Massachusetts Online Poker Language Attached to Budget Bill

A total of 18 Massachusetts House of Representatives members have sponsored an attachment to the fiscal year 2014 budget that would legalize and regulate online poker in the state.  The proposal would add language such as “internet card rooms” to a number of lines in the budget bill that includes brick and mortar casino revenue. 

Massachusetts has already legalized casinos in the state.  While these casinos will not be live before 2016, licensing fees may be paid during the 2014 fiscal year once the winning bidders are determined. 

The sponsors of the bill believe that hundreds of thousands of Massachusetts residents gamble online with offshore sites.  By regulating these sites, the state could generate tens of millions of dollars in revenue, create more than 1,000 high paying jobs, provide consumer protections, provide gambling problem programs, aid law enforcement and bolster the lottery system.

The bill acknowledges that the Department of Justice reversed its opinion of the Wire Act on December 23, 2011.  This letter was actually dated September 20, 2011, but not released to the public for three months.  The new opinion stated that only sports betting was covered by the Wire Act.  Interstate online poker and casino games would be allowed by the federal government provided states agreed on gaming compacts. 

Online Poker Licensing

Operators and software providers would be issued a Category 3 license.  No more than three online poker operator licenses would be issued.  That is the same number of commercial casinos allowed in the brick and mortar casino law.  Online poker licenses would be granted for ten years.  Renewal terms would be legislated no more than 180 days before the first license expires.

Only online poker would be licensed.  Casino games and sports betting would not be allowed.

The Massachusetts Gaming Commission would require licensees to verify the age and location of all players.  Players must be at least 21 years of age.  Only players physically located within Massachusetts could play on licensed sites.  Players that are self excluded or banned for gaming violations would also be excluded.

All operators, software providers, payment processors and affiliates must be located in Massachusetts.  The gaming commission could allow out of state operations should it find a reason to allow it.  This could lead to interstate online poker, though the proposal does not explicitly allow this. 

Operators must disclose rake clearly on their website and during game play.  Tournament rake must also be disclosed when players enter these events.

Approved companies would be required to pay a licensing fee of $10 million.  This would be applied to the first $10 million in taxes or cover the first two years if $10 million in taxes are not due during that time.  A tax rate is not included in this bill.  The tax rate for future Massachusetts brick and mortar casinos will be 25%.  It seems likely this tax rate would also be applied to online poker rooms as well.  The language of the bill gives the Massachusetts Gaming Commission the ability to impose unique rules to online poker so it is possible the rate could change.

Operators would have 30 days to launch their operations after receiving a license.  The language is unclear as to whether this means launching games or just launching their actual internet business plan.   If they failed to follow this rule they could be subject to suspension or revocation of their license.  They may also face fines of up to $25 million if they are found to have acted in bad faith.

Bad Actor Clause

Any company that accepted US players in violation of federal or state law after October 13, 2006 would be banned from receiving a license.  That is the day that the Unlawful Internet Gambling Enforcement Act was signed into law by President George W. Bush. 

Most states that have proposed this type of bad actor clause have made the cutoff date December 31, 2006.  Paradise Poker, Sporting Bet and affiliated companies are one example of a company that would not be able to qualify under this provision, but could qualify with the December 31, 2006 date as they accepted US players for 30 days after the UIGEA was signed into law, but banned them before Dec 31st. 

The bad actor clause bans brand names or trademarks of companies that accepted players after this date.  This could make it impossible for offshore companies that accepted US players post-UIGEA from even selling their software or brands to Massachusetts operators.  This may cause a conflict when and if interstate compacts are negotiated. 

Player Requirements

Players would need to supply personal information to the online poker room.  This includes providing a Social Security Number.  Deposits would only be allowed by debit card, credit card, personal check, cashier check, wire transfers and money orders.  The gaming commission is given some latitude in approving other methods.  Ewallets such as Paypal would be excluded unless they are approved later by the commission.  Player to player transfers would be banned.  Credit may not be extended to players. 

Bonuses and rakeback would be allowed through the language of this bill as long as it was paid by the poker room and not by a third party such as a marketing affiliate.

Unlicensed Online Gambling Companies

Illegal and unlicensed operators risk their domains being seized.  Domain registrars and internet service providers are immune from civil claims and criminal prosecution unless they are found to have conspired with illegal operators. 

Author Notes

It is interesting that Massachusetts is looking to legalize online poker before the brick and mortar casino licenses are even awarded.  It seems that limiting the operator licenses to three is not a coincidence since that is the number of commercial casinos allowed by the brick and mortar casino law.  This could present an issue with tribal casino interests down the road.   It is unclear how the Indian Regulatory Gaming Act may apply to online gambling, something this bill does not address. 

Massachusetts may find itself in a situation where commercial online casinos are paying a 25% tax rate, while tribal online casinos are not paying any taxes.  This is sure to cause conflict with potential licensees and this is an issue that may need to be addressed before gaming licenses are issued.  This conflict has affected other states that have attempted to legislate online gambling. 

Full text of the updates to the budget bill may be found here.