Monday, February 11, 2013

The End Of The UIGEA?


The next few months are going to be very interesting indeed.

But first, a brief history lesson.

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For those not in the know, the United States has been something of a piss-ant these past many years as regards online gambling. Oh sure, they say that the reason for this is to protect American consumers from nefarious online characters, and indeed, there is likely some truth to this. The primary reason, though, has nothing to do with protecting consumers. It has to do with protecting those that American politicians actually serve: the special interests.

By special interests, at least in this specific situation, I am, of course, referring to the landed casino operations. They, in their infinite stupidity, believed that they were in competition with online casinos. Because you know how an online casino and a physical casino are practically the same thing. Just how Need For Speed is a perfectly reasonable replacement for driving a Ferrari.

The ultimate manifestation of this corruption was the UIGEA, or Unlawful Internet Gambling Enforcement Act.1 This act was a last-minute addition (added at 9:29pm the day before the vote by Senator Bill Frist2) to the SAFE Port Act, an act which was the result of our collective freak-out over the possibility that a Dubai company may buy an American port (because you know how all Arabs are babbling, towel-headed terrorists).

Predecessor bills to the UIGEA had been bubbling around in Congress since the 1990's, but none of them had managed to gain much traction (thus explaining why it was finally passed by literally sneaking it into another, highly popular bill... I love America). Initially, the government was relying on the Federal Wire Act to try to stop online gambling, but this could only apply to operations within the country. As such, it was buttressed with the passage of the UIGEA, which is essentially an end-run around the fact that the U.S. cannot regulate things that exist legally in other countries.

What do I mean by end-run around? In short, the UIGEA prevents American financial institutions from transferring money to companies in other countries that identify as online entertainment — read: gambling. It makes illegal something that by all rights should be legal in this country: financial transfers from one legal organization in one country to another legal organization in another country.

The likely reason for the passage of the UIGEA, while its earlier variants had all died, was the loss of the only other judicial tool used to block online betting: The Wire Act. For years, the U.S. had been relying on the Federal Wire Act to prosecute companies and individuals associated with gambling. This was going as swimmingly as anything the government does until 2002 when the courts ruled that the Wire Act only applied to online sports betting, not games of chance. From then until 2011, the Justice Department did what it does best: be intransigent and nonsensical. In the face of overwhelming evidence to the contrary, they kept claiming that The Wire Act did, in fact, apply to all forms of online gambling.

But even the Justice Department must face, ya' know, reality now and then. In December of 2011, they were forced to abandon The Wire Act entirely, leaving all of their judicial eggs in one basket. This reality was evinced in the Full Tilt Poker case, where the Justice Department didn't once mention the Wire Act in the indictment.

I wonder if their Law & Order walk was intended to be prophetic.

The U.S. wasn't just relying on the law, though, oh no! They also relied on the fact that the U.S. can do whatever the fuck it wants and can simply give the finger to anyone who protests. Using the "whaddaya gunna' do aboudit?" argument as justification, the U.S. arrested dozens of people, notably David Carruthers and the aforementioned Full Tilt Poker arrests.

The former happened before the UIGEA and was primarily political in nature (the U.S. was saying "we're so serious about this, we are willing to arrest people without any actual laws in place."). The latter happened after the UIGEA and relied almost exclusively on it for the arrests. Indeed, it appears that Full Tilt was definitely side-stepping the UIGEA, but as a wise man once said, an unjust law is no law at all.

Since then, the UIGEA has been used to justify wild oversteps of governmental power, such as the seizing of domain names that end with ".com." All .coms are registered in the United States, which means that the U.S. can go after them. This was first known as the ICE Seizures and initially began in the Quixotic battle against copyright infringement (which adds further irony considering that copyright considerations come into play with our current mess). This expanded into online gambling. And because this is the U.S., they, of course, could not go about their business without royally fucking things up.

If you are wondering: yes, these are all widely considered to be illegal actions on the part of the U.S. And if not illegal, their actions are just plain stupid. As Gerd Alexander from Duke Law School argued in a 2008 paper,
The United States federal government’s attempts to curb Internet gambling are beginning to resemble a game of whack-a-mole.

U.S. gamblers have demonstrated that they will continue gambling online. Neither the Act nor the DOJ have effectively addressed the dangers of online gambling. On the contrary, the U.S. has forced transparent and regulated publicly-traded companies out of the market, only to be replaced by more opaque and potentially unscrupulous privately-held companies. In so doing, the U.S. has amplified the risks of consumer abuse, underage gambling, problem gambling and money laundering.
Furthermore, the UIGEA flew in the face of what Americans actually felt, with over 85% of those surveyed supporting online gambling. Let that number sink in. The government enacted far-reaching policy for something that only 15% of citizens felt may be a problem. A greater number of people think ghosts exist.

When all of this was pointed out to them, they responded with "whaddaya gunna' do aboudit?"

The totality of these offenses angered more than just companies and customers. It also managed to upset a number of countries. Specifically, countries that had built up a significant business of online gaming and betting.

Enter Antigua. Antigua and the United States grew side-by-side in the online gambling frontier. The U.S. was far ahead of other countries when it came to online gaming, which is odd considering that it was far behind other countries when it came to broadband Internet access. But that's neither here nor there.

As the U.S. market expanded, Antigua was among one of a few countries that was providing the infrastructure to take advantage of this. As such, they saw the online gambling business grow into a multi-billion-dollar source of revenue. Dozens of companies flooded the small country with money, jobs, infrastructure investment, and a position at the forefront of a nascent industry. Times were great for Antigua — times that came to an abrupt end with the passage of the UIGEA.

As I mentioned, the U.S. had been making noise about online gambling for over a decade, and Antigua had likewise been making noise in response to this. It started with their first appeal to the World Trade Organization (WTO) in 2003 attacking the legality of American attempts at blocking online gambling, a ruling in their favor in 2004, 2007, and again in 2009. For awhile, it looked like their threats were empty, with no actual intent of ever leveraging their WTO rulings into some action. Even after Brazil indicated that they would follow in Antigua's footsteps, nothing happened.

Then, late last month, everything exploded.

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Antigua, with the full and honest backing of the WTO, has announced plans to open a "piracy" website to distribute software, movies, music, games, and just about anything else covered under copyright in the United States. One thing that should be stressed is that what Antigua would be doing isn't actually piracy. Piracy implies a violation of recognized copyright laws. Antigua has been given permission to not recognize these laws, thus rendering piracy impossible. It's kinda' like James Bond being given a license to kill — it's not actually murder.

We are confident that in the coming days, our strategy will
have the desired effect.
- Antigua Finance and Economy Minister Harold Lovell
The United States has responded as one would expect them to, by losing their shit. Perhaps expecting rational reactions and argumentation is asking too much from the most powerful nation on Earth. After all, they have lost their case in the WTO multiple times, inexplicably claimed that they won, simply ignored the WTO, and continued to "negotiate" with Antigua, all the while trying to use the WTO to demand actions from other countries in other cases.

This is truly a perfect exemplar of the U.S. opinion on law: an unjust law is no law at all, and any law that is inconvenient for the U.S. is by definition unjust. Heads I win, tails you lose, and Antigua is now at war with that hubris. Considering the U.S.'s history with international law, it perhaps comes as no surprise that the laws that Antigua is using against the U.S. were created by the U.S. as tools for hegemonic control of international trade. It is impossible for the U.S. to violate laws.

In an interview for a recent book, noted deep thinker Noam Chomsky recounts statements made by liberal analyst and blogger Matthew Yglesias, who was criticizing those who attacked the U.S. for killing Osama Bin Laden without a trial. His criticisms were not of the Fox News, patriotic variety, though. He was attacking the idealistic naivete of those who relied on concepts of American law and justice to make their calls for a trial.
[Yglesias said] 'One of the main functions of the international institutional order is precisely to legitimate the use of deadly military force by western powers.' Of course, he didn’t mean Norway. He meant the United States. So the principle on which the international system is based is that the United States is entitled to use force at will. To talk about the United States violating international law or something like that is amazingly naive, completely silly.”
The United States is acting pissy because another country dared to use the laws written by and for the benefit of the United States against the United States. The impudence! And because the game isn't played like that, the U.S. has been acting like a child. A giant, powerful child that exists above the law. Indeed, this case has put out in stark display the alarmingly schizophrenic personality of the American government — we live for ideals, but the ideals are whatever we say they are, and even then they may not be. If that doesn't make sense, good. It shouldn't.

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If we disregard all of the details and minutiae of international relations, what we are left with are two arguably unjust systems — the WTO and the UIGEA — both created by special interests groups, at loggerheads. So at its most fundamental level, this isn't a case of country vs. country, but a case of industry vs. industry.

As I write this, two lobbying groups in Washington— copyright and gambling — are clashing with each other over conflicting interests, and are using the U.S. government as a pawn in the furthering of these interests. As one would expect from the economic desires of a single industry, this behavior is actively harmful to almost everyone else and practically begging to instigate broader conflict.

And instigate broader conflict it has!

The WTO's issues are well-known, and certainly more far-reaching, but the UIGEA gives up nothing as regards pure drama. Combined with near-constant resistence to it from other countries, from those in the government not in the pocket of the gambling industry, from the people of the United States, and the fucking gambling industry itself, I can't help but think that the UIGEA's days may be numbered.

So how will this all play out? Let us analyze the possibilities.

1: The U.S. drops its conflict with Antigua.

This is guaranteed to not happen. The panicked copyright lobby in the U.S. is very strong. They are also quite stupid. This means that they, regardless of their battle being pointless or not, are going to fight it tooth and nail. They are going to press the congresspeople that they own very hard. They will not let up.


2:The U.S. bribes Antigua.

This seems likely. The U.S. has already shown a willingness to do this, much to the chagrin of many. Whether Antigua accepts the bribes or not is more in question.  The articles I've found all seem to indicate that the USA's offers currently suck, as exemplified by this interview with Mark Mendel, one of Antigua's lawyers.
"Antigua negotiates with the United States for years and years and years, the United States doesn't really want to negotiate, they definitely don't want to comply, and they haven't complied. Antigua, after 10 years of negotiating, loses its industry and said, "What in the world can we do?"
This behavior is not surprising since the U.S. subscribes to the legal school of "whaddaya gunna' do aboudit?" Moreover, when representatives from the U.S. try to argue that it is Antigua being intransigent, we can pretty confidently cough the word "bullshit" right in their faces.

But let's assume that the U.S. is suddenly willing to play ball. What kind of bribe would do, and from whence would it come? Antigua estimates that they are losing more than $3 billion per year because of the lack of gambling. If that's true, then Antigua would rightfully demand reparations on the order of $3 billion. The U.S. is never going to just provide billions of dollars, so it would be up to the aggrieved industry to pay, and I seriously doubt that the gambling industry would be willing or able to cough up an annual $3 billion bribe to an entire country.

Perhaps the necessary number would actually be lower. I think that Antigua's estimate is exaggerated. They're probably using that number as leverage in any negotiations. Based on my own research, if I'm being generous, I would peg their share of gambling revenue at around half to two-thirds of that. But even at $1.5-2 billion, that's a massive number. Current projections have the global gambling industry growing by 25% over the next 24 months, so Antigua's share would exceed $2 billion in more realistic numbers, and over $4 billion in their optimistic numbers.

Considering that as broadband Internet access continues to grow across the United States, the size of the market would also grow. Because let's face it, no one is playing NetEnt games on dial-up. Based on the growth of online casino use, Antigua would be able to expect 10% annual growth for at least the next few years. Looking at the landed American casino companies, whose industry has stagnated for years, I seriously doubt they are in a position to make any bribes of such magnitude.3

All of this means that the likelihood of the U.S. making a successful offer is low. They may be able to offer other things from other industries, though — cruise ships, manufacturing, etc. — but that would have to be a massively robust package, which is again something that I don't think the U.S. is willing to do.


3: The UIGEA gets repealed.

This seems equally likely as #2. As I mentioned, this has become a clash between two lobby groups: the copyright lobby and the gambling lobby. If we combine both the Indian lobby and the landed gambling lobby (which I believe includes lottery companies), they spend about $47mil. The entertainment, software, publishing, and broadcast industries spend over $350mil. Basically, the casino lobby can't possibly go toe-to-toe with the copyright lobby, and if this situation comes down to choosing one industry to support, the entertainers and programmers will bribe the UIGEA out of existence.

[We need to] enable Americans to bet on-line and put an end
to an inappropriate interference with their personal freedom."
- Barney Frank
Obviously, option #3 is the best option, and the very real possibility of it is exciting. There has been constant resistance to the UIGEA from the very beginning, most vocally from Barney Frank. But obviously, ideals and common sense have no purchase in the harsh, intellectual wasteland that is Washington DC. Other lobbyists, though? Yeah. They can get shit done.

There is a greater than low chance that the UIGEA will be gone before the year is out.

The unavoidable corollary to the repeal is that regulation of some form may come along for the ride. This could come in the form of taxes for casinos based within U.S. borders, which would be a boon for government coffers. But I also hope that it would trigger the founding of some sort of disinterested regulatory service like Casinomeister, but without the problematic corruption.

Nominally, we have those now. We have the UKGC, the GRA, the AGCC, and the KGC. But all of them have proven to be, at best, ineffectual, and at worst, outright corrupt. The plain truth of the matter is that online gambling is completely and utterly unregulated. This could be significantly alleviated with a large, watchdog-like website run by the government. Its effectiveness would of course be maximized if it was not used as an excuse to squeeze tax revenue, but that would require the government to be concerned with actually solving problems, which is something to which they seem strangely averse.

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As I have said many times, I enjoy playing games online. I don't play much, but I do play enough where it is a pastime to which I look forward. The UIGEA made this pastime harder, more dangerous, and more annoying. But my personal feelings on the issue are like spitting in the rain — a small part of a cacophony of complaints and criticisms. It is the undeniable reality of the current situation that should, nay must, sway opinion.

The UIGEA has failed. Anyone with half a brain knew that it would fail even before it was passed. Now that it has been around for five years, we can say without doubt that it has failed. It has caused significant harm both to companies and to the United States' reputation among trading partners in the WTO. It is a disaster. There is no other word for it.

While the motivation for its death — lobbyist vs. lobbyist — is less than ideal, and indeed instills in me a depressing sense of futile cynicism about government, it is at least getting the job done. It is at least triggering change.

That is a good thing.

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1: Don't let the name fool you. What it is regulating isn't unlawful. The language of the title makes it seem as though it is giving greater power to regulate something that was already illegal, but the bill is actually making something illegal. Online gambling is and always has been legal in the countries where the casinos operate. This is the U.S. trying to play around with language to legitimize a judicial and policy overreach.

2: Bill Frist, who has never done anything bad ever.

3: I looked at the stock data from the #1 and #2 gaming companies in the world, Caeser's and MGM. Ignoring recent speculative spikes compliments of New Jersey governor Chris Christie's support of a trial period for online gambling in New Jersey, the stocks saw massive plunges at the beginning of the recession and have been flat ever since. To describe the performance of gaming companies as "the doldrums" is a wild understatement. 

8 comments:

  1. It's never easy. You're writing and research is, as usual, extraordinarily impressive. Whoever you are, damn! You lay out the situation with such clarity, I wish you were in a position to actually do something.

    In my opinion, you understated the impact of the UIGEA on helping rogue companies like BLR Tech thrive in the market. The recent issue with Spielo and BetFred may be another case. Ten years ago there were many rogues. That there are still so many rogues today is just crazy!

    Keep it up!

    ReplyDelete
  2. Sorry buddy. I don't buy your 'I'm just a guy' thing. No one who invests this kind of time and effort into a subject (especially online casinos) is 'just a guy'.

    I'm not saying that you're a liar or anything. You seem to be genuinely interested in truth and justice. I'm just saying that you may want to drop this whole joe-shmo thing. It just makes you look dishonest.

    My two cents.

    ReplyDelete
    Replies
    1. i was thinking the same thing. if he is an insider, then may be he's the best source we could hope for. the betfred thing seems like it was outed by an insider.

      Delete
    2. I can certainly appreciate your perspective, especially in the casino industry.

      All I can say in my defense is that I am not an insider. You can take that for what it's worth.

      Also, I will take the assumption that I AM an insider as something of a compliment. It means that you have been impressed with my work. So... thank you.

      Delete
    3. I wanted to jump in and add my thanks for this helpful, and insightful, addition to our blog. Your contribution, which you have valued at 2 cents, is in my opinion slightly undervalued.

      It's obvious that you gave it considerable thought and investigation. The Players in this industry need this sort of information and feedback - there are so few other sources.

      So, again, thank you.

      Delete
  3. Looks like you were wrong. Instead of bowing to the WTO, the US is just trying to create a new WTO with the TPP. That's something that they control completely.

    ReplyDelete
    Replies
    1. Yeah. That was a third option that I didn't think of till long after publishing. Talk about infuriating. Well, regardless, everything else that I have said holds true. The U.S. is losing its grip on the world. It is the end of the American Empire, and good riddance.

      Delete

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