“The proper role of the federal government is not that of a nanny, protecting citizens from any and every potential negative consequence of their actions. Although I personally believe gambling to be a dumb waste of money, American citizens should be just as free to spend their money playing online poker as they should be able to buy a used car, enter into a mortgage, or invest in a hedge fund. Risk is inherent in any economic activity, and it is not for the government to determine which risky behaviors Americans may or may not engage in.” – Rep. Ron Paul (R-TX)

In our last post, we discussed the newly pending legislation in the U.S. Senate and the House of Representatives. In this post, we would like to discuss the lobbying activities of organizations interested in legalizing online poker in the U.S.

No discussion of lobbying efforts on behalf of online poker can be started without a mention of the Poker Player’s Alliance (PPA). For years, the PPA has fought for the rights of poker players to participate in this game of skill. You can find out more about the PPA at their website, pokerplayersalliance.org. Just for clarification, we have no relationship with the PPA, we just agree with their stance and support their activities.

The PPA is not the only organization supporting the rights of U.S. poker players to participate in online poker. Harrah’s, which happens to be the largest casino operator in the world, spent over $3 Million last year lobbying for online gaming. The Interactive Gaming Council (IGC) also put in over $2 Million to lobbying efforts. The big guns of online poker are also enlisting help from well-known people. PokerStars indirectly paid former House Majority Leader Dick Gephardt approximately $300,000 for his lobbying efforts last year.

So what does this all mean for online gambling? For one, if any act passes, the competition will be very stiff, which is great for online poker players. Harrah’s stands to be the big winner, with their dominant brand, the World Series of Poker. Imagine what would happen if suddenly wsop.com had online poker. A name like that would immediately send shockwaves through the online poker world. It would not be at all surprising to see Harrah’s ready to go as soon as it happens. With the WSOP brand and the largest gambling mailing list in the world, they would have a chance to dominate online poker. The same could be said for other large corporations like Bally’s, although they lack the poker brand recognition that Harrah’s possesses.

Legalization in the U.S. would also ramp up competition and as a result reduce rake rates. Economically speaking, there just isn’t any way the increased competition couldn’t lead to reduced costs for players. This would of be especially true for non-U.S. players who would be able to avoid any taxes levied on U.S. players. It is less clear how a 2% tax on deposits would affect long-run win rates. Even if the gambling entities pass the tax through to players, you could argue that the tax would mostly affect losing players who have to make additional deposits. That’s probably not what Congress has in mind, but that’s likely the reality of it.

Beyond the increased competition from the online poker sites, official legalization of online poker in the U.S. would bring a new wave of players into the mix. This would be fantastic for experienced players, poker training sites, and almost all companies that earn money from the online poker industry. Although online poker is still huge, it is down significantly from the levels in 2006. Given that the number of people using the Internet (and comfortable with it) has increased substantially since then, it wouldn’t be unreasonable to think that a 10-25% increase in online poker activity would be possible.

So it is fairly clear that the official legalization of online poker would have a dramatic impact on the online poker world. With all the good things about it, most notably freedom to do what you want with your own money, why would anyone oppose this? As it turns out, some very intelligent people are on the other side of the argument. That’s what we will discuss next time.