Online Poker Regulation: So Now What?

So now what? Pray.

ESPN yesterday confirmed a story we broke last week, and that is the Reid BillTM for all intents and purposes is dead.

So what does that mean for the poker industry in 2011 and moving forward?

In discussing with a number of industry insiders, here’s our take of what to expect (also, read F-Train’s excellent take on the topic here):

  • Heavy crackdown on payment processors: The U.S. government is traditionally slow to move on anything. However, they are ramping up their efforts to bring down payment processors (and not actual online poker operators). This remains consistent with what the UIGEA is attempting to accomplish and what many have been telling us all year. The Southern District of New York has been subpoenaing people and having their inquiries, and with “laser focus” on the payment processing industry. We like Pokerati‘s measured take on this point, in that we won’t see much change (other than slower payouts) for about six months, and then increasing difficulties after that. But the sky has been falling since late September 2006, and in general, we expect a slow grinding away on payment processors to continue on payment processors until some form of the Reid Bill goes into effect.
  • The Fed will be forced to act: How this will shake out we’re not sure yet, but with intrastate online poker getting passed in New Jersey, California, and D.C., Harry Reid will be getting pulled–hard–by Nevada casino interests to step in and regulate this at the Federal level. To us, it’s more a matter of “when” than “if.” So as we said last week, the Reid Bill is dead, but it will still be alive.
  • Someone fills the communication void: This is more of a hope on our part than something we believe will definitely happen. But it needs to happen. Again, time to move the debate away from “personal liberties” arguments and to tangible difference-making talking points: 1) online poker regulation repatriates funds and will create billions in tax revenues; 2) online poker regulation will create tens of thousands of domestic jobs; 3) online poker regulation will stimulate business for all brick & mortars in all states that opt-in, 4) online poker regulation protects kids and adults by creating safeguards for participation; 5) online poker regulation protects the consumer by enforcing safety standards. — On that note, everyone in the media needs to make sure we’re using the words “online poker regulation” instead of “legalization.” Makes a big difference on the public perception side of things.
  • WSOP participation drops; NAPT pulls out: Just gut feelings here, but it’s reasonable to assume that with increased payment processor difficulties, participation numbers for the WSOP may fall (also, in part, because participation rose so much last year). Also, the by-the-books PokerStars organization may assess the NAPT to be too big of a risk as the year progresses and temporarily goes on hiatus at some point over the next two years.
  • Sponsorship Status Quo: Don’t expect much to change in the way of sponsorships, at least in the short-term. Sites are still going to snatch rising players and free agents in 2011, including at the WSOP.
  • Media shrinks and consolidates: We fully expect some media outlets to go into survival mode and sweat it out until a regulated environment exists and the U.S. market opens up. That means staff cuts for some, and consolidation to achieve operational efficiencies for others.
  • A new bill will be more favorable: Part of the reason we believe the Reid Bill bombed last week was how heavy-handed it was in favor of Harrah‘s and other Las Vegas brick and mortars. As the bill evolved, it became more open for Indian casinos, and slightly less death sentencing for current online operators. We expect that trend to continue. We’ll also learn how effective the PPA can truly be, as they now have some more time to represent their constituency and ensure a freeze-out period isn’t as long as previously constructed (i.e. 15-month minimum).
  • But we’re still years away: Unless a new bill is really, really more favorable, we still believe the U.S. will have a freeze-out period for some period of time, meaning a truly regulated environment is further down the road than we’d all like. And while we think that intrastate poker measures will ultimately force the Federal hand, if things get stalled, we’ll need to see an economic rebound and some Democratic House and Senate pick-ups in 2012 before anything realistic happens for regulation.

So expect change, just not in one fell swoop. Should make for an interesting 2011.

 

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