Why PokerStars abandoned Washington, and why others will too

Last week, PokerStars announced that it would block residents of the state of Washington from its real-money games. It was the first time that the world's largest Internet poker room has blocked U.S. residents from any state.

The action stands in stark contrast to the company's response to the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006, when it proclaimed that it would stay open to all U.S. citizens, while Party Poker, the clear market leader at the time, opted out of the U.S. market.

When the Safe Ports Act passed and the UIGEA became law, publicly traded companies like Party Poker made a mad dash for the exit, because they had to answer to shareholders. But privately held companies, like PokerStars and Full Tilt Poker, stayed open for business in America and thrived as a result of Party Poker's exit.

So why did the privately-held companies stay? The UIGEA clearly states that nothing in the bill will be construed as making anything illegal that had previously been legal. While the U.S. Department of Justice has publicly said that all Internet gambling — including poker — is illegal, it is legal to play games of skill for money on the Internet. Poker has been ruled a game of skill at the state level, most recently in South Carolina and Pennsylvania, but that has never been established in U.S. federal courts. PokerStars continues to assert that it can offer real-money games to U.S. players because poker is a game of skill, and the UIGEA does nothing to make Internet gambling illegal for the player.

The situation in Washington is very different. The law includes penalties for players (up to five years in prison and a $10,000 fine, though not one player has ever been charged or accused of committing a crime for gambling on the Internet) and expressly includes Internet poker in its definition of illegal online gambling.

When Lee Rousso's lawsuit challenging the constitutionality of the law failed by a unanimous decision in the state's Supreme Court, it became quite clear that offering Internet poker games in the state of Washington is illegal, and will continue to be, barring a change in the law or a reversal of the decision by the U.S. Supreme Court, both of which are unlikely, even in the long term.

The question many people are asking — especially Internet poker players in Washington —is why would the ruling even matter? The DOJ has said for years that PokerStars is breaking the law by offering real-money poker games to Americans in ANY state. Why suddenly care about the law now?

The answer lies in the details of Barney Frank's Internet Gambling Regulation, Consumer Protection, and Enforcement Act (IGREA). While the prospects of the bill's passage in this session of Congress seem to be dimming, the momentum for such a bill does seem to be growing. If it doesn't get passed in this or the next session of Congress, look for something by 2013. The bill states that no "bad actors" (those who offered illegal Internet gambling services to American consumers in the past) would be able to obtain a license. While the DOJ believes that PokerStars is breaking the law by offering real-money games to Americans, PokerStars believes it will be able to present a case saying that the company never broke the law, as the only online gambling it offers is Internet poker, which is really a game of skill. However, if they allowed residents of Washington to play real-money games at this point, they would clearly be breaking the laws of that state.

It isn't as if this hasn't happened before. When France announced a new regulatory environment for Internet poker and sports betting, PokerStars immediately shut down its operations in France while it applied for a French license. Once the license was granted, PokerStars.fr was born. Full Tilt Poker, likewise, followed suit. And it appears that they may be planning on making a graceful exit from the stage in Washington as well.

"While the option to play real-money poker games of skill is still available on Full Tilt Poker, we will have further information about the status of real-money play by Washington residents in the near future," wrote a Full Tilt representative in response to a request for the company's take on the issue.

The truth of the matter is, never again will residents of all 50 states be able to play Internet poker on the major sites. And since the IGREA includes an opt-out provision for state legislatures, chances are that if/when it passes, there will be more people living in states on the outside looking in. The sites have shown a clear preference for regulation, and if/when it happens in America, they will be happy to shut out players in the states that want their residents to be shut out in return for having clear access to the rest of the U.S. population.