2012 Year in Review – Top 10 Gambling Related Stories (Part 1)

Hartley Henderson
2012 Year in Review – Top 10 Gambling Related Stories (Part 1)

By Hartley Henderson – Exclusive to OSGA.com
Dec 20, 2012, 13:32

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2012 Year in Review – Top 10 Gambling Related Stories (Part 1)

The year 2012 turned out to be a fairly important year for the gambling industry primarily because of the U.S. election and the possible impact on the industry’s future. The election highlighted the news stories but there were other stories across North America that caught the eyes and ears of Americans and the top 10 will be examined in this 2 part article.

1. The 2012 Presidential Election:

Without question the election was the top story of 2012. Obama had never actually come out in favor of online gambling but there was a real movement to legalize poker in numerous states like Nevada, California and Iowa and there didn’t seem to be much interest by the Democrats to stop it. In fact, there was some suggestion that the Black Friday seizures in the previous year were conducted to clean the street of major offshore poker operators and pave the way for the likes of Caesars and MGM to start offering online poker without the competition. While Wynn had partnered with PokerStars to offer legal poker in Nevada and Station Casinos had partnered with Full Tilt, MGM and Caesars were left looking at other options and chose Bwin.Party and 888 Gaming respectively. The problem was that over 90% of Americans playing online were already doing so with PokerStars or Full Tilt so the partnerships clearly put Caesars and MGM (the 2 biggest Nevada stalwarts) at a disadvantage. So many industry insiders believe that the Black Friday seizures occurred because the big casino conglomerates asked the federal government to do something before Nevada legalized online poker and they were already in catch up mode.

To fuel the belief that the federal government was not prepared to fight the states regarding online poker, the DoJ under the Obama administration issued a statement at the end of 2011 that in its opinion the Wire Act only applied to sports betting. That opinion was contrary to the one from the previous DoJ which stated that in its opinion all online gambling was illegal and states couldn’t offer an intrastate product since the Internet was interstate in nature. The Democrat DoJ opinion however, was clearly a bone thrown to the states, telling it to go ahead with online gambling so long as it doesn’t involve sports.

While Obama seemed to be moving away from federal interference with gambling laws, Mitt Romney’s message was clear – if he were elected gambling expansion would be stopped in its tracks. In fact Romney stated so at a meeting in Las Vegas, where opposing gambling expansion was clearly not going to be popular with the electorate so one could only envision the degrees he was prepared to go to in order to ensure that online gambling would never be legalized in any form under his regime. Romney also received millions of dollars in campaign support from Sands Corporation CEO Sheldon Adelson who has been vehemently opposed online gambling legalization since he believes that online gambling will kill the land based businesses. In fact it’s notable that Sands was one of the few Nevada companies that didn’t set up a partnership for poker.

Americans, however, voted in numerous polls that they were in favor of expanded gambling and one survey conducted by USGamingSurvey.com to visitors of the Poker Player’s Alliance website revealed that almost 50% of respondents were willing to switch their votes to the party they aren’t affiliated with if the other candidate came out in support of online poker. And the figures were even higher for Congressmen and Senators that were willing to come out in favor of legal and regulated online poker. In the end, Obama won the election quite handily and the Senate remained in Democrat control while the House of Representatives remained in Republican control. So the path is now clear for legal and regulated online gambling if Obama continues with his hands off decisions regarding state run online gambling. And since this is the last term Barack Obama can run there is no reason for him to hold back in supporting the initiative. The public clearly wants it and the states need the tax revenues. Fortunately for online gamblers they won’t have to find out what was in store had Mitt Romney become the President.

2. New Jersey’s Decision to Offer Sports Betting:

In 2011 New Jersey Governor Chris Christie blocked a bill introduced and passed in the New Jersey Senate that would have allowed online gambling in the state. Many in the industry threw up their hands wondering what was going through Christie’s head although others suggested that Christie simply wanted the issue to be put to a referendum. The truth probably was that Chris Christie had Presidential aspirations and he didn’t want to be dismissed by the Tea Party and neo Conservatives in the party for being the first Republican Governor to allow online gambling. When Christie decided not to run, however, his whole demeanor changed. He wasn’t anxious to bring the online casino issue back to the table but did announce in early 2011 that he was prepared to allow New Jersey residents to vote on a referendum asking whether the state should ignore PASPA and introduce sports betting. Christie himself said he would vote in favor. The motion to allow sports betting passed by almost a 3-1 margin and in January of 2012 Christie signed the sports betting bill into law that would allow New Jersey racetracks and Atlantic City casinos to offer sports betting to help boost interest in the other products. Not surprisingly, the leagues cried foul and threatened to take away games and possibly even teams from the states. The NCAA was the first to make a move by removing some minor NCAA tournaments that were to take place in New Jersey. Undeterred, Christie announced that sports betting would go ahead in New Jersey by early 2013 and the leagues have been opposing the motion since.

Perhaps what is most notable in the announcement is the fact that the DoJ has taken no action and in fact 2 Congressmen from New Jersey Frank Labiondo and Frank Pallone Jr. introduced 2 federal laws aiming at overturning PASPA. The bills were titled H.R.3809, “the New Jersey Betting and Equal Treatment Act of 2012″, which seeks to exclude the State of New Jersey from PASPA and H.R.3797, “the Sports Gaming Opportunity Act of 2012″, which would allow a 4 year period for states to enact statutes for wagering schemes involving professional and amateur sports. It’s unlikely the bills will pass the House since it is still controlled by the Republicans but the bills just give one more headache to the sports leagues. If New Jersey is going to be stopped it will have to be done through the federal courts. This suits New Jersey and Christie just fine because the state believes that as the New Jersey law moves through the courts, the judges will have no option but to find that PASPA is an unfair law and unconstitutional since it discriminates against the 46 states that are prohibited from offering sports betting. Most industry lawyers concur. What’s also notable is that Chris Christie is still one of the favorites to become the next Republican Presidential candidate and has gotten much notoriety and support by many Americans for his demeanor and actions after Hurricane Sandy. In fact Obama and Christie who were on opposite ends of most issues seemed to bond over the disaster and there is belief that Obama is prepared to do a tit for tat with Christie and that Obama will pull sway for New Jersey’s gambling initiatives in exchange for Christie’s support for some of Obama’s main initiatives. What is clear is that Christie no longer believes that being a Republican governor supporting gambling expansion will harm his Presidential aspirations.

3. The Purchase of Full Tilt Poker by PokerStars:

At the end of 2011 one of the main news items was the expected purchase of Full Tilt Poker by Groupe Bernard Tapie. The sale had the approval of the Alderney government and it seemed that all that was left was to cross the t’s and dot the i’s. But it became evident that the DoJ wasn’t happy with the sale for whatever reason and in the end the Bernard Tapie group backed out. In 2012 the reasons became apparent. At the encouragement of the DoJ, PokerStars purchased Full Tilt Poker for $731 million. As part of the agreement, PokerStars was to get the assets of Full Tilt including their popular Rush poker software; they would pay back all American and non American customers owed money by Full Tilt; and they would pay a hefty amount to the DoJ as a fine. In return the DoJ was prepared to drop charges against PokerStars for past wrongs and more importantly was willing to give the company immunity which would allow it to cater to U.S. customers if and when online poker was legalized in the U.S. Ironically the former owners of Party Poker seemed prepared to offer up to a billion dollars to the DoJ under the last administration for a similar opportunity.

As it stands, PokerStars has paid back Rest of the World customers and has given the DoJ the money to pay back American Full Tilt customers but for some reason the repayments haven’t occurred. The DoJ has stated that it could take some time since they have to find a company to initiate the payback but one can’t help but feel that the DoJ is stalling for time. There is no reason they couldn’t just use Navigant Consulting, which arranged for the repayment of NETeller customers after the DoJ confiscated EFTs from that company in 2007. Nevertheless, the fact the DoJ was prepared to work with an online poker company is more indication that the current government has taken a new direction with regards to its position on online gambling.

As for the previous owners and shareholders of the companies, Ray Bitar was arrested earlier but released on bail in July. His case is set to be heard in 2013. Howard Lederer forfeited over 2 million USD to the DoJ as part of a settlement in a civil suit just this month and Isai Scheinberg (the founder of Poker Stars) appears set to settle with the DoJ as well. Full Tilt has reopened to the rest of the world and FullTiltPoker.net is open as a free pay for fun site to American citizens. PokerStars has retained Tom Dwan, Gus Hanson and Viktor Blaum as the professionals representing the site but has told Phil Ivey to take a hike after his negative comments about the company in 2011.

4. New Virtual Currency for Wagering:

Since the passing of the UIGEA and the difficulty getting payments to and from offshore gambling sites, many in the industry believed that the only real solution for U.S. facing gambling sites would be for the offshore sites to coordinate their own type of banking system or use a currency that can’t be seized by the DoJ. In 2012 that currency became a reality for some offshore sites. Bitcoin has been around for a few years but the complexity of how the system works and the huge fluctuations in valuation have made it unfeasible for most. Last year Switch Poker decided to offer Bitcoin as a payment option and numerous bitcoin only sportsbooks, poker rooms, bingo sites and casinos became quite large and profitable. Seals with Clubs, Strike Sapphire and BC Casino had revenues that were as large as many offshore casinos and poker rooms and Satoshi Dice, which only launched in April of 2012 has processed over $15 million in bets, averaging over $50,000 a day in wagers and the projections just soar from there. There are indeed some limitations to bitcoin, but the currency can be bought and sold like any other currency and all transactions are open source and are verified by bitcoin users making it impossible for customers to contend they didn’t actually place a wager. Consequently charge backs don’t happen. Most importantly all bitcoin transactions are anonymous so it would be impossible for the DoJ to determine if a transaction has taken place in the United States, Europe or even Antarctica. Winnings are always paid back in bitcoin from the casinos and the customers have to use one of many bitcoin currency exchanges to sell it back for real American dollars. Consequently the banks can’t block the transactions under the UIGEA because payments don’t come directly from an offshore gambling establishment but rather from a bitcoin trader. And using a currency exchange isn’t illegal under the UIGEA or any other American law. For that reason after my article was written about bitcoin on OSGA.com, numerous U.S. facing offshore operators sent emails asking for more information on the currency and ways that they could incorporate it as a payment method into their existing sportsbooks, casinos or poker rooms.

Contact Hartley via email at Hartley[at]osga[dot]com.

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