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Busted! How the Federal Poker Shutdown Will Actually Benefit the $16B Business

On Friday the U.S. Justice Department shut down several poker websites for, among other things, violating a 2006 law that essentially makes online gambling illegal in the Americas. The sudden shutdowns have players and the companies themselves concerned, but it gives the government the opportunity to finally define what is legal and illegal online. In the end, it will benefit everyone involved.

Online gambling has always been a confusing legal area. first, gambling laws are usually written by states, but the Internet now makes it easy for someone in, say, Nebraska to gamble online with a company based in, say, New Jersey. Number two, unlike gambling at a particular casino, winnings aren't automatically taxed by the particular city or state where it happened. There are also other issues like age verification, something that isn't a problem in a traditional casino.

Poker sites like the popular Full Tilt Poker and PokerStars have always bent over backwards to operate, but the situation became more complicated when, in 2006, Congress passed a law that forbid banks from processing money from American online gambling sites. Many of the websites "left" America: For instance, U.S.-run Full Tilt Poker put its headquarters on the Isle of Man.

So how, exactly, will this reportedly $16 billion business benefit from being shut down?

  • Resulting legal cases are likely to validate or strike down various state and federal gambling laws, which should clarify what behavior is legal and what's illegal in this murky industry. After all, had the laws clearly stated that online gambling was illegal, online poker wouldn't have flourished over the past decade. Now all these shut-down companies have to do is hold on while the courts do their grinding....
  • These cases will probably show that online poker doesn't fit the traditional gambling test: I.e., it's not gambling if the game is based on skill, not luck. Of course, there is no guarantee that lawmakers will see it this way -- there is a chance that online gambling, and poker specifically, will be shut down forever, making this whole process something of a, um, gamble.
  • If online poker is declared legal, it will allow other skill-based gambling sites to flourish, adding to the industry.
The big problem here is that this process will take a while. The U.S. Justice Department shut down the sites, so any cases will likely happen on a national level. However, the states also have their own gambling guidelines, and the government may have to step in and override these individual state rights.

In the end, I suspect that the government will find a way to tax these online gambling companies, which is motivation enough for it to let online poker continue to live and, ideally, grow.

Photo courtesy of chefranden // CC 2.0
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