WHY I Wrote A Bill
Every Congressional session since the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA), some lawmaker or another has introduced legislation in Congress for the licensing and regulation of online poker in the United States, either for poker by itself or along with casino gaming. In fact, there have been eleven such bills floated on Capitol Hill so far. As is the norm for the legislative process, even though seven different Congressmen introduced these bills, each built on the last in terms of complexity and issues addressed. This multi-year process eventually results in robust legislation which has the markings of a complete act of law.
Over these years, as each bill became public, I pulled out my reading glasses and dug in to wade through the legalese. It was a hobby. I should have been a lawyer as I actually enjoy the depths of such exploration, discovering the meanings of each provision and ferretting out the dangers and deficiencies.
What I have discovered is that none of the bills would have been truly good for poker players as written. While better than nothing, none really hit the mark. It has been best to support such bills in order to bring home the message to our representatives that their constituents desire government licensing and regulation of online poker. But only up to the point where a bill makes it through the amendment process to consideration for a vote and passage on the floor, at which point it is better to take a considered stance based on the final form of the bill. None of the bills achieved that stage in Congress.
I publicly and enthusiastically supported every bill. That is, until last December, when Senate Majority Leader Harry Reid floated the draft bill of his compromise with socially-conservative Former Senator Jon Kyl, then the Senate Minority Whip. This Reid/Kyl compromise bill was more complete than any other to date. While the bill never was formally introduced to Congress, it came closer to passage than any prior bill. Reid intended to push it through the backdoor political maneuver that achieved passage of the UIGEA – attachment to a must-pass bill.
I took my considered stance on the Reid/Kyl bill and publicly opposed it. I did not find any particular make-break provision in the bill, but the combination of a number of bad-for-poker-players and poorly-written provisions made me believe the bill was too dangerous and too deficient. I did not want that bill to pass. I am thankful that Reid was unable to accomplish his goal of attachment and passage.
This year, Representatives Peter King and Joe Barton have each introduced a licensing and regulation bill, one for all online casino gaming and the other for just online poker, respectively. Each is built on the foundation of the Reid/Kyl compromise bill, stripping out what they didn’t want and adding in what would accomplish their goals, and in the process carrying over many of the negatives of the original (plus adding some of their own).
In contrast to my historical response, I could muster no enthusiasm for these bills. And in contrast to my opinion on how to accomplish the most towards passage of a federal bill, I no longer see vocal support of a deficient bill as a positive action for the cause, especially in light of the recent legislative successes at the state level in Nevada, New Jersey and Delaware. The time had come to take matters into my own hands.
I still believe that a good federal bill is the best route to regulated online poker in the U.S. Better than the morass of hurdles on the state-by-state route. And there does seem to be a will for a new Reid-Kyl-style compromise bill in the current Congress, to ban most forms of online gambling along with a program to license and regulate online poker.
I do not want to leave it in the hands of our lawmakers to build the bill. It would just once again carry over the bad. Instead I have written my own bill, the Internet Wagering Citizens Protection Act (IWCPA). The IWCPA is also built on the previous bills, but I rooted out the bad and replaced it with everything good for poker players that should be in it, while maintaining the level of prohibition and enforcement that will make the IWCPA viable in the current political climate.
WHAT Was Wrong With Other Bills
While examining the problems of all eleven bills would be too tedious for this article, I think a look at the big issues of the Reid/Kyl bill is worth a gander.
The language of the provision giving states an election for being opted in or out of the program was a big problem. It mandated a method for a state legislative vote for the state’s election (a majority of a quorum of each legislative chamber, and without a requirement for the Governor’s signature) that could be in conflict with the laws or constitution of some states. This would open the door for a legal challenge to the bill that conceivable could result in a federal court ruling striking down that particular provision, thus leaving no method for any state to opt in to the licensing progam. What would be left is just an effective prohibition on all forms of unlicensed Internet wagering, including online poker. The King bill carried over this same defect. The Barton bill eliminated this wording, but introduced its own problems such as language that could allow a state Governor to decide the state’s fate, and technically leaving no method for a state to opt back in once it has opted out.
The Reid/Kyl bill introduced a provision for the forfeiture of property connected to the operation of unlawful or unlicensed sites. This provision encompassed forfeiture from both the site operators and the players. Depending on court interpretation of the provision, a player could find themselves in a situation under this provision where the federal government seized their home, their bank accounts, their computer, etc., leaving it up to the player to prove they had done no wrong. The King bill carried this over, word for word, but at least the Barton bill eliminated it.
The Reid/Kyl bill forbade Indian tribes from being site operators if their state opted-out. This was a clear violation of tribal sovereignty. Both King and Barton correct this issue, and do a much better job overall of preserving tribal sovereignty and existing tribal-state compacts.
There was an express prohibition in the Reid/Kyl bill against international player pooling. The King bill changes it to an express inclusion of foreign players where it is legal in the foreign jurisdiction, but doesn’t set up any mechanisms to facilitate such inclusions. The Barton bill remains silent on the issue, with no prohibition and no inclusion.
The Reid/Kyl bill required the use of biometrics of similar technology for age and identity verification, to a standard which almost certainly would have required the implementation of methods very intrusive to personal privacy. Both King and Barton have dropped biometrics as a requirement.
One of my biggest objections to the Reid/Kyl bill, which has carried forward to both King and Barton, is the method of determining what is illegal cheating and cheating devices on a site, subject to criminal penalties. Each site would decide by including the targeted activities and devices in their rules of play. Any violation of any site rule to gain an unfair advantage in play would then be a violation of law. In other words, the sites themselves would essentially be determining what is legal or illegal, rather than the law or regulations. A player would have to know every term and condition for a site in detail to know whether or not they were breaking the law.
None of the bills, Reid/Kyl, King, Barton nor any of the prior bills, have addressed some big problems for online poker players that currently exist in U.S. tax laws. Read more about that in the next section of this article. None have offered a smooth transition for players from the existing marketplace to live licensed sites. None have dealt with site taxation issues in a manner to ensure that the poker economy won’t be gutted. None have addressed bad actors in a way that is both just and protects players from new truly bad actors in the future.
There are a number of other gritty language problems with each of these bills, as well as a dearth of player protections beyond some general treatments of cheating, fraud, privacy and the like. Don’t get me wrong, there is plenty of good solid work in these bills, which I have used to build on for my bill. But there is also much wrong with each of them which requires fixing in order to make what I would call a good bill.
WHAT My Bill Says
The IWCPA will make it expressly illegal in the U.S. to offer Internet wagering except for sales of lottery tickets, legal horserace wagering, skill games, fantasy sports and licensed online poker, plus whatever intrastate online gambling is already legalized on the state level (NJ, NV, DE, et al) at least 30 days prior to enactment. Dubbed the “Federal Overseer”, the Secretary of Commerce with the new Office of Internet Wagering Oversight, for states, and the National Indian Gaming Commission, for Indian tribes, will oversee the federally-authorized licensing and regulation of online poker,.
Existing state and tribal gaming agencies will be eligible to be designated by the Federal Overseer as “qualified regulatory authorities” (QRA). A QRA will issue licenses for online poker operators and certificates of suitability (COS) for their significant vendors. Initially eligible for a license will be any US-licensed gambling operators who have at least 500 slot machines in one facility; any US-licensed poker room with at least 75 tables; any US-licensed race track with $50M in gross handle in three of the past five years; any state or tribal lottery; and any slot manufacturer that supplied at least 500 slot machines in the last five years to US-licensed gambling operators. Two years after enactment, the Secretary will be required to begin a regulatory process to expand licensing to other companies.
Under a license granted by a QRA, operators will be able to offer online poker to anyone located in any opted-in state or tribal lands, as well as anyone outside the U.S. where it is legal under reciprocal agreements between the QRAs and the foreign jurisdictions. Affiliates of each operator will be able to run skins of the licensed site, without the need for their own license. Platform providers (888, bwin.party, Bally Gaming, SHFL Entertainment, etc.) will be eligible to apply for a COS to supply the poker platforms to licensed sites.
Anyone convicted of a felony for providing online gambling to U.S. players (bad actor provision) will be ineligible for a license or COS for the first five years, as well as anyone who knowingly purchased assets from them. About the only operators excluded by this provision will be a few people that have been convicted of offering sports wagering. Also excluded is anyone who demonstrates a disregard for law by having offered any online wagering that violated a U.S. federal or state law, but that is a subjective determination left up to each QRA.
States and Indian tribes will be opted-in by default, and opt outs will need to be in accordance with their laws. This option provision found in most of the prior bills has always had problems in language, implementation or even constitutionality. I believe I have resolved these issues and made it as beneficial for poker players as feasible. There will be battles to be fought on the state level to achieve opt-ins, but it will still be easier than fighting these battles on a state-by-state basis from where we are now without a federal bill.
Taxes on the licensed sites will be limited to a revenue tax of 12% optionally imposed by each opt-in state or tribe on players within their borders, plus a revenue tax of 3% optionally imposed by each QRA on their licensees. These site revenue taxes will be assessed on all fees and rake collected from players, less any cash incentives paid out to players, such as bonuses, rewards and tournament overlays. The sites will be forbidden to charge these taxes against player account balances. Operators will also be required to pay user fees to cover the costs of the licensing and regulation regime, for both the Federal Overseer and the QRAs. No other taxes or fees on site operators will be allowed, except for normal individual and corporate income taxes.
Income tax for players has been a sticky problem. As tax laws and IRS rules currently stand, players are supposed to count the wins or losses from each session of play separately, and add them up for the year as separate figures for reporting as gross gambling income and a gambling loss deduction. In online play, counting each session would mean counting each tournament, sit ‘n go, or cash game table result as one session. Especially for online play, using this method tremendously skews the figures of Adjusted Gross Income and Itemized Deductions on the federal tax returns of players, with various negative consequences. In addition, there are several states which don’t carry over or disallow the federal gambling loss deduction for their state income tax, forcing players in those states to pay taxes on every winning session, often resulting in a tax liability far greater than the net amount won. Without a fix for this problem, the success of federally-authorized online poker would be in doubt.
The IWCPA solves this income tax issue with a very simple and elegant amendment to the U.S. tax code. It redefines gross income for skill games (and in this bill poker fits the included definition of skill game) in a way that nets wins and losses for the year. I suspect this provision of the bill might not survive Congress, but even so there are several other treatments of tax reporting and withholding in the bill which will still ameliorate the problem.
There are many other provisions in the IWCPA that provide detailed protections for players, covering segregating and protecting player funds; detecting and preventing cheating, collusion, fraud and theft; self-limits and self-exclusion for problem gaming; ensuring a random and protected deal; privacy and security protections; transparency of the sites; dispute resolutions; independent testing of hardware and software; and others. There are also detailed provisions to amend other federal laws to allow licensed online poker and to enforce the prohibition against unlawful online gambling. There will be both a list of licensed sites and a list of unlawful sites for use by payment processors to allow or block transactions.
The schedule for implementation after enactment of the bill will be:
1 day: unlicensed sites cease taking US player deposits and begin returning US player funds;
120 days: regulations and applications for QRAs are issued;
150 days: at least one international accrediting body is approved for accrediting independent testing labs; and deadline for initial applications to be designated a QRA;
180 days: first QRAs are designated; deadline to create the list of unlawful online gambling sites; deadline to issue other federal required regulations; states become opted-in by default if they haven’t asked to be opted-out; and rules defining cheating and cheating devices are established;
270 days: deadline for QRAs to issue first licenses, which will go live on day #270; unlicensed sites required to cease all US-facing operations.
In short, 9 months after enactment, federally-authorized licensed online poker will go live (if all goes according to plan).
WHO Will Benefit From This Bill
There is something in this bill to make just about all the significant stakeholders and political factions happy. It is an ultimate compromise bill.
For casinos, it will shut down the expansion of online casino gambling, protecting their existing operations from cannibalization. It also gives them early entry into online poker, which can boost both their bottom line and their brick & mortar visitations.
For lotteries, although they don’t get to add online casino gambling to their offerings, it does give them express authorization for online lottery ticket sales, as well as eligibility for licensed online poker.
For tribes, it protects their tribal-state compacts through detailed provisions that preserve such compacts, and puts online poker outside the normal classes of Indian gaming. It also preserves tribal sovereignty. And, of course, they get to be QRAs or run licensed online poker sites (at least those tribes with gaming currently).
For race tracks, it clarifies current federal laws such that their off-track wagering operations are expressly legal. They also get to run licensed online poker.
For the socially conservative, it shuts down the expansion of online gambling, adds new enforcement tools against unlawful online gambling, puts in strict protections for problem and underage gambling for licensed online poker, and funds federal programs for compulsive gambling.
And most importantly, it is great for poker players. It preempts all the dangers and deficiencies found in the other federal bills, and it fills the voids with protections and enhancements for the players.
WHERE Does It Go From Here
The IWCPA might or might not make it to the halls of Congress. I do have some contacts willing to help bring it before some lawmakers – more would be welcome. I also intend to put it, one way or another, before Reid, King, Barton and other politicians involved in introducing online poker legislation, although I don’t yet have a clear and effective path to accomplish that.
It is quite unusual for a citizen to write a federal bill. I am not so naïve to think that I can get the bill introduced, let alone passed into law. I think of it more as a model to put in front of our Congresscritters, to give them something tangible to see exactly what it is we want.
I think it is time to quit just saying “I want online pokerz” and to start saying “here is exactly how it can be accomplished”. It’s like choosing your starting hand: Is it better to start with a hand that needs a good flop, or a hand that is already made? If I were a betting man, I’d put my money on pocket aces.