Online poker

Online poker is the game of poker played over the Internet (online). It has been responsible for a dramatic increase in the number of poker players worldwide, and as of December 2003, revenues from online poker were estimated at US$34 million per month.

History

Traditional (or "brick and mortar", B&M) venues for playing poker, such as casinos and poker rooms, may be intimidating for novice players and are located in geographically disparate locations. Brick and mortar casinos are also reticent to promote poker because it is very difficult for them to profit from the activity. Though the rake, or time charge, of traditional casinos is often very high, the opportunity costs of running a poker room are even higher. Brick and mortar casinos often make much more money by removing poker rooms and adding more slot machines.

Online venues, by contrast, are dramatically cheaper because they have much smaller overhead costs. For example, adding another table does not take up valuable space like it would for a brick and mortar casino. Online poker rooms tend to be viewed as more player-friendly. For example, the software may prompt the player when it is his or her turn to act. Online poker rooms also allow the players to play for very low stakes (as low as 1¢) and often offer freeroll tourneys (where there is no entry fee), attracting beginners.

Online venues may be more vulnerable to certain types of fraud, especially collusion between players. However, they also have collusion detection abilities that do not exist in brick and mortar casinos. For example, online poker room security employees can look at the "hand history" of the cards previously played by any player on the site, making patterns of behavior easier to detect than in a casino where colluding players can simply fold their hands without anyone ever knowing the strength of their holding. Online poker rooms also check player's IP addresses in order to prevent players at the same household from playing on the same tables.

The major online poker sites offer varying features to entice new players. One common feature is to offer tournaments called satellites by which the winners gain entry to real-life poker tournaments. It was through one such tournament that Chris Moneymaker won his entry to the 2003 World Series of Poker. He went on to win the main event causing shock in the poker world. The 2004 World Series featured triple the number of players over the 2003 turnout. At least four players in the WSOP final table won their entry through an online cardroom. Like Moneymaker, 2004 winner Greg "Fossilman" Raymer also won his entry at the Poker Stars online cardroom.

In December 2003 it was reported that online poker revenues stood at around $34m (€ 40m) per month and were growing by 27% per month. By March 2005, at peak times approximately 100,000 people were playing for real money at the various cardrooms with a like number playing free games.

In June 2005, PartyGaming, the parent company of the largest online cardroom, went public on the London Stock Exchange, achieving a market value in excess of $10 billion dollars within a week of its initial public offering. At the time of the IPO, ninety-two percent of Party Gaming's income came from poker operations. Several other online poker companies are preparing or considering IPOs in London.

Legality

Online poker is legal and regulated in many countries including the United Kingdom and several nations in and around the Caribbean Sea.

While the United States Federal Appeals Courts has ruled that the Federal Wire Act prohibits electronic transmission of information for sports betting across state lines, there is no law prohibiting gambling of any other kind [1].

However, some states have specific laws against online gambling of any kind. Also, owning an online gaming operation without proper licensing would be illegal, and no states are currently granting online poker licenses.

The government of the island nation of Antigua and Barbuda, which licenses Internet gambling entities, made a complaint to the World Trade Organization about the U.S. government's actions to impede online gaming. The Caribbean country won the preliminary ruling but WTO's appeals body has partially reversed that favorable ruling in April, 2005. The appeals decision effectively allowed state laws prohibiting gambling in Louisiana, Massachusetts, South Dakota and Utah. However, the appeals panel also ruled that the United States may be violating global trade rules because its laws regulating horse-racing bets were not applied equitably to foreign and domestic online betting companies. The panel also held that certain online gambling restrictions imposed under US federal laws were inconsistent with the trade body's GATS services agreement.

In March 2003, Deputy Assistant Attorney General John G. Malcolm testified before the Senate Banking Committee regarding the special problems presented by online gambling [2]. A major concern of the United States Department of Justice is online money laundering. The anonymous nature of the Internet and the use of encryption make it especially difficult to trace online money laundering transactions. However, no evidence has ever been presented by the Justice Department or anyone else to support an assertion that online poker cardrooms are any more vulnerable to this sort of laundering than any other online business.

In April 2004 Google and Yahoo!, the internet's two largest search engines, announced that they were removing online gambling advertising from their sites, including poker. The move followed a United States Department of Justice announcement that, in what some say is a contradiction of the Appeals Court ruling, the Wire Act relating to telephone betting applies to all forms of Internet gambling, and that any advertising of such gambling "may" be deemed as aiding and abetting. Critics of the Justice Department's move say that it has no legal basis for pressuring companies to remove advertisements and that the advertisements are protected by the First Amendment. As of April 2005, Yahoo! has provided advertising for "play money" online cardrooms.

In February 2005 the North Dakota House of Representatives passed a bill to legalize and regulate online poker and online poker cardroom operators in the State. Testifying before the State Senate, the CEO of one online cardroom, Paradise Poker, pledged to relocate to the state if the bill became law. However, the measure was defeated by the State Senate in March 2005.