Thursday, November 08, 2012

Now that the election is over, Sheldon Adelson's other shoe may drop

Sheldon Adelson

Casino magnate Sheldon Adelson bankrolled Republican candidates and causes in the 2012 election and rolled snake eyes. Recent legal developments may give this megadonor of the super-PAC era additional reason to worry: newfound competition from online gambling.

The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), 31 U.S.C. §§ 5361-5366, has been widely regarded as a legal firewall against online gambling. If banks can't process payments for games of chance, that business would face a formidable legal barrier. Moreover, as Judge Thomas Shadrick of Portsmouth, Va., has reasoned, games such as poker are games of chance notwithstanding the element of skill, because each hand's success depends on an irreducible random element.

The first crack in this legal edifice appeared in December 2011. Reversing its previous position, the Department of Justice issued a new opinion that the Interstate Wire Act of 1961, 18 U.S.C. § 1084, applies only to sports betting.

In August 2012, Judge Jack Weinstein of the U.S. District Court delivered an even more serious blow to the UIGEA/Wire Act edifice. Judge Weinstein reasoned that poker is a game of skill and therefore falls outside the scope of the UIGEA. Judge Weinstein cited Rogier Potter van Loon et al., Beyond Chance? The Persistence of Performance in Online Poker. That paper's central finding, based on a deep database of poker hands, is as follows:

A major issue in the widespread controversy about the legality of poker and the appropriate taxation of winnings is whether poker should be considered a game of skill or a game of chance. To inform this debate we present an analysis into the role of skill in the performance of online poker players, using a large database with hundreds of millions of player-hand observations from real money ring games at three different stakes levels. . . . Our results suggest that skill is an important factor in online poker.

If John Boehner fulfills his pledge to bring America back from the brink of the fiscal cliff, the lame duck Congress may turn its attention to the proposed Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012. By offering individual states the ability to opt into permitting the processing of payments for online gambling, this bill may assign responsibility for resolving the legality of online gambling to individual states.

As if Sheldon Adelson and Karl Rove haven't already had a wretched month of November, Mr. Adelson's casino business faces a new phantom menace from online gambling and the big data that might tip the legal balance of power in the gaming industry.

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