Friday, July 30, 2010


I'm not sure why I'm spending so much time on the subject of HR 2267, since I'm highly dubious that it's going to get enacted into law. But sometimes I just get curious about something and have to figure it out, even if there are no real-world consequences.

I wrote earlier today about the balkanization of online poker, but only in a footnote. My friend Cardgrrl submitted a comment in which she expressed doubt that this was really a problem. That made me wonder if I'm understanding the matter correctly, so I went back to investigate it a little more, as I had previously been relying primarily on news reports summarizing the bill's provisions.

The first of two amendments that I'm focusing on is Amendment 8, offered by Campbell, and agreed to by voice vote. It adds to the requirements for obtaining a federal license this language: "Require licensees to maintain all facilities within the United States for processing of bets or wagers made or placed from the United States."

The second is Amendment 16, offered by Sherman, and agreed to by voice vote. This specifies that in order to receive a federal online gaming license, the applicant must provide "Certification that the applicant has established a corporate entity or other separate business entity in the United States, a majority of whose officers are United States persons and, if there is a board of directors, that the board is majority-controlled by directors who are United States persons." It further states that the licensing entity must "Require that a majority of all of the employees of the applicant or licensee, and of its affiliated business entities, be residents or citizens of the United States."

Let's suppose that, say, Australia passed an essentially identical law for the licensing of an online gaming company to accept bets from its citizens. Can Acme Poker USA operate in both places?

Clearly Acme Poker is going to have to have its servers and administrative offices in the U.S., using U.S. employees--at least all of those facilities that are going to be handling U.S. customers. I suppose it could set up a subsidiary corporation, something like Acme Poker Australia, and base it in Melbourne--although even there I'm a little uncertain, because of the language about "affiliated business entities."

Now can a U.S. player and an Australian player play at the same virtual cash-game table? That strikes me as problematic. Obviously the two servers have to communicate with each other continuously in order to make such a game happen. I wager $1 here, Kangaroo Ken raises me $2 more. It seems to me that the servers in Australia are necessarily "processing," in some way, the bet that I made, and, in parallel, the U.S. servers are "processing" the bet that Ken is making--in apparently violation of Amendment 8.

You might argue that the Australian servers are not part of the U.S.-licensed company. First, in my hypothetical, Acme Poker Australia is a subsidiary of Acme Poker USA, and thus is under the ultimate control of Acme Poker USA. So maybe we change that and make them, somehow, sister companies, neither one controlled by the other. Or go even further and say that they are wholly independent, but have negotiated a cooperative agreement to use compatible software and exchange real-time poker game data so that their players can freely compete against each other. (I have a hard time seeing how that could actually work, because there would be no common pool of money. But set that aside, and assume it could be figured out.)

But there is still a problem, I think. The language doesn't say that the licensee has to make sure that only those facilities under its control are in the U.S.; it says that "all facilities" for processing bets by U.S. players must be located here. The implication of that is that the company cannot allow the transmission outside of the U.S. of any data required for any part of the "processing" of a bet by a U.S. player, which would seem to imply that there can be no international play. If a server in Australia is receiving the wager information from me and passing it on to Ken, surely that server is "processing" my bet, which violates Amendment 8.

I might be completely wrong about all of this. I'm giving you my admittedly amateur and rather hasty and superficial analysis. But unless somebody presents me with a persuasive argument as to why these amendments do not, in fact, have the effect I'm inferring from them, I will be of the opinion that the version of the bill passed by this committee, if enacted, is going to make it impossible for there to be legal poker played by U.S. residents that involve anybody situated outside of the United States. (It would also mean that you couldn't play on your usual site when you were traveling outside of the country, but that's a much smaller concern.)

It appears to me that if every country passes substantially similar measures, what we will be left with is a global patchwork of sites, none of which can communicate with each other--the very antithesis of what the Internet was supposed to accomplish. The artificial lines we draw on maps to delineate our territory from that of other nation-states will be adopted into online gaming, as if the Internet did not exist beyond our own shorelines.

This is "definitely...good for poker"?


Wolynski said...

An Italian poker writer told me in Italy they have poker sites only for Italians.

You're right, if the whole world can't play poker together, what's the goddamn point of the Internet?

As for the balkanization issue - Americans can only use American Amazon. I wish I could order stuff from England, but I can't.

I really don't see anything wrong with online poker as it was pre 2006. Licenses? Regulations? Bullshit.

Cardgrrl said...

If the language is to be interpreted the way you suggest, the sites couldn't use the public intertubes at all. All such internet traffic is potentially routed through facilities outsides the US even if its two end-points are within the US, and no commercial entity operating in the US can guarantee otherwise unless they are using infrastructure exclusively under their control.

It would be absurd to limit communication of information across the net in the way you describe. (It's not impossible that Congress would pass a completely absurd law, I grant you. But I can't imagine them knowingly drafting a law that was nothing more than a huge practical joke: Here, we license internet poker! Except you can't actually ever qualify, because you're using the internet! Hahahaha! Thanks for playing!")

What constitutes "bet processing?" Until you know the answer to that question (and my guess is that it's much more narrowly defined than you posit), the balkanization concern seems unwarranted. If I had to guess, I'd bet ~ ha! ~ it will be similar to what is required of US Banks when it comes to electronic monetary transactions.

Rakewell said...

Your argument seems to be this:

(1) Transmission of data between a player and the server, assuming it is via the Internet, cannot be guaranteed to be completely within the US because data packets might bounce outside our borders en route.

(2) The bill's author's couldn't intend a result so absurd as to make impossible the very thing they're purporting to license and regulate.

(3) Therefore, the bet "processing" language can't limit games to mean only players located in the U.S.

Assuming I've understand that correctly, I agree with (1) and (2). But you make a leap of logic with (3).

I agree that bet "processing" cannot include simple transmission of raw data, or we get the absurd result you suggest. But it does not follow that "processing" can't mean anything that involves the Internet and/or that would exclude non-US players.

To the extent that you are just saying that I can't be sure that either those writing the rules that will govern interpretation or the courts will read "processing" the way I'm suggesting, I agree. I don't know that they will. But it's hardly a far-fetched possibility. I still maintain that what I have suggested is not only *a* natural reading of the language, but the *most* natural reading of it.

Unless the "processing" language gets further clarified in the later legislative steps, I don't think anybody could plan to enter the field with confidence that an international game was going to be allowed.

Wine Guy said...

Any way you slice it, all they want is their tax take. That's all it has ever been.

Grange95 said...

A major justification for the local control over servers is to make regulation and inspection easier (think investigating the next superuser scandal). So, while I think the section could be read to allow Goliath Poker to have Goliath Poker US, Goliath Poker Australia, etc. with each subsidiary having local officers, control, location, etc., the big rub is where do the servers with the RNG and the actual individual game data go?

It might be annoying but possible for each subsidiary to keep separate data on player funds, and each subsidiary could use its own skins for data interface. But at some point, the data from all the national skins has to conglomerate somewhere; players have to all be at the same table. If every country insists on hosting the server that has the actual game data, then balkanization must occur.

Now, one solution is to possibly permit reciprocal inspections of servers with other countries that meet US standards. But so far, at least in Europe, that's not happening, In fact, the EU court recently ruled that countries could close off outside companies because of these kinds of regulatory concerns.

Most likely, this is the type of provision that will pass because of nationalistic jingoism (combined with paternalistic protection for American gamblers), but it will quietly be reworked once Harrahs decides it wants an international network (although, who knows if it minds a fractured market approach?).