Opinion: Bad Actor Clauses are Exclusionary and Unnecessary

PokerStarsWhen states first started exploring online gaming expansion the idea of a Bad Actor clause seemed like an appropriate way to safeguard the prospective industries and allow for fair competition.

These Bad Actor clauses would more or less prohibit companies that offered online gambling/poker in the U.S. after December 31, 2006 from applying for an online gambling license for a predetermined period of time.

At first a lot of people were on board with the idea, believing that the companies that “did the right thing” and left the U.S. market following the passage of UIGEA in late 2006 shouldn’t have to compete with company’s who disregarded the law and continued to operate in the U.S., in some cases illegally.

However, the more people looked into these clauses the more they view them as:

  1. Exclusionary
  2. Unnecessary

They are also hampering online poker legalization in the United States.

It’s not a Bad Actor clause, it’s an Anti-PokerStars clause

The only company of note that falls under this arbitrary definition of a “Bad Actor” is PokerStars.

PokerStars has long disagreed with this designation and regardless of whether you agree with their arguments, excluding them seems like a step too far.

Either;

  1. you believe PokerStars took a principled stance that online poker was legal under U.S. law (falling outside the purview of UIGEA, IGBA, and the Wire Act), and their belief was proven more or less correct when the DOJ issued their 2011 Wire Act ruling limiting its scope to sports betting.
  2. Or you feel PokerStars took a calculated risk that they could continue to operate in the U.S. despite the passage of UIGEA and still be licensed if and when legal online poker came to the U.S.

So whether you see PokerStars as being principled or shrewd, it seems their decision to remain in the U.S. shouldn’t be held against them. The DOJ saw fit to make note of this in their settlement agreement with PokerStars in 2013, allowing PokerStars to operate in legal, regulated, U.S. markets where allowed by law.

Bad Actor clauses phased out

In 2014 Bad Actor clauses were still en vogue, as bills in Pennsylvania, New York, and California still contained Bad Actor clauses and multiple entities were calling for PokerStars to serve some type of penalty.

But in 2015 this is no longer the case.

Opposition to PokerStars having the chance to apply for an online poker license is almost nonexistent outside of anti-online gambling crusaders and a coalition of nine tribes in California.

Several online gaming bills introduced in California, New York, and Pennsylvania no longer contain Bad Actor language, and opposition to PokerStars has softened, even amongst their potential competitors.

Caesars, a longtime proponent of Bad Actor language has decided to drop their opposition, as have several California tribes once on board with Bad Actor language, Rincon, Pala, and United Auburn.

There are several reasons for this.

First, PokerStars and their allies have unflinchingly fought against Bad Actor clauses with the arguments briefly outlined above (You can read a more detailed account of the PokerStars case for inclusion in regulated U.S. markets here).

There was also the sale of PokerStars in 2014 to Amaya Gaming, which scrubbed the company’s executive ranks of anyone associated with the 2007-2011 Bad Actor period, removing many of the arguments against the company’s involvement in legal online poker in the U.S.

PokerStars also just happens to be the largest, most respected, and most trusted online poker company in the world, so prohibiting them also goes against the wishes of the poker community, also known as your future online poker customers.

Upshot #1: Let’s not pick winners and losers through legislation

A Bad Actor clause as it is defined in California serves only one purpose, it keeps PokerStars out of the market. This can be seen in the simple fact that Bad Actor clauses aren’t permanent, they are simply multi-year sentences that would allow other brands to become established before having to compete with PokerStars.

Bad Actor clauses are superfluous

If PokerStars has skeletons in their closets the regulators who will vet the company will uncover them. Just as these same regulators vet land based casinos and card rooms.

For example, Bad Actor clauses were absent from the legislation that legalized online gambling in Nevada, Delaware, and New Jersey, although Nevada later amended their law to include Bad Actor language.

Despite the lack of Bad Actor clauses, PokerStars didn’t receive an online gaming license in either of those locales (they applied in both), although they expect to receive an iGaming license in New Jersey in the near future.

We’ve seen in New Jersey that regulators take their job seriously. The New Jersey Division of Gaming Enforcement suspended PokerStars license application in December of 2013 for a period of two years unless certain conditions were met. When these conditions were met following the sale to Amaya the DGE reopened PokerStars’ licensing application, yet nearly a year later the company is still waiting for approval.

Pala Interactive in New Jersey is another great example of the DGE’s diligence. Pala Interactive’s CEO Jim Ryan was a controversial enough figure that the DGE felt the need to release a statement on their vetting process regarding the company’s temporary license (transactional waiver).

And bear in mind, Pala is likely to receive a license in California.

Upshot #2: Trust is lacking

If you still feel Bad Actor clauses are necessary than you have no faith in the regulators who oversee your gaming industry.  If this is the case you shouldn’t trust them to vet other companies that fall outside the purview of Bad Actor clauses, and you shouldn’t trust them to audit licensed operators.

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