Quick and Dirty Summary of Harry Reid's Internet Poker Bill

Yesterday the Las Vegas Review Journal placed online a copy of Harry Reid's proposed online poker bill, the "Prohibition of Internet Gaming, Internet Poker Regulation and UIGEA Enforcement Act”. I spent a few hours last night looking it over and distilling its 75 pages down to these 700 words:

• The bill would set up a licensing, regulatory and tax framework for fully legal online poker in the United States. Operators wishing to offer online poker to U.S. residents would be required to apply for a license from a state or tribal gaming authority that has been qualified by the Commerce Department to issue licenses. Applicants would bear all costs of their application. Once issued, licenses would have a 5-year term.

• The first license cannot be issued until at least 15 months after the bill is passed into law. "Rogue" operators (operators like PokerStars and Full Tilt that have offered internet poker in the U.S. prior to passage of the bill), as a condition of eventual licensing, would be required to immediately cease unlicensed activities upon enactment of the bill and, within 30 days, return all customer deposits.

Thus, if the bill passes in its current form, there would be a period of 15 months where there would be *no* legal internet poker offered in the U.S.

• States and Indian tribes have the ability to opt-in or opt-out of allowing licensees to operate in their jurisdiction. The 35 states that do not currently permit "live" commercial poker may opt-in. The 15 states that allow it can opt-out. This status can be changed at any time upon at least 60 days notice to the Secretary of Commerce. Thus, we could potentially have a situation where internet poker is offered in some states but not in others.

• For two years from issuance of the first license, licenses can only be issued to applicants who have (a) owned or operated a casino or race track; or (b) manufactured and supplied slot machines to casinos; for at least 5 years prior to passage of the bill. For these purposes, a casino is a facility that "hosts 500 or more gaming devices in one physical location pursuant to a duly authorized license issued by a state or Tribal gaming regulatory authority." This is, obviously, designed to favor existing U.S. casino interests at the expense of existing, powerful internet poker sites like PokerStars and Full Tilt.

• All other operators would be ineligible to receive a license for a period of "[xx]" years after issuance of the first license under the Act. Supposedly "[xx]" is currently pegged at 2 years. When the 15-month lead time is factored in, it means existing operators like PokerStars or Full Tilt would have to leave the U.S. for a minimum of 39 months. They CANNOT get around this black-out period by selling the ownership or the assets of their organization to a "clean" entity. This is expressly prohibited by the bill.

• The U.S. player pool of licensed Internet poker operators would be segregated from the rest of the world for at least three years from the date the first license is issued. After three years, the Commerce Department can determine to allow commingling of the U.S. player pool with players from other jurisdictions where online poker is not illegal.

• The licensing fee is 20% of the licensee's "internet poker deposit receipts" each month. I admit I'm confused about what "internet poker deposit receipts" means. In one place, it's defined as "the aggregate… of the rake, tournament fees and all other fees or charges required or received from customers directly as a result of Internet poker, from deposits into any account maintained by the licensee or on behalf of the licensee." To me, that sounds like 20% of the rake. But in another place, the bill provides that "funds received from a customer by an operator of an Internet poker facility and made available in any form… for the purpose of placing a bet or wager… shall be regarded as deposits in calculating Internet poker deposit receipts."

• The UIGEA gets a little work-over with the creation of a list of "unlicensed internet gaming enterprises". The list will be maintained by the Treasury Department and will give financial transaction providers a definitive "black list" of entities for whom it is unlawful to process financial transactions.

• With respect to each internet poker player account, licensees are required to report to the IRS on an annual basis the following information: name; address; tax ID number; gross winnings, wagers and losses; calendar-year net winnings; tax withheld; year-start account balance; year-end account balance; and all calendar-year deposits and withdrawals . A copy of the IRS report should also be sent to the account owner.

Obviously this is a very cursory summary of the bill's provisions. Hopefully it's enough to educate people on the bill's contents and stimulate discussion. The bill is drafted in surprising detail, showing that someone's been working on it for quite a while.