Four Reasons Why the U.S. Crackdown on Internet Poker Is a Mistake

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Yesterday, I described my own personal moral code regarding government prohibitions, which led me to be outraged by recent actions by the U.S. government shutting down the three major internet poker sites for American players.

Forgetting about my own moral standards, which are probably of interest and relevance only to myself, there are four other reasons why the government’s actions make no sense:

1) Prohibitions that focus on punishing suppliers are largely ineffective. Prohibition of internet poker is no exception.

When there is consumer demand for a good or service, it is extremely difficult to fight the problem through government punishments of suppliers. Illegal drugs are a good case in point. Americans want cocaine. Over the last 40 years of the “War on Drugs,” we have expended enormous amounts of resources locking up drug dealers. (Contrary to public opinion, the punishment of drug users has been relatively limited; by my estimates 95 percent of the prison time served has been by sellers of drugs, as opposed to users.) Especially when the demand for a good is inelastic, squashing supply is ineffective. Making life difficult for incumbent suppliers entices new entrants eager to meet existing demand.

How do I know that the U.S. crackdown on internet poker sites is ineffective?  Within 30 minutes of my account on Full Tilt Poker (one of the big companies affected by the crackdown) being shut down, I was able to start an account at a different poker site, depositing $500 via my credit card with no problem.

2) Relative to the consumer surplus generated by online poker, the externalities caused are small. Government interventions should focus on cases where the opposite is true.

Americans love poker. In a given year, Americans pay billions of dollars to be able to play the game online. I don’t think I am exaggerating when I estimate that more than 5 million Americans have played poker online. Professional poker players are celebrities. The typical online poker player is not hurting anyone else, just like the typical movie goer or sports enthusiast. There are, of course, gambling addicts (some might say I live with one). Addicts impose costs on others. But, the nature of internet poker, with readily enforceable limits on how much money can be downloaded in a given period, is actually a much better environment for regulating addictive behavior than are poker casinos.

3) From a moral perspective, it is inconsistent for the government to condone and profit from gambling on the one hand, while criminalizing private providers of internet poker on the other.

It would be understandable if, for reasons I disagree with, the government adopted a consistent stance against gambling of all sorts. But, governments are enormous beneficiaries of gambling income, both through lotteries and sanctioned casinos. So there can be no moral high ground on the issue. I am certainly sympathetic to the government’s desire to glean tax revenue from gambling activities. The right way to do that, however, is not a prohibition, but rather a regulatory framework in which governments take their cut of the action. For all parties involved, that sort of system is more efficient than the current approach.

4) Even under the government’s own laws, it would seem that there is little question that online poker should be legal.

While I personally think the logic underlying the UIGEA (the law governing online gaming) is deeply flawed, it is nonetheless the law of the land. Under the UIGEA, games of skill are exempted from the law, which is supposed to apply only to games of chance. So legally, whether online poker is legal comes down to the court’s interpretation of whether poker is predominantly a game of skill. If you’ve ever played poker, it would seem self-evident that poker is a game of skill. If you need any further evidence, Tom Miles, a professor at the University of Chicago Law School, and I recently wrote a paper that uses data from the 2010 World Series of Poker to confirm what was already obvious with data.


I think the whole thing with the government getting involved has to do with the fact that the government is not getting any cut of the money. If there was some way they could get some money from people playing online, I'm sure the opinion of the government would change. It's all about money...


"by my estimates 95 percent of the prison time served has been by sellers of drugs, as opposed to users"

I'd like to know more about this statistic. Because my understanding is that part of the problem with the current law is that they classify users as dealers based on the quantity of drugs recovered, versus having to show any proof of selling activities.


re drug sales and punishment

Quantity is highly determinative of why [personal use vrs sales] you are possessing a drug. I can only speak for California, but sales charges all require proof of intent to sell or actual sale.

The "problem" is that a lot of users sell to support their habit. And steal, rob, and commit burglary to support their habit. Me, I don't care much why someone commits a crime, it is the crime I care about.


Great article. On the last point, there is no difference between poker and buying stocks.

Joshua Northey

There is a difference. The buying a selling of stocks helps provide liquidity for large companies providing actual goods/services. This liquidity allows them to react to a changing environment more quickly and take more risks than they would otherwise. Thus more total stuff/services is available for everyone.

It is unclear to me that poker playing does anything other than take money from the dumb and give it to the smart. Which in theory should be good...But poor/dumb people make lots more poor/dumb people, and eat up more social safety net/policing services.

I don't think setting up a system where the smart can habitually fleece them dumb is in society's best interests, there are already enough mechanisms for that (as you mentioned the stock market).


Generally when you buy or sell stock, you are buying or selling it from another individual. The company behind that stock never sees that money unless it's doing an IPO or something similar. Trading stock is essentially betting on what you expect to happen in the future. If you think the price will go up, you buy stock; if you think it will go down, you sell it. If you are right, you made some money, but the person on the other side of the exchange probably lost money.

John B

The main difference between casinos and other privately run gambling providers is that the private companies give the player much better odds of winning than government run lotteries or scratch off tickets.

Yes, the paternalistic government that wants to "protect" you takes a much larger cut of the sums played than the evil casinos.

So when the government wants to "protect" you from online gaming, be wary.

Like the other commenters have written, once they get a cut, the governments will jump right in--but they will require the rules to be changed to maximize their take, and hurt the players' chances.


Is anyone else having trouble with the link?

Surely there can't be a difference between betting on your ability to beat other people at poker, and betting on a horse race. Maybe poker would get a free pass if people wore outrageous hats while taking part?

QP Mike

I agree with all of these reasons. #2 seems like the most unexplored and potentially compelling. Most of the world focuses only on the social costs of problem gambling on the 1%-ish of society that is affected by it, while ignoring the social benefits to the other 99%. I would love to see an actual, earnest cost-benefit analysis that accounts for the good parts of poker, which the vast majority of its players are enriched by.

Joshua Northey

Overall I am pretty ambivalent to the government action. One the one hand it does seem unnecessary.

On the other, I would note that the more people involved in trying to take money from each other the less total work is done and the less total wealth to go around. I think these type of large scale merchantilist/Colbertian considerations are a lot more important that modern economists give them credit for.

As for your points:

1) Demand for poker isn't inelastic. The convenience and ease with which you can do it effects casual demand a lot. It is a very competitive entertainment environment. Granted the sharks are doing it for income not entertainment, but the casuals are where the money comes from and without casuals (say they play World of Warcraft for entertainment instead) there is no money for the sharks to earn.

2) Relatively good point, but you need to be very careful with the new information age and better systems for gaming/gambling/entertainment. We are not so far technologically from being able to permanently incapacitate/impoverish certain segments of society through abuse of bio-chemical reward circuits in a way very similar to drugs. That problem is in its infant stages right now, but at some point we will need to decide how to deal with it because we cannot afford to have large segments of the population become impoverished/non-productive. They always turn to revolt and crime.

3) I agree that the duplicity on the gambling issue is silly.

4) Depends one what "games of skill" and "games of chance" mean. I am thinking that actually isn't a useful distinction. The only pure games of chance are lotteries/slots, and even then you need to display the skill of not buying multiple tickets with the same number/pulling the handle. What work that distinction is supposed to be doing anyway?



I think you've missed the really major objection to this internet poker crackdown, which applies even to those of us who have absolutely no interest in poker. It is that the US government is trying to impose its laws on sites that are located in other countries, and thus not within its proper jurisdiction. It's as though Iran were to charge me with blasphemy for some of the on-line comments I've made about Islam.

Brian James


I'm a professional poker player that agrees with many of your points in this article.

I have one point i really dislike though. Why would you do your study using the WSOP. It could have been done so much more accurately and convincingly using online results. Your sample size could have been almost any size you wanted, you could have more easily AND more accurately identified who the winning players are. Cashing one year in a row will not define who the good players are to a highly significant degree.
Or maybe look at cash games and a guy like Dusty Schmidt. He has been playing for quite some time now and i don't think he has ever had a losing month.
There is a giant pool of easily accessible data just waiting on sites like "". Heck i'm sure they would gladly give you a free subscription if they knew what you were doing with it. If not i'll pay for it. Heck look me up on "" . Look up my AKSharky handle on the cereus network. Would be pretty hard for that graph of 1700 tourneys to be random.
So my point is just that you could have gotten results for your study that were not only way more accurate, but also way more definitive as to poker being skill.
Thank you for your article and great work!


Tom H

I agree with Brian James that a study based on online results would be better. While I believe the Levitt and Miles study is compelling, an opponent of legalizing internet poker could claim the study was not convincing because the "highly skilled" WSOP players might simply be highly skilled at reading tells and other psychological factors involved in live play, which confer little or no advantage when playing online.


Reason #3 says it all. It's very much like the Mafia protection racket: You get to keep doing your long as "The Family" gets a cut. It doesn't matter how legitimate and upstanding you business is, you must pay to play.

Of course, we all can agree that there is a better way to go about this (though I am no particular fan of gambling). But if might be that the government cannot devise an effective method to derive revenue...or it might be an attempt to drive gamblers to the legal "casinos" of state lotteries, etc.

Same with drugs, I imagine. When someone finds a bomb-proof way to ensure that the government controls and gets a cut of the business, then drugs will be legalized...and those Corleones below the border will wind up becoming legitimate businessmen at some point.

Mike B

The various Federal bans on interstate gambling, while once a moral issue are now solely concerned with revenue and crime. In fact one could call this an issue of States' Rights more than anything else. The Federal Government want to protect the rights of States to regulate and tax specific forms of gambling. Gambling has always had problems with addiction and crime and requires strong regulation to prevent abuse. States can and do require that the negative externalities of addiction and income loss be compensated with taxes that pay for addiction treatment and positive social programs like education.

As soon as gambling is permitted to cross state lines we will see an immediate race to the basement in exactly the same way we saw it with credit card companies short circuiting usury laws and online shoppers currently avoid sales tax. State regulations on games like Poker will immediately become meaningless as the companies rush to set up shop either in domestic or international safe havens (as they already have in some cases). While Poker operators would actually prefer to set up legal domestic alternatives it would be much harder to give the individual states the control they currently enjoy regulating such things as physical gambling and alcohol. The Federal government actually has a chance at curtailing activities that cross the border, but preventing users in New Jersey from gambling in a North Dakota poker will be about as successful as trying to get them to pay sales tax on items purchased the same way.

This is not a moral issue and anyone who says so is either naive or trying to pander to public sentiment. The issue of online gambling is purely one of dollars and cents. North Dakota and Delaware will play beggar-thy-neighbor as they pull in the rake and leave the coffers in other states to run dry. The only option is to completely trample States' Rights and implement a uniform national framework on taxing and regulating online gambling which is simply never going to happen in this day and age.

The good news is that this sort of Federal crackdown can work because it doesn't have to punish the suppliers of the online poker. The real target of the crackdown are the financial institutions that aid and abet their money laundering. Unlike drugs or other illegal items, people who play poker are entirely profit driven. If you seriously imperil their ability to profit they will stop taking advantage of the service. Normally supply restrictions increase prices and create a black market. Nobody in their right mind would ever willingly lose money just to play poker. Nobody will accept a 110% rake just for the chance to compete. Therefore if getting your money out of these places becomes difficult then the demand will drop significantly and that has what has been observed ever since the law was tightened in 2006. The only persons left playing online are the hardcore fans who would never utilize other State sanctioned forms of gaming any event. As long as the general public keeps buying lottery tickets and attending physical casinos and racetracks the States will retain their control.


Edwin A Johnson

Does your data uncover where the profits from these sites go. Who the real owners are and what they do with your money. The profit from illegal drug sales. What does that money machine prop up?

Doug M

Repulicans passed legislation to make it illegal to process credit card transactions for on-line gambling in 2005. I have a suspicion that the crackdown on internet poker in 2005 had a direct affect on the 2006 election. It encouraged the free-market wing of the party to stay home.

Employment will get all of the credit in 2012, but I can see that this helps.

Jason Senti

Another great article, Steven! Thank you very much for taking the time to write on this subject. We need all the attention we can get as this prohibition on a skill game that millions of Americans love needs to stop.