Poker’s Black Friday: 7 Years Later
Seven years ago, today, the online poker world was thrust into the spotlight with what is now known as poker’s Black Friday. This fateful day virtually destroyed a once vibrant aspect of the U.S. online gaming industry when the U.S. government took legal action against several online poker sites due to the Unlawful Internet Gaming Enforcement Act (UIGEA) of 2006.
Many innocent online players lost significant bankrolls when the U.S. government raided and seized the URLs and funds from PokerStars, Full Tilt Poker, Absolute Poker, and Ultimate Bet. When all was said and done, these sites were summarily shut down, nearly 76 bank accounts in 14 countries were closed, and hundreds of thousands of online players lost millions of dollars.
As would be expected, the booming online poker scene halted suddenly. Whereas many online players either turned to live games or stopped playing poker altogether, some relocated to other countries where online gambling is legal—such as Costa Rica and Malta—to resume their online playing.
After a brief summary of the UIGEA and the resulting court case, this article will examine how the U.S. poker landscape has changed since that fateful day in 2011, how a renewed push for legalization has emerged, and what new legislation should entail to prevent history from repeating itself.
Editor’s Note: This still appears in my nightmares
The UIGEA: The Cause of Poker’s Black Friday
The UIGEA truly hit home with United States v. Scheinberg, 10 Cr. 336 (2011). The government asserted that the defendants—PokerStars, Full Tilt Poker, and the Cereus Network that contained Absolute Poker and Ultimate Bet—violated the Act by engaging in money laundering and bank fraud to process transfers to and from their customers.
Prior to what quickly became known as poker’s Black Friday, many in the online poker community paid little heed to the legislation believing that poker did not apply. Whereas some sites, like Party Poker, fled the U.S. market, those who risked breaking the law due to inadequate UIGEA enforcement were able to earn billions of dollars in revenue during the five years before the DOJ shut them down. Party Poker would have, undoubtedly, earned a good part of this revenue; however, it decided to follow the law by discontinuing services to U.S. players after the UIGEA’s passage.
Should Online Poker Count?
As mentioned, those sites that chose to ignore the UIGEA believed that the Act did not apply to poker. Generally, gambling games are of three types: games of chance, games of skill, and hybrids of the two, and for a more detailed explanation, this piece by Alfred Denning is quite humorous. Whereas most states’ gambling laws apply to games of chance, poker is considered to be a hybrid that contains elements of both, with most people—except for Denning—claiming skill is the overriding factor. As some states consider poker to be a game of chance, ergo, the UIGEA is, in fact, applicable. Since horse racing and fantasy sports are already exempt from the UIGEA, many believe that an exemption should exist for poker. But it doesn’t.
However, on 22 August 2012, U.S. District Judge Jack B. Weinstein issued a 120-page ruling in the case of U.S. v. Dicristina where Weinstein held that skill plays a far greater role in the outcome of poker games, thus classifying poker not as a game of chance but one of skill. In this case, the defendant was charged with violating the Illegal Gambling Businesses Act (IGBA)—the same statute online sites were accused of violating on Black Friday. Weinstein emphasized that expert poker players rely on multiple talents “including facility with numbers, knowledge of human psychology, and powers of observation and deception” which, by definition, requires skill and not chance. This decision will undoubtedly help with proposed legislation to separate poker from games of chance that are currently regulated under both the IGBA and the UIGEA.
It was painfully obvious that many online poker players in the U.S. didn’t pay much heed to the new legislation until poker’s Black Friday. Before then, if they were able to get their winnings, it didn’t make much of a difference; however, after the seizure, many have since opened their eyes, having learned a very tough life lesson.
Many, not all.
Obviously not dissuaded by the seizure of the three largest online poker sites, American players continued—and continue—to look for online alternatives. Other, smaller sites that were willing to process payments from U.S. players sprang up and, subsequently, saw their traffic increase dramatically. However, most of these—such as LockPoker—have also become defunct, many owing their players considerable sums of money. Currently, options for online poker for U.S. players is rather scant, and, unlike overseas sites, the amount of action players can find is quite limited.
Effects of Black Friday 2011
The economic reach of Black Friday extended well beyond the funds lost by poker sites and their members. Many of the top online companies paid out millions of dollars to support televised poker programming on major sports networks. In addition to spending money to pay for these shows, these sites would also pay for advertising.
Consequently, after Black Friday, many networks removed programming and advertising from the indicted sites. For example, PokerStars had a $20-$30 million per year deal with ESPN which ESPN promptly removed. Further, the network failed to air already-taped episodes of the 2011 North American Poker Tour immediately following the indictment. Similarly, Full Tilt paid millions of dollars to NBC for Poker After Dark which was canceled immediately after poker’s Black Friday.
Black Friday also eliminated a large source of income for those skilled players who made a living playing online poker. Thus, American professional players were forced to change professions or relocate internationally. Additionally, while some online players who lost significant amounts of money but were not financially or otherwise impacted, other online players were not so lucky. Some who had sizeable amounts of money in their online accounts when the funds were seized suffered numerous problems such as unpaid bills, relationship issues, and other significant difficulties that impacted negatively their lives.
Further, some big-name poker pros who were involved in the seized sites—such as Howard Lederer and Chris Ferguson—also suffered damage to their reputation as a result of the indictments.
Compensating Victims
PokerStars—which subsequently purchased Full Tilt Poker—agreed to a $700 million settlement, and proceeds from said settlement repaid Full Tilt’s victims. As of April 2017, nearly $118 million has been returned to more than 44,000 former customers. The same company—Garden City Group—was charged with compensating Absolute Poker and Ultimate Bet victims. In late August 2017, 7,400 these individuals who filed claims were slated to receive a share of the $33.5 million that the DOJ’s Money Laundering and Asset Recovery Section approved.
Even more recently, in April 2018, Garden City Group announced that another $1.08 million will be paid to 450 additional petitioners who filed their claims prior to the September 2017 deadline. However, seven years later, while some players have been repaid, there are many who are still waiting.
Players are supposed to receive their account balances at the time the government seized the domains and assets provided there is ample money available from forfeiture agreements from the companies seized. However, if balances for eligible victims exceeds the available funds, payments will be prorated.
The Push for Legalization in the U.S.
Seven years after poker’s Black Friday, many in the U.S. continue to ask, “Is online poker legal?” Well, no. And yes. In 2013, Nevada, New Jersey, and Delaware legalized online poker and remain the only states to offer it at the present time.
There has been an increasing push for legalizing online gambling in the U.S. with many proposals for legalization in California, Pennsylvania, New York, and Massachusetts.
The fact remains, however, that unless one lives outside of the U.S., it remains difficult finding ample online poker games. Whereas some U.S. players are willing to risk attracting adverse governmental attention, many are not. For overseas players, however, there is definitely no shortage of online action.
Because of online poker’s continued—and even growing—popularity, there has been and continues to be considerable conversation about the eventual legalization of online poker in the U.S. In fact, many Internet poker players today believe that such legalization will occur for three reasons. First, quite simply, people continue to play online but absent regulation and proper licensing. Secondly, online poker is a huge revenue generator not just for the sites offering the service but for the government. Finally, it is common sense. Seriously, what is the harm when an adult plays online poker from the privacy of their own home on their own computer with their own money?
Opposition to Legalized Online Gambling
Opponents of legalizing online gambling—including poker—assert that the remote nature of said gambling and the fact that credit cards are the preferred method of payment can contribute to addiction, bankruptcy, and crime at a greater rate than more “traditional” brick-and-mortar casinos.
Additional issues arise regarding underage players having access to online gambling sites. One of the most outspoken opponents of online gambling, Sheldon Adelson who owns the Sands Corporation and is a staunch supporter of the Coalition to Stop Internet Gambling, stresses that current technology is insufficient to prevent underage gambling. Many believe that he opposes the competition with his casino businesses; however, his efforts have had a negative effect on his own casinos as well.
Any UIGEA amendment or replacement must address its most glaring deficiencies; namely, specifying what, exactly, constitutes a game of chance, and hybrid game definitions should include specific games.
Protecting Players
If poker’s Black Friday did anything, it underscored the need for greater protection of U.S. online poker players, and this necessity remains at the forefront of any discussion of legalizing Internet gambling. With adequate federal regulation of online gambling, the government could ensure that online poker sites maintain bank accounts that are able to repay all players upon request.
Since Black Friday did not eliminate online poker entirely—it simply directed those players who continued to take the risk to go to more nefarious sites—it is obvious that online poker isn’t going anywhere soon. Therefore, regulation would attract more established gambling companies back into the U.S., thus protecting online players in the process while giving players the piece of mind that once existed before the scandals.
Online Poker Sites Post-Black Friday
Perhaps the greatest damage resulting from poker’s Black Friday is the reduced trust in online poker sites. As is the case with many aspects of life, once trust is compromised—or completely lost—it is quite difficult to get it back.
Online players’ habits also changed as a result. Whereas, formerly, brand loyalty was paramount, given the expected worry associated with having lived through such a debacle, there is little wonder why online players worry more than they did in the past.
Another Black Friday effect is the increased popularity of subscription poker websites. To circumvent the UIGEA, these sites simply charge subscriptions for players to play for free with play money that can be cashed in for prizes. Thus, these companies are able to classify their business models as sweepstakes—instead of gambling—which is legal in most U.S. states. Club WPT is an excellent example of such a site.
Finally, fallout from the dwindling U.S. online poker industry permeated into the U.S. poker industry in general. Since poker’s Black Friday, several poker rooms have closed, especially in Las Vegas. Viewership of poker programs has also declined, and international players are becoming more dominant in the live tournament scene.
The silver lining
Granted, Black Friday was, indeed, a dark spot on the history of poker; however, some parts of the industry have emerged stronger from the ordeal. As Benjamin Franklin once said, “Out of adversity comes opportunity.”
In fact, live poker has broken record after record, as evidenced, particularly, by the increasing number of entries in the annual World Series of Poker (WSOP). Additionally, some online sites—despite losing their biggest single market—have hosted online events that shatter attendance records year after year.
Additionally, poker has become far more professional, and players are much more careful with their money, not leaving an entire bankroll in a poker account.
Were you directly impacted by poker’s Black Friday? And what are your thoughts on legalizing online gambling?
Please chime in below.
Until next time.
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