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September-23-2008,
Payment System Protection Act (HR6870) Is a Useless Bill...By Hartley Henderson

Last week the House Finance Committee voted 30-19 in favor of Barney Frank's Payment System Protection Act (HR6870) to the loud cheers of poker players and the groans of many sports bettors and the sports leagues. The bill, if passed as is, would make it clear to the banks which transactions should be blocked and would essentially make all forms of online gambling legal, except sports betting which would be vigorously targeted. Many poker and casino sites, naturally, are excited at the prospect of being approved by the government. but the excitement may be premature. In order for HR6870 to be approved there would have to be a carve out for everything in the UIGEA except for sports. This essentially would make the UIGEA meaningless, which of course is Barney Frank's intention since he claimed the UIGEA was one of the dumbest laws ever passed. For some odd reason the Poker Player's Alliance and all poker sites seem to feel that the UIGEA intended to exclude poker from the bill since it's a skill game and it was in error that poker was included in the first place. Jay Lakin of Pokersourceonline.com disagrees and believes poker was indeed meant to be included, but he applauds the bill since online poker is his livelihood.

The truth, of course, is that poker was not only intended to be included in the UIGEA, but it was the main reason that the UIGEA was created in the first place. Sports betting and casinos are merely blips on the total online betting market radar, it was the rapid growth and "in your face" activities (e.g. advertising on radio, print and TV in the U.S.) of poker sites like Full Tilt Poker, PokerStars and Party Poker that encouraged the anti-gambling forces to try and stop online gambling. Mostly, congress wants to dictate to Americans where they can bet, and to protect the profits of the local land-based casinos, where apparently it's moral for Americans to bet. Last year Alan Dershowitz tried to argue that sports betting was as much skill as poker and should be excluded also from any bill, but it appears that argument never got very far with congressmen. Nevertheless, the bill still has to pass the House and the Senate where it has little chance of being adopted since the Senate is filled with gambling antagonists. And in truth, the bill should not be adopted in its current form if its main objective is really for the reasons outlined by the likes of Barney Frank, Ron Paul and Robert Wexler: to try and get the UIGEA overturned or modified.

The main reasons Frank and others felt the UIGEA was a bad piece of legislation are as follows:

1) It creates an undue burden on financial institutions to try and track the needle in a haystack, i.e. the few gambling transactions among the billions that take place each week. In fact, the banks even said that trying to track those few transactions could put the whole banking industry into turmoil, although it appears the banks are doing a good job of that on their own.

2) It is unfair since it allows gambling on some things like horse racing and lotteries, but makes it illegal to bet on other things like poker.

3) It goes against states' rights since gambling has always been a state decision. It isn't the federal government's business to intervene in what states want to do with regards to morality laws.

4) It isn't the government's business to tell American adults how to spend their own money in the privacy of their own home when it harms no one else.

If those are indeed the reasons that HR6870 was introduced by Frank, then the carve out for sports betting actually hurts the justification for the bill.

Let's be realistic. Telling the banks that they have to block checks or bank wires from places that are gambling related and have "sports" in the name (which is really the only way they can implement a block solely on online sports betting) won't work. Offshore sportsbooks don't pay out from accounts in their own name anyway, and checks are cut from online processors worldwide who process transactions for all kinds of internet businesses, including poker, sports, online shopping, etc. In fact I recently purchased an item online from a music company in the UK and it had the same name on the Visa Statement as the one that I used for Betfair. Of course both companies are legal in the UK and there is no intent to try and block transactions from Britain since the UK gambling firms don't accept U.S. clients, and the government has given their blessing for those places to operate online. But Betfair has still found it useful to use other forms of payment options besides credit cards and checks written on the company name, likely because many bettors don't want their spouses knowing that they are betting online or other reasons that would benefit the bettor not to show the name Betfair on a statement. So U.S. facing gambling sites will still have checks that are cut from all over the world through a multitude of processors regardless of whether the transaction is for sports, casinos or poker. So trying to find the "illegal sports transaction" will still be a nightmare for the banks, and thus the bill does nothing to address concern #1.

As for concern #2, the argument that the UIGEA is hypocritical since it allows betting on horse racing, lotteries, fantasy sports and Indian gaming while all other forms of gambling are blocked becomes even more hypocritical if it all of a sudden allows online betting on everything except sports. No doubt Frank and his cronies will argue that placing sports bets is already illegal in the United States, so blocking those transactions is not counterintuitive to his argument. But in truth, sports betting is not illegal and never has been. What is illegal is taking bets by the phone which of course falls under the 1961 Wire Act. The courts ruled that the law does apply to bookmakers operating offshore and also to the internet (some would say in a faulty decision), but placing bets has never been an offense on the federal level. So the government already has the Wire Act on the books which they have used to prosecute offshore bookmakers in the past. Many would argue that it isn't fair to stop Nevada casinos, which are currently struggling due to the fledging economy, from offering their sports betting product to the rest of the United States.

That brings us to reason #3. Many States have claimed that the UIGEA is meaningless because state laws supersede federal laws in areas of morality such as gambling, alcohol consumption, gay marriage, etc. In fact, in the state of Washington, betting online is a felony that brings the same sentence as rape. The law is being challenged in the courts on the grounds that it contradicts the dormant commerce clause of the constitution, that it demonstrates that States have the right to set their own penalties for breaking the law since many states don't make online betting an offense at all. So without question, the only way Congress would even consider allowing this bill to pass is if states' rights are affirmed and they are allowed to "opt out" of HR6870. If that's the case, it's certain that close to half the states, if not more, would opt out of the law, making it a two tiered law and effectively making this new legislation even more confusing and difficult to enforce by the banks. The banks will have to block transactions of bets placed from some states, but not others, and will somehow have to determine that a bank transfer by someone from Oregon (where online gambling is not illegal) to someone in Washington is not really being used for online poker (where it's a felony). The law will be even more of a nightmare because some states will opt out of interstate betting but yet offer intrastate betting, and then will try and offer the online wagering to other states. Those states who don't want betting from those other states will try to block it, but the states trying to offer the online gambling will no doubt appeal to the courts arguing the dormant commerce clause, i.e. that if State B offers the betting intrastate they can't block a similar offering from State A just because it's interstate.

Finally, as for reason #4, the new bill is hypocritical because it imposes Frank's own beliefs on others. Frank clearly doesn't care for sports betting, but likes to play poker online, so he has offered a carve out for the activity he could care less about. Frank is not recognizing the fact that millions of Americans enjoy betting on sports and watching the games from the comfort of their own homes. As Frank said, it's not the government's decision to tell Americans what to do with their own money in the comfort of their own homes, and that should include sports betting. Naturally some will say that Frank's argument is fallacious because you shouldn't be able to snort cocaine or watch child pornography just because it's in your home and it's something you enjoy doing, but those activities are illegal everywhere and child pornography is not victimless. Sports betting is available in most of the world and in part of the United States. Nevada allows betting on sports, and some states have sports lotteries. The purpose of trying to block sports betting is strictly to protect the land-based casino industry in states where it exists (which Frank mentioned was not a reason to block an activity) and to cater to the sports leagues who don't want betting on their sports. Apparently the NFL, MLB and other leagues feel that betting on their sports somehow encourages cheating and hurts the integrity of their sports. It's ironic that in Europe soccer leagues, rugby leagues and even U.S. football style leagues don't have an issue with betting on their sports and actually encourage it, but in the U.S. the sports leagues have their heads buried in the sand and feel that stopping online gambling will help the leagues' integrity. The truth of course is that the amount bet online is miniscule and the majority of betting is done with illegal bookies, the kind of betting activity that got NBA referee Ted Donaghy in trouble. Of course if the bill ever goes through and somehow manages to block all transactions to offshore sportsbooks (fat chance) then bettors will start looking for local outs which will increase organized crime. Americans were betting underground long before online sports betting existed and they will continue to bet, regardless of how they place their bets. So Frank can be happy in the knowledge that he helped the mob increase profits with this bill.

But that raises a further question: why does the federal government care what sports leagues want anyway? How is it the government's concern whether people bet on the NFL or not? I'm sure California wineries would prefer that Californian's didn't purchase European wines. However, it's not the government's job to increase California wine consumption in the state. No doubt that if the wineries cried about the fact that people were buying too much foreign wine, the government would tell the wineries to improve their product and try to convince citizens to purchase locally. So the sports leagues can continue with their useless campaigns encouraging people not to bet on sports, but it's not the government's duty to do their bidding. It's also quite bizarre that the sports leagues apparently have stated their disapproval with HR6870. I have seen no reasoning for the outcry, but I can only conclude that they feel somehow opening online gambling in any way will result in betting on sports. But again, how is it the sports leagues' concern that online poker may be allowed when it doesn't involve them? I know many here at MajorWager aren't happy with the U.S. government's decision to bail out the financial sector to the tune of $700 billion which some say could go into the trillions. I'm also sure that George Bush and others couldn't care less whether MajorWager employees are concerned or not; and to be honest he shouldn't be concerned. MajorWager is not affected by the bank bailout, so it's not our concern. Similarly, the sports leagues should have no say in what happens with online poker or casino betting. It's not their industry so they should mind their own business. The fact that they chimed in at all only goes to show the arrogance and gall of the sports leagues' commissioners.

One last reason the bill should be scrapped is that it would be seen as an issue by the WTO. When the WTO granted their decision for compensation to Antigua and the other complainants in December, those countries gave the U.S. the benefit of the doubt that they were withdrawing because they found online gambling (except horse racing) immoral. A few countries have still not reached an agreement, and if the U.S. all of a sudden allows interstate gambling on poker the demands from the countries will go up exponentially and it will also be evident that the U.S. was lying about withdrawing its commitments on grounds of "morality". As well, Peter Mandolssen, who appears to be looking for a way out of the agreement they came to in December, could go back to the WTO and demand the decision be reversed since the U.S. allowed interstate wagering less than a year later. George Bush has demonstrated that he really couldn't care less about the WTO, but the same may not hold true for Obama or McCain. In fact McCain is seen as strongly pro trade and believes deeply in the WTO. So if the WTO tells the United States to up the compensation since they were lying it may be taken more seriously.

HR 6870 will soon be voted on in the House where it may or may not pass. But unless a lot of Democratic poker lovers win Senate seats the bill will die there. At that time some Congressman will probably introduce a new bill to repeal the UIGEA without any restrictions. HR6870 and similar bills will never pass because it appears that the politicians are simply trying to appease the poker industry. If the politicians take a more general approach and argue that betting is not the concern of the federal government and should be handled only by the States it would probably get more interest. A sample of a new bill could say the following:

"The UIGEA was attached to the Safe Port bill and was designed to prevent Americans from using their money online for something that is legal on land throughout the United States. It is clear that the majority of the public, the financial industry, and various other interests do not approve of this law, and House Finance Committee hearings have demonstrated it is virtually impossible for the financial industry to effectively block online gambling transactions without further harming an industry already in great peril. We therefore introduce HRxxxx to repeal the UIGEA and make it null and void. State laws and the current federal laws regarding sports betting, i.e. the Wire Act and the Travel Act, will apply."

Without question, wording similar to the above would probably gain more acceptance from both houses because each house recognizes that the UIGEA is unworkable---and that the current pending legislation does nothing but support poker, which is the exact opposite of the original intention of the UIGEA. For the UIEGA to be repealed, Americans must vote in Senators and Congressmen with more Libertarian views that will not be swayed by the fear tactics and rants of John Kyl and Robert Goodlatte, et al.

09-23-2008
Hartley Henderson
MajorWager.com
henderson@majorwager.com

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