Editor’s note: The following article by Barry Greenstein and the sentiments that follow represent only Greenstein’s opinion and not necessarily that of PokerStars or Team PokerStars.
The Bad Actor Clause is a provision written into the legislation in several states that are considering the legalization of online poker. Basically it says that any company that was offering online poker in the United States after the UIGEA (Unlawful Internet Gambling Enforcement Act) was passed in 2006 should not be allowed to operate in the U.S. now, or, should at least have to face some sort of waiting period.
Everybody knows this provision is specifically written into these laws to exclude PokerStars, which did operate in the U.S. post-UIGEA. The reasoning given is that in 2011, one of the founders of PokerStars was indicted on illegal gambling charges, including violating the UIGEA.
The first question I asked upper management when the UIGEA was passed was “Is all the players’ money safe?” PokerStars continued to operate in the United States because UIGEA did not make online poker illegal, it prohibited financial transactions related to illegal gambling as it has been historically defined. Many lawyers have argued that Poker is not illegal gambling because it is predominantly a game of skill, as opposed to house-banked games of chance that are clearly defined as illegal gambling. Still, like many players, I was concerned that the government could try to seize money that was being transferred from players to the poker site. I was guaranteed that the players’ money, dollar for dollar, was being kept in segregated bank accounts and that PokerStars’ regulator, the Isle of Man Gaming Commission, required them to do that. Representatives of other online poker companies operating in the United States were asking their upper management the same questions and they were given the same answers. As we now know, I was told the truth and they were told lies.
As I continued to represent PokerStars over the next several years, I discussed the legality of a number of issues with upper management. In every case, in every decision that was made, I was told PokerStars had lawyers who closely examine every detail to ensure that they were not violating any law and that their actions could be defended if they have to go to court or make their case for being licensed in the United States. One example is when the state of Washington passed a law banning online poker, PokerStars pulled out of the state. Because UIGEA made it more difficult for payment processors to accept payments, some of them used deceptive (and probably illegal) methods for accepting funds. I understand that PokerStars stopped working with any payment processor they found out was doing this, which actually made it increasingly difficult for the company to accept funds from players in many places in the U.S. At the same time, Full Tilt’s decision to continue accepting deposits from these payment processors ended up contributing greatly to their bankruptcy.
I was told this in 2009 or 2010, and everybody knows what happened on Black Friday, April 15, 2011. The U.S. Department of Justice shut the sites down and when the lights came on, we found out that Full Tilt was in a bad hole from their illegal activity, whereas PokerStars was right where they told me they were. They pulled out of the United States as the DOJ demanded, and as soon as they were allowed, PokerStars refunded the players’ money. However, PokerStars’ lawyers were still claiming the company had not been funding illegal gambling and that online poker was not illegal in the United States. At the time, the DOJ was saying it was illegal under the Wire Act of 1961, even though, as with a lot of things that happen online, the laws were written before the internet existed. Well, a funny thing happened at the end of 2011 when the DOJ finally made a ruling on whether online poker was legal or not. The verdict came back that while sports betting falls under the Wire Act, online poker does not.
You would think that after this judgment was handed down all the charges would be dropped, PokerStars would be viewed in the right, and state by state, online poker would become legal. Well, it just doesn’t work that way. Due to the indictment, PokerStars is worth too much money to the Department of Justice. Part of the Black Friday case had already settled for hundreds of millions of dollars, and PokerStars bought Full Tilt in the process, saving the DOJ a big headache by paying Full Tilt’s $186 million debt to non-U.S. players and putting up the funds for Full Tilt’s US players to be repaid by the Government.
Let’s return to the Bad Actor Clause. From a legal standpoint, it doesn’t look like PokerStars did anything wrong. So now other gaming companies argue that you can’t let PokerStars into the market because one of their founders is still under indictment. Until that’s resolved, PokerStars cannot be allowed to operate in the United States. These companies are spending an incredible amount of time and money lobbying at the state level and we’ve seen many politicians buy into their argument– with the emphasis on the word “buy” because these decisions are bought, not based on logic. Well, in June of this year, the founders of PokerStars agreed to sell the company to Amaya, a publicly traded Canadian gaming entity, and the founders will no longer be involved in PokerStars’ operation in any capacity. The proponents of the Bad Actor Clause lose their argument again, and you would think that now PokerStars is free to enter the markets in New Jersey, Nevada, California, and wherever else online poker may be regulated. As of this writing nothing’s been said, but again, it just doesn’t work that way.
I’m friends with a lot of people in management at other top gaming companies and they’ve told me the truth behind their argument. Of course they don’t want PokerStars in the market because not only is PokerStars the biggest online poker company in the world, it has proven itself to be the best. It has the best service. It has the best security. You can argue whether or not it has the best software, but you can’t argue that they try to meet the offerings and features of any of the competition. As big as PokerStars is, it has a family culture with the idea impressed on everyone that it is trying to be the best and will spare no expense to do it. Other companies don’t feel they can compete against PokerStars, because PokerStars gained deep respect from the poker community for quickly repaying U.S. customers after Black Friday and bailing out Full Tilt. Among poker players, PokerStars has incredible credibility. They run the biggest and best tournaments and other providers feel that if PokerStars comes to the market, they will continue to be the leading company as they have been for the last several years in Europe and as they were doing in the United States before they got shut down.
Now that Amaya has taken over, I expect the proponents of the Bad Actor Clause to come up with a new argument. With PokerStars being under new ownership, they’re going to have to drop their main sticking point, the Black Friday indictment. They could come back and say, “Oh, that didn’t matter. It’s not about ownership or management, it’s just the mere fact that they were operating in the U.S. after 2006.” They could even try arguing that PokerStars would quickly become a monopoly. Normally when a company is accused of monopolizing a market, what’s pointed to is the manner in which they’ve been anti-competitive. The only thing PokerStars has ever done is strive to provide the best possible product.
The funny thing about trying to keep PokerStars out is it’s costing everyone money. PokerStars presence increases the overall market because it signals to poker players that it’s safe to play online and PokerStars has built up a marketing machine that gets the word out about online poker. Additionally, players like choices of games across sites. Many players who sign up at PokerStars will also open accounts with their competitors. Other sites may see their percentage of the online poker pie decrease, but it will be a much bigger pie.
I don’t expect any of these arguments for the Bad Actor Clause to hold up in court and one of the best-known Constitutional scholars in America has said it is unconstitutional. But I don’t believe that this issue will be resolved in a court of law. The future of online poker in the U.S. will most likely be resolved at the political level after a whole lot of lobbying on both sides. I’m still hopeful that sometime in 2015 I’ll be able to play poker on PokerStars from my home in California. But it’s going to be a fight to get there.
To more accurately reflect what is going on, the Bad Actor Clause should be renamed the Good Actor Clause. The other gaming companies want PokerStars out because it provides a great product and treats its customers so well it makes it difficult for other companies to compete.