PokerStars Past Under Siege in California; UIGEA Key Issue

PokerStarsThere is no bigger or more consequential online poker story than the current situation unfolding in California, where PokerStars is hoping to make its return to the US market, but finding itself opposed by powerful interests in the state.

Whether or not PokerStars is allowed back into the United States could very well be a pivotal moment in US iGaming history when we look back at this time a few years down the road.

So with that in mind I’ll attempt to make some sense of this convoluted situation below.

PokerStars failed licensing attempts

Since leaving the US market following Black Friday, PokerStars has diligently and legally attempted to reenter the US market where laws permitted. So far their attempts have been unsuccessful.

The world’s largest and most widely trusted online poker operator was shut out of Nevada after the addition of a “bad actor” clause in 2013; a clause prohibiting any company that offered online poker in the US after December 31, 2006 from receiving a license in the state for five years.

Next up was Delaware, where PokerStars put in what I’ll describe as a halfhearted bid to become the online gambling provider for the state (888 and Scientific Games was awarded the Delaware contract), PokerStars then turned its attention toward New Jersey, a state without a bad actor clause.

In New Jersey, PokerStars partnered with Resorts Casino and filed the requisite paperwork for an iGaming license. New Jersey was seen as PokerStars best bet for licensure.

Throughout the process the company appeared on their way to being approved in the state, but things started to get complicated in the run-up to the soft launch, and just after the official launch of online gambling in the state, the New Jersey Division of Gambling Enforcement made the decision to suspend the review of PokerStars license application for a period of up to two years, citing concerns over the lingering federal indictment of Isai Scheinberg and his alleged continued role with the company.

PokerStars and California

Now PokerStars has turned its attention to California.

California is seriously considering online poker legislation and PokerStars wants in, but the company is being opposed by a powerful contingent of Tribal interests who are pushing for a “bad actor” clause much like Nevada implemented.

That being said, this time PokerStars is pushing back (Nevada has 2.8 million residents while California has 38 million), disputing the claims being leveled at them and calling for the decision to be left up to regulators (as New Jersey had done) and not lawmakers or special interest groups.

The prickly case of UIGEA

What this entire debate boils down to is the Unlawful Internet Gambling Enforcement Act (UIGEA) and how specific groups in California are mischaracterizing what UIGEA is and does.

Contrary to popular opinion, UIGEA did not make online gambling illegal, and it’s this mischaracterization that seems to beat the heart of the controversy.

So what exactly did UIGEA do?

In its own words UIGEA, “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.” [bold mine]

What this means is UIGEA was an enforcement act, it did not change existing law or make online gambling illegal.

Since UIGEA did not make online gambling illegal, only payment processing associated with the ambiguous term “unlawful” online gambling, and the definition of “unlawful” was and still is up for debate.

He said, she said

PokerStars’ California challengers are using rhetoric and a broad interpretation of UIGEA such as this statement from a coalition of 12 tribal interests fighting to keep the “bad actor” language in the bill:

“Although we presently have slightly differing views on a legislative framework for Intrastate Internet Poker in California, our tribal governments are united in our steadfast opposition to the easing of regulatory standards that would accommodate bad actors whose past behavior and tainted brands and assets would erode the integrity of Intrastate Internet poker under consideration.”

But PokerStars sees it differently, as Head of Corporate Communications Eric Hollresier told me: “PokerStars relied – in part – upon both legal counsel and numerous studies that have determined poker is a game predominantly of skill, not luck,” in order to make their determination that they were operating lawfully.

In a previous public statement refuting the claims being made by their California detractors, Hollreiser said the following, “These groups are misrepresenting the Unlawful Internet Enforcement Gambling Act (UIGEA) and PokerStars’ past U.S. operations serving only to exclude PokerStars from the market in order to avoid what should be fair competition.”

Hollreiser and PokerStars are correct that the use of UIGEA to keep PokerStars from entering the market is little more than a red herring, and that both UIGEA and PokerStars’ past are being misrepresented, so let’s see if we can shine a little a light on the matter… I told you it was complicated.

PokerStars’s decision to remain in the US market

Lost in the shuffle has been PokerStars assertion all along that they were operating within the letter of the online gambling laws in the US from 2006-2011, and because of the ambiguity of UIGEA (and online gambling laws as a whole) they have a pretty strong case.

In regards to the Wire Act

Following UIGEA, PokerStars received legal opinions stating that the 1961 Wire Act only applied to sports betting and did not apply to online poker. This was an opinion that later proved accurate when the DOJ wrote their now famous opinion regarding the new interpretation of the Wire Act stating precisely what PokerStars had been saying all along.

In regards to IGBA

PokerStars also received legal advice that they were not violating the Illegal Gambling Business Act (IGBA) as they only offered online poker, a game of skill. Nor does IGBA extend to overseas companies.

*It should be noted that the definition of poker as a game of skill or gambling is still a pretty hot topic in the courts and is far from resolved.

In regards to UIGEA

Again, PokerStars legal counsel was of the opinion that UIGEA did not legalize any form of gambling, or make illegal any form of gambling.

This legal opinion was once again proven correct by Brian Benczowski, Principal Deputy Assistant Attorney General who sent a letter on July 23, 2007 to the Chairman of the House Judiciary Committee John Conyers, stating, “The UIGEA itself does not make any type of gambling legal or illegal; rather, the statute is focused on regulating the methods of payment for already-illegal gambling.” [bold mine]

PokerStars legal counsel was also of the opinion that like IGBA, poker was not covered under UIGEA because it’s a game of skill, an opinion based on several studies. Because PokerStars was only offering online poker and not casino games it was their legal counsel’s opinion that they were operating within US law.

PokerStars has also asserted that it has never miscoded credit card transactions during the UIGEA years, and coded all of their transactions as “7995” the credit card code for gaming transactions. No evidence to the contrary has come to light refuting this claim.

In regards to state laws

Another point of contention has been whether PokerStars violated certain state laws in offering their product, specifically in Washington State which passed a law that made playing online poker a felony.

PokerStars’ position on specific state laws was that they are covered under the Dormant Commerce Clause, which essentially forbids one state from passing a law that would unnecessarily burden other states with regards to interstate commerce.

*It should also be noted that after the Washington State law was upheld by the State Supreme Court PokerStars did block Washington State residents from accessing the site.

In regards to PokerStars settlement

Generally speaking, we all look at settlements as an admission of guilt on some level. Consider Sheldon Adelson’s often-cited $47 million settlement over alleged money laundering, or the massive settlements banking institutions have paid out in recent years.

These settlements, like PokerStars are not guilty verdicts, and we can’t lose sight of two important aspects of PokerStars settlement with the DOJ stemming from the Black Friday civil charges:

  • The company did not admit any wrongdoing
  • The US government made it clear that they would not bar PokerStars from reentering the US market where permissible

But PokerStars is still facing accusations of being a “bad actor.”

The situation is certainly complicated enough that anyone opposing PokerStars reentry into the US market shouldn’t be dismissed out of hand as a conspiracy theorist, but the reasons being touted in California, especially in regards to UIGEA and “bad actors.”

Who is “bad” in bad actor clauses?

Bad actor clauses are along the lines of indicting Al Capone on tax evasion charges, and the December 31, 2006 cutoff date is simply an arbitrary line.

This date, and it’s implied designation as the “last chance to get out of Dodge” gives regulators a clear line to differentiate the online gambling companies that left the US following the passage of UIGEA and the companies that chose to stay. But what it fails to consider is whether this decision to stay or go matters, and if companies that remained in the US following UIGEA should even be considered “bad actors.”

As mentioned above, UIGEA did not outlaw online gambling, and PokerStars has argued (fairly successfully I might add) that UIGEA and the IGBA don’t apply to online poker.

Furthermore, there is no difference when it comes to legality between a poker game offered by PokerStars in March of 2007 and a poker game offered by Party Poker in July of 2005, the gambling laws were the same in both instances, but partypoker is being welcomed with open arms while PokerStars has been blacklisted.

Operating in the US post-UIGEA passage doesn’t automatically make one a “bad actor” anymore than leaving after UIGEA passage makes a site a “good actor.”

December 31, 2006, is a date of convenience, but this convenience comes at a high cost if you are PokerStars, or if you are an online poker player in the US who wants the opportunity to play at what is believed to be the best online poker company in the industry.

 **Article updated to reflect PokerStars exit from Washington State, which came after the State Supreme Court upheld the law, not after the laws was passed. 


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