Menendez Bill

Internet Poker and Game of Skill Regulation, Consumer Protection, and Enforcement Act of 2009

On August 6, 2009, Senator Menendez [D-NJ], introduced the bill S.1597, which is the most comprehensive bill to date for the licensing, regulation and taxation of Internet poker under federal law. It is described as:

A bill to amend title 31, United States Code, to provide for the licensing by the Secretary of the Treasury of Internet poker and other games that are predominantly of skill, to provide for consumer protections on the Internet, to enforce the tax code, and for other purposes.

The bill includes requirements for Internet skill game sites to follow regulations to provide protections against fraud, underage participation and compulsive gaming. The bill also provides for taxation of the sites and reporting of individual tax information to the IRS. The bill as introduced does still have a number of deficiencies for poker players, as discussed below.

Here is the bill tracking on the web.
Here is the complete text of the bill for downloaed in .doc format.
Here is the complete text of the bill for download in .pdf format.
Here is a PokerXanadu version of the bill, rewritten to correct the deficiencies, for download in .pdf format. (Revisions in bold.)

State Opt-Outs

The Menendez bill gives the option to each state to opt out of the federal skill-game licensing program. This means that it will be illegal for licensed sites to offer Internet poker to anyone located in any state which opts out. The language for this provision in the bill allows a state to opt out by written notice submitted by the state governor. However, the bill does not specify under what authority a governor can opt out. This leaves open the question as to whether or not the governor has the authority to decide for his state or if it requires action on the part of the state legislators. As written, it is likely that most state governors will opt out of the program until this question is resolved within the state. This provision, as written, would as leave the option open to change every time a new governor is elected for the state.

The bill does include a provision which states that no existing state law can be interpreted to require the governor to opt out. So even states which currently have laws that currently specify that Internet poker is unlawful within their state are not obligated to opt out of this program, as this new federal law would supersede the state law. However, the opt out language should be changed to require new legislative action by any state that wishes to opt out of the program.

Unauthorized Gaming Penalty

The bill includes a provision that assesses a penalty of 50% of all U.S. player deposits. The provision makes both the site and the player separately liable for this penalty. Making the consumer (player) liable for this penalty rather than just the business (site) is unprecedented. Only the sites should be liable for this penalty.

Taxation

The bill provides for a fee of 10% on all U.S. player deposits, half to go to the federal government and half to go to the state where the player is located. The amount of this fee is acceptable to the sites and they should easily be able to absorb the cost, but there are two provisions which are missing from this bill for player protection: 1. the sites should not be allowed to deduct this amount from the player's deposit (this is expected to be part of the eventual final bill); 2. there should be a cap on the fee so that the sites will not have to limit the large deposits of high stakes players.

Tax Reporting

Federal tax laws require that players report their gross gambling wins and gross gambling losses separately, determined by "a session". For live poker, a session would be something like one continuous session of live play at a poker table. For Internet poker, these figures can easily balloon out of control due to things like multi-tabling, table hopping, etc. The bill needs to include better definitions of "session", "gross wins", "gross losses" and "gross wagers" that more accurately reflect the realities of poker play.

Combined Player Bases

One thing that we do not want is to limit U.S. players to be able to play only against other U.S. players. The Menendez bill does not make that restriction, but the regulations that will be developed for implementation of the program could add this in. It would be advisable to include a provision in the bill itself that makes it clear that a combined player base with players outside the U.S. is not prohibited.

Game Limits

Unfortunately, the bill allows each state to set limits such as game selection, buy-in limits, stake limits, betting limits, etc. as part of the state opt out provision. The sites would have to apply any such limits on a state-by-state basis, based on the location of the player at the time of play. There should be a provision added to the bill to prevent this from happening.

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