PartyPoker mucks U.S. hand

When President Bush signed the Security and Accountability for Every Port Act on Friday, it marked the end of PartyPoker.com's reign at the top of the U.S. Internet poker mountain.

The law includes an attachment, the Unlawful Internet Gambling Enforcement Act, which requires U.S. financial institutions to block transactions to Internet casinos, sportsbooks and poker rooms. PartyPoker, long the dominant player on the Internet poker landscape, has officially stopped allowing U.S. players to wager real money in its online poker room in response to the law. The decision to prevent American customers from utilizing the site was made by the Board of Directors of PartyGaming, which owns and operates PartyPoker along with several other online gaming properties.

"The Company will suspend all real money gaming business with U.S. residents, and such suspension will continue indefinitely, subject to clarification of the interpretation and enforcement of US law and the impact on financial institutions of this and other related legislation," the company stated in a press release on Oct. 2.

While several Internet poker rooms and casinos have joined PartyGaming in declining U.S. play, PartyPoker has the most to lose. PartyPoker claimed a 41 percent share of worldwide online poker revenue at the end of last year, according to PartyGaming estimates. But seventy-seven percent of PartyPoker's revenue came from U.S. customers in 2005.

The impact of losing access to the U.S. market has already hit PartyGaming in the wallet. Share prices for the company, which are traded on the London Stock Exchange, have shrunk almost 75 percent since the company announced it would leave the U.S. market.

"Hopefully, the U.S. comes to its senses and tries to regulate online gaming so they get a carveout for poker," said Mike Sexton, who has served as a consultant for PartyPoker since the company started dealing cards online. "(PartyPoker) just wants to follow the law, do what's right and hopefully be welcomed back in the country if indeed the law changes."

It's a policy, however, that Daniel Negreanu believes will cost the company in the long run. While PartyPoker is no longer taking U.S. customers, FullContactPoker.com, the site Negreanu endorses, continues to do business with Americans.

"As the law reads, U.S. banks are not allowed to deal with online gaming sites," Negreanu said. "Well, they (didn't before the law was passed). It's just a way of enforcing the status quo. Right now, if you fund an online site, you send your money to (an e-wallet like) Neteller. Neteller is not a U.S. bank, and (the U.S. government doesn't) have jurisdiction over Neteller. It's not illegal to put money in Neteller, because you can buy mops through Neteller, you can buy CDs, you can buy a whole bunch of things. Nothing's changed, frankly."

Negreanu believes that PartyPoker is banking on a reversal of policy that would legalize and regulate Internet poker. By bowing out of the U.S. market now, Negreanu speculates that PartyPoker is trying to position itself as a company that would deserve special recognition if and when the U.S. does license and regulate Internet poker, and therefore be more likely to receive a license in a regulated U.S. market.

While Negreanu disagrees with PartyPoker's philosophy, he sees this period as an opportunity for smaller operators to pick up former PartyPoker players looking for a new site.

"Obviously some people are cashing out, but it's nothing staggering," Negreanu says of the traffic on FullContactPoker.com. "Actually, our numbers are up, and I think a lot of the numbers will continue to go up. We're going to be getting players from Party who realize they're not going to be playing there anymore. This is an opportunity for the rest of the world to catch up and actually surpass PartyPoker. People will see that other places do have better software, and I don't think they'll get the players back."