What's Next for U.S. Online Poker?

With Harry Reid's internet poker bill (seemingly) dead, it's time to think about what the U.S. online poker universe could look like in 2011.

1. Fragmentation of the industry - this is something that I touched on briefly during This Week in Poker on Tuesday. Fragmentation of the industry is gaining speed. Already, Washington State has banned online poker. Now California, New Jersey and DC are pushing ahead with efforts to legalize intra-state online poker (intra-state because of the misguided notion that the Wire Act of 1961 prohibits online poker across state lines).

On one level it's good to see the states trying to take the lead on this issue. But if history is a guide, it means the federal government will only be that much slower in developing national standards while it waits to see how things play out at the state level. It also gives anti-gambling legislators like Sen. Jon Kyl (R-AZ) another argument against creating a national system.

If intra-state poker becomes the prevailing model, the industry will be split into multiple miniature player pools on a state-by-state basis, to the detriment of American poker players as a whole. And once Humpty Dumpty has shattered into 50 different pieces, good luck trying to put him back together. There *will* be differences in how online poker is run and regulated from state to state. Balancing and unifying all of those competing differences, and competing state interests, in national poker legislation will be exceedingly difficult.

Reid-bill detractors might point out that there would have been fragmentation under that bill as individual states opted in or opted out. While that's true, at least all of the opt-in states would have been playing in the same player pool with the same set of rules. Under state efforts, there's a different pool -- and most likely different rules -- for each state.

2. Continuing deterioration of payment processing - For anyone who thinks the status quo is fine, here's a reality check:

* Online sites are now cutting paper checks out of Singapore.

* Electronic deposits and withdrawals have started taking weeks to show up in players' bank accounts.

* The card room manager of Cake Poker -- someone with a vested interest in peddling the fallacy that all is fine in the payment processing world -- has gone on record as saying, "The [Department of Justice] is bolder than ever and Washington State has set an ugly precedent. It will come down to payment processors who have no more scruples than your average Mexican drug or African arms dealer." That's not a healthy direction.

* In 2010, more than $30 million was seized by the U.S. government for UIGEA violations. That was money that belonged to U.S. bettors, some of it traceable to PokerStars and other online poker sites. The amount seized in 2011 stands to increase.

* At this very moment, the Southern District of New York is investigating payment processors and how they code online poker transactions.

The status quo is NOT fine and cannot continue indefinitely. The government is starting to catch up to what the UIGEA intended four years ago. The DOJ is getting itself up-to-speed so it can shatter the backbone of the U.S. online poker industry -- money movement. Without the Reid bill or similar legislation, players in states that aren't moving forward intra-state poker legislation will find it more and more difficult to move money onto and off of online poker sites. No money means no games. It's as simple as that.

3. U.S. abandoned? -- It's hard to imagine that this will happen in 2011, but at some point the risk/reward ratio of operating in the U.S. may become too unfavorable for the online poker sites. Businesses are going to operate like businesses. When it no longer makes economic sense to stay in the U.S., they'll get out while the getting-out is good.

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The Reid bill didn't fail because it was bad policy. And the Reid bill didn't fail because it got too much publicity (no matter what the gambling lobby wants you to believe). The Reid bill failed because its proponents, and the businesses that stood to benefit the most from it, allowed social conservatives and opponents of both Reid and the bill to shape the debate.

How much did we hear about the job-creation and tax-generation aspects of regulating an industry in which 15 million Americans already participate? Not very much. On the other hand, we were treated ad nauseum to arguments about: (1) the "social evils" of problem and under-age gambling; (2) how the bill was a quid pro quo for Big Gaming's support of Reid during his campaign against Sharron Angle; (3) some sort of nonsense about the illegality of creating a "federal right to gamble"; and (4) who was going to get screwed by the bill: Indian tribes, state lotteries, my Aunt Martha's bingo hall.

There's nothing that says we won't get another bite at the apple in 2011. But split control of Congress -- the Republicans now have a majority in the House -- will make any legislation more difficult to pass. Historically, Republicans have not been very friendly to poker legislation.

As 2010 comes to a close, we're left with an online poker future that is murky at best.