The Government Gambling Monopoly

by Collin Moshman

On April 15, the federal government busted online poker behemoths Pokerstars, Full Tilt Poker, and Absolute Poker. The Department of Justice issued a 57-page indictment against the owners, accusing them of such crimes as "Operation of an Illegal Gambling Business." The FBI also seized their domains.

US players are now restricted from playing on the two largest US online poker sites, Pokerstars and Full Tilt, with the status of many millions of dollars in online poker balances in limbo. Even for sites allowing players to withdraw this money, many worry it will be seized or indefinitely delayed if cashed out.

There is widespread outrage within the poker community concerning these events, among both professional and recreational players, as well as those in the extensive poker media and side businesses. After all, online poker is a voluntary activity. Participants choose to devote their own time and risk their own money when playing, and willingly pay the house rake for this privilege. So how do we understand the government’s aggressive actions in this case?

By definition, the US government has a monopoly on the use of force in the US. They may therefore claim a monopoly on any industry they wish, such as protection or the sale of alcohol. For instance there are government-run liquor stores. For private restaurants and businesses wishing to sell alcohol, however, the only option is expensive licensing for the privilege of competing with the government. If you don’t make the right payoff to get one of these licenses, you’re running an illegal operation and risk being shut down.

Similarly, the US government has a monopoly on gambling. If you want to gamble in the US, you can participate in a state-run lottery or play in a government-licensed casino. But despite poker being a game of skill, the government treats it as part of this gambling monopoly. Just try running a raked homegame and see what happens.

While the DOJ indictment against the poker site owners has many counts, including money laundering, the core of the bust is clearly protecting the gambling monopoly. After all, 8 of the 9 counts pertain to gambling that the government has deemed unlawful. Pokerstars, based in the Isle of Man, is not part of the US government, nor licensed by the US government, and therefore violates the gambling monopoly. Meanwhile a recent estimate has the company generating daily revenue of $1.37 million. For the government, this situation is unacceptable.

Government-approved solutions have been proposed, such as last month’s H.R. 1174:

If enacted, this legislation would allow the Director of the Financial Crimes Enforcement Network (FINCEN) to adopt a framework for legal internet gambling. Specifically, FINCEN would be authorized to license online gambling sites annually and require the sites to use age identification technologies and pay the appropriate licensing fees, which would cover the cost of monitoring online gambling sites. Importantly, online gambling sites which are not licensed by FINCEN would be considered illegal…

Indeed, the standard stance among the more optimistic US players is that now that the government has forced out the major sites which allowed US players, the next step is a site that does comply with the US monopoly.

As a player, I have no choice but to hope for this outcome as well, as the alternative is to play on smaller and dodgier sites, where it is increasingly difficult to deposit and withdraw. It’s important for us to remember, however, that the government monopoly-approved outcome would only be a victory in terms of allowing poker players to continue playing the game they love. When it comes to the basic principle that businesses and individuals should be allowed to participate in voluntary transactions without violent interference, we all lose.