Policy Innovations Digital Magazine (2006-2016): Briefings: Europe Calls U.S. on Gambling Laws

Poker has long captured the minds and wallets of amateur and professional gamblers, but the ability to play online has helped the game reach a truly massive global audience. Poker's prominence on television these days assures its continued success. As professional cardplayer Phil Gordon told the New York Times, "Poker is the only 'sport' on television that guys at home can visualize themselves doing at the top level. They know they'll never catch a pass from Tom Brady or dunk on Kobe Bryant. But, they have a shot of ending up at the final table of the World Series of Poker and winning $10 million on national television."

The allure of televised poker has exploded in step with the popularity of online poker. Several gaming websites were the first stop for "average joes" who went on to win the World Series of Poker on national television. But the online game is not without its legal, fiscal, and ethical questions. (Full disclosure: I play and enjoy poker, and know people for whom online poker is their primary source of income.)

Despite the surge in popularity, it is illegal to run a gambling website within the United States. The major poker websites are run through Europe and are regulated by commissions based in Europe. As a result, people in America who wish to play poker online must jump through several hoops in order to ante up. Those hoops include using a digital wallet to transfer money out of the United States and then to the poker site of their choice.

The European Commission alleges that American internet gambling laws are unjustified and discriminatory, since they forbid American citizens from purchasing that service from any company, domestic or foreign. WTO laws don't prevent the United States from outlawing strictly domestic trade of a good or service, but they do pertain to whether the American government can prevent its citizens from paying foreign companies for goods and services that are legal elsewhere. Recently, the European Union instituted a gambling tax on online gamblers within their country of origin.

Europe's WTO complaint has re-raised the issue of gambling legalization and regulation in the United States—a topic that should arouse the interest of politicians looking for extra revenue in a time of tight budgets. But online poker comes with its own set of fiscal responsibility pitfalls. The ability to deposit a large sum of money and double it or lose it within hours without leaving the comfort of one's home is alluring and dangerous. Most online poker players are not one click away from destitution, but there are strong arguments against collecting tax revenue from legalized access to websites where anyone can upload and lose their paycheck.

Given poker's popularity and the ease of online access, the sport will only grow stronger in the years to come, and the United States may wish to place its bet on a WTO-compliant, revenue-generating law to regulate online gaming. Some of the revenue could be used to fund broader gambling addiction counseling programs to offset any negative effects.

Ethical problems can also lurk within the game itself. Part of poker's allure is the lack of "house advantage." Poker websites make their money by taking a small percentage of each hand played, but players do not compete against the site. The cards are random, so everyone has an equal chance of winning in the long run. The problem is that online poker players have no way of knowing whether the game is dealing them poor cards by coincidence or by pattern, whether the player across the table is a computer or a human, or whether there is a player at the table who has the perfect information of knowing everyone's cards.

Absolute Poker encountered the latter problem in 2007. A former employee created a "superaccount," which could see every player's cards, and teamed up with a friend to cheat their way to the top of an online tournament hosted by AP. Over the following months the truth came out and AP was punished, but the damage was done. Trust is essential to doing online business, especially with the amounts of money thrown across virtual card tables.

Nonetheless, online poker has expanded since that incident, proving that it is a resilient and popular movement that is here to stay.