform. The league says that any softening of the law might “irreparably harm … honest athletic competition.” Most sports aficionados find that claim laughable, however, given the league’s somewhat shady reputation. “They’ve been happy to effectively let the mob run sports betting for the last 40 years,” scoffs Pappas. Far from opening the door to greater corruption, he argues that regulated Internet betting can help limit foul play by recording and monitoring transactions. 

As the arguments stack up, opponents of Internet gambling increasingly don’t like their odds. “It’s going to be an uphill battle to stop it this time,” admitted Congressman Spencer Bachus (R-Ala.), the ranking Republican on the Financial Services Committee in an interview with Politico. “We caught them off guard last time. This time we might not be so lucky.”

The social-conservative case—that Web gambling turns children into addicts, destroys families, and damages society—might still appeal to many American voters. But the online lobby has become more savvy in countering criticism. Gambling websites emphasize their commitment to “responsible” gaming and promise to put profits toward helping addicts. And Pappas is quick to note that, according to a study carried out by the National Centre for Social Research in Britain, the explosion in legal online gaming has not caused any notable increase in problem gambling. “People like to couch it that online poker players are degenerates, that the game breeds addiction, and all these awful things,” he says. “But that’s really not the case. … they tend to be between the ages of 21 and 45, they are white, they are male, they make over $60,000 a year. That could well be a typical Republican voter.”

Right-wing pressure groups such as the Family Research Council remain determined in their opposition, however. Tom McClusky, FRC’s senior vice president, tells TAC that Frank’s agenda is to represent “foreign interests and the financial industry as opposed to families who would be devastated under his legislation.” That may be true. Frank has lately been less concerned with passing his Internet Gambling Regulation and Taxation Act than with ensuring that Congress guarantees limitless bailouts to the financial institutions that gambled away so much American prosperity.

Yet the rest of nation’s supposed moral majority remains strangely ambivalent. In a Rasmussen poll taken earlier this year, 44 percent of respondents said that gambling on the Internet should not be illegal, compared to 37 percent who thought that it should. Hardly conclusive, but without popular support, it is hard to see how the critics of online gambling—outspent, out-lobbied, and outmaneuvered in Washington—will be able to block legalization. As in poker, the player with the most chips wins.


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