Online Gambling: You Gotta Know When To Fold ‘Em

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May 2, 2013 11:06am NYSE:BJK

online gamblingGreg Madison: The card sharks out there can rejoice. Online gambling is now legal – in Nevada.


And other states are watching – and waiting to see what happens. It’s a good bet some of them will follow Nevada’s lead and legalize online gambling.

Online poker playing had been in a deep freeze in the United States since 2011, when the federal government seized the domains and domestic assets of several online casinos – and millions in player bankrolls. The seizures were attributed to violations of the Unlawful Internet Gambling Enforcement Act of 2006. Tax issues, interstate gambling, fraud and money laundering were all at one time or another given as justification for the seizures.

But the game is poised to make a comeback, at least in Nevada and one company is bringing online poker out of the murky, obscure offshore world.

Ultimate Gaming, which is owned by mixed martial arts titans Frank and Lorenzo Fertitta, has created a software and Website platform, called Ultimate Poker, where Nevada residents can once again legally play online poker.

The games will be regulated in accordance with Nevada gaming regulations. And prospective players will have to go to some lengths to prove they’re bona fide Silver Staters, by giving their addresses and Social Security numbers.

If the Nevada experiment succeeds, other revenue-hungry states likely will decide to bet on online gambling.

The Associated Press reported that worldwide, online bettors spend about $35 billion each year. H2 Gambling Capital of London estimates that a fully implemented, regulated online gambling industry on American shores could bring in $4.3 billion revenue in its first year and $9.6 billion by its fifth year.

There’s clearly a lot at stake here, and a lot of room to run. It’s helpful to understand where online poker has been in order to see where it could go.

Online Gambling: You Gotta Know When to Fold ‘Em

As much as any Internet phenomenon hasa past to speak of, online poker has had a checkered history.

In the first decade of the 21st century, a multitude of online poker sites cropped up, each promising a gambling experience where you could sit in the comfort of your own living room, bedroom or back bayou poker shack and go head-to-head against like-minded individuals, scam-bots or Russian gangsters. (It was sometimes hard to tell who you were playing against.)

By the end of the first decade of the 2000s, the wheat had been largely separated from the chaff. A few key players like PokerStars, Full Tilt Poker and Cereus emerged as the major online poker destinations. Most of these sites were based in the Caribbean, in Antigua and Barbuda, even as the companies behind them were headquartered in Europe.

The gambling sites also caught the attention of the U.S. Justice Department and major American gaming corporations. The end result was the crackdown in 2011 in which 11 people were indicted, dozens of online poker companies went under, and uncountable player deposits and winnings were tied up.

Gambling advocates, libertarians and players alike decried the government seizures. An often-repeated claim at the time was that the Justice Department was essentially acting as muscle for large gambling concerns such as Caesar’s and Wynn.

The Washington Post quoted former New York Senator and poker enthusiast Alphonse D’Amato: “This is an attack on Internet poker and American poker players like me. Through these strong-arm tactics, prosecutors think they can ban Internet poker. Instead, they are making millions of Americans victims in an attempt to make online poker illegal without the support of legislators or the public.”

The drama played out in the courts, with a blizzard of seizures, claims, counterclaims, indictments and plea bargains.

Reuters reported that Antigua and Barbuda even considered bringing their case against the U.S. government to the World Trade Organization in 2011, saying the Americans’ prosecution of Antiguan payment processors and site operators was a breach of international trade agreements. Offshore gambling constituted the second-largest segment of the Antiguan economy, and the country maintained it was engaging in legitimate international trade.

Meanwhile, poker players, not yet made whole, were forced further underground … or out to Las Vegas and Atlantic City card rooms.

The fallout didn’t stop with the players. Many of the gambling sites had been heavy advertisers on newly popular televised poker events. According to CNBC, these programs lost a combined $200 million in business as real-money online poker sputtered.

The Justice Department eventually worked out a deal that enabled players to begin to withdraw their deposits from the shuttered gambling sites, while real-money poker thrills became scarce.

Ultimate Fighters for Overlooked Opportunities

Enter the Fertitta Brothers and Ultimate Gaming.

The Fertitta Brothers have a history of championing underdog pastimes, getting them properly regulated and marketing them to wider audiences.

They brought the Ultimate Fighting Championship up from basically nothing to become one of the fastest-growing pro sports around. Their company Station Casinos Inc. consists of 10 gaming and resort destinations and eight casinos. It’s a private company employing around 11,500 people. Station is one of the big players in the “locals” market in Nevada – that is, casinos tailored to Nevada locals rather than tourists.

Ultimate Poker is the first legal online real-money poker platform we’ve seen in America. It’s a canary in a coal mine.

It arrives at a time when social attitudes toward gambling are changing – or just giving way to the dire need for revenue streams. State after revenue-hungry state has legalized at least some form of casino gambling. Whether online poker will catch this wave remains to be seen.

The numbers are very compelling.

The American Gaming Association reports casino gaming in the United States alone accounts for $92 billion worth of business.

The host communities get a bit less than $14 billion of that money in return, in the form of taxes collected, fees and – importantly – employee salaries of around $1.9 billion.

A state or local government would be hard-pressed to justify walking away from that kind of money once it’s on the table. The economic impact is nearly irresistible.

As I’ve heard, it’s unwise to count your money when you’re at the table, but the success and spread of online gambling seem like pretty safe bets.

Related: Market Vectors Gaming ETF (NYSEARCA:BJK), Zynga Inc (NASDAQ:ZNGA).

Money MorningWritten By Greg Madison From Money Morning

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.


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