This was a very bad Friday for the online poker industry in the U.S., as Pokerstars, Fulltilt Poker, Ultimatebet Poker, and Absolute Poker were all shut down by the FBI. As of now their domains have stopped working completely, and this is certainly a big hit for the online poker industry.
Most of you are probably asking yourselves why this happened. It has long been known that online gambling is illegal in the U.S., ever since 2006 when the UIGEA passed the Unlawful Internet Gambling Enforcement Act, which declared illegal all online gaming processing in the US. This law was a game changer in the online gambling industry for many well established legal companies, who ran very good poker sites for US players such as Party Poker, 888 Poker, Playtech, and Microgaming, who had to give up their online business in the U.S. and gamble on other markets instead. Most of these companies are now well spread out across Canada, which has a more tolerant approach to online gambling and gambling in general, especially since there isn’t the same pressure from land-based casinos, as in the U.S., where land-based casinos in Vegas put massive pressure on the U.S. government to rule out online gaming, which caused a significant decrease in profit at their land-based casino businesses.
However, this is just one side of the story, because when a law is made, opportunity knocks as well, and there is always a loophole. This time it was big enough to contain the new players in the U.S. poker industry – Pokerstars, Fulltilt, and Absolute Poker (which also runs Utimatebet Poker, and UB.com). These companies simply claimed poker is actually a sport, and does not fit in the same category like playing online casino games such as slot machines or roulette. They might actually have a point there – as a Canadian poker player myself, for me poker is a sport. In fact, it’s a way of life, but that’s me. I am absolutely sure fellow Canadians feel exactly the same way – if you have a TV channel for poker, if it is broadcast on ESPN, why couldn’t it be online as well? I’ll tell you why – because the US government in strongly influenced by Las Vegas, and they have seen a decrease in profits since the day companies like 888 entered the gaming market and started spinning the wheels outside of the US, where the government simply can’t take its fair share of the profits. Vegas and the U.S. government have been losing young gamblers who would rather sit and gamble from their laptops instead of having to go to Sin City and spend more money for the privilege – this is the real issue.
And so, companies like Pokerstars, Fulltilt, and Ultimatebet did whatever they could to look like they are running a sports-related business and not an online gambling site. Pokerstars sponsored Daniel Negreanu and many other successful poker players; Fulltilt sponsored Phil Ivey; and Ultimatebet sponsored the UFC, wrestling, and more.
These sponsorships proved to be massive money makers for these companies, who rapidly became the largest poker rooms in the industry. Well, there wasn’t a lot of competition to deal with, that’s correct – but other attempts by similar companies weren’t as successful. But it’s not only that – what happened on Friday, April 15, gives us insigt into the real reasons behind the succeses of Pokerstars, Fulltilt, and Ultimatebet/Absolute Poker: Processing. If you’re a poker room who accepts U.S. players, that’s great, but who in the hell would process online transaction when the FBI can just log into your software, process a transaction, and arrest you for illegal gambling transaction processing? Remember, as mentioned above, every law is also an opportunity of profit. Well, Daniel Tzvetkoff, the man who was allegedly behind the payment processing scheme at sites such as Pokerstars, Fulltilt and Ultimatebet, was the one to take this opportunity, and turn it into a multi-billion dollar business. Last April, Tzvetkoff was arrested and charged for money laundering, bank fraud conspiracy for processing over half a billion illegal internet gambling transactions through Intabill – the processing company he had set up.
The idea behind the processing scheme used by these sites was to process all transactions as jewelry, golf equipment, etc., instead of as online gambling transactions. This was a good deal until Tzvetkoff got greedy and decided to save some more of the percentage of transactions for himself. Greed kills, they say, and this move was certainly disliked by the owners of Pokerstars, Fulltilt, and Ultimatebet, who decided to file a lawsuit against Tzvetkoff. This decision exposed their online poker profits right in front of the eyes of the FBI, who at this point decided it was enough to try getting their hands on Tzvetkoff himself, and, like in the old days when the authorities would take down the financial minds behind the mafia in order to get to the whole organization, the same was done here. Tzvetkoff was just the mind behind the scheme. What the feds really aimed to get were those running the main event – and so they did.
As of this point, charges are being filed against them and it’s not looking pretty. They are looking at five to twenty years in prison, and a up to $3 billion in accumulative fines. In addition to that, their online businesses were completely seized, generating a loss of over $10M a day.
So, who is to gain from all of this? It is yet unknown. Partygaming has already settled a claim with the U.S. Department of Justice, costing its owners a lot of money, even from a billionaire’s standpoint. Playtech, with its highly rated iPoker network, should also stand to profit – except they cannot accept American players. Well, it seems the online gambling industry is now going through its legalization phase. It is yet to be determined, but it seems that within the next one or two years the online gaming industry will be legalized within the U.S., the same as it is now legal in the U.K., France, and several other European countries.
Until then, poker players, we’ll have to sit back and wait for the next poker room to arrive, as when the demand for online poker is so high, there will always be someone to take advantage of it, legal or not.