How to Win at Poker

by on December 4, 2012 at 5:27 am in Economics, Games, Law | Permalink

On April 15, 2011, a day that has been dubbed “Black Friday” in the poker community, the DOJ shut down the American operations of three major sites: PokerStars, Full Tilt Poker, and Ultimate Bet.

Michael Kaplan has an update on the story:

In January of this year, Full Tilt and the DOJ worked out an arrangement in which the DOJ took ownership of Full Tilt with the intention of selling it to raise funds to pay back American players. Seven months later, on July 31, PokerStars purchased Full Tilt from the DOJ. Businessweek estimated that the transaction would make $547 million for the U.S. government. At the time, the DOJ vowed to reimburse Full Tilt’s U.S. players; Stars said that it would take responsibility for returning $184 million to non-American customers.

PokerStars followed through on its end of the deal and recently relaunched the Full Tilt site outside of the U.S.

So has the DOJ paid the U.S. players? Of course not.

According to Steven L. Kessler, an attorney based in New York City who specializes in forfeiture law…“In one of its publications [the 'National Asset Forfeiture Strategic Plan 2008–2012'], the government talks about bringing in $2 billion in forfeitures and returning only $700 million.” Recouping Full Tilt funds will be “a long, drawn-out process to the point that you will need to be out five or six or seven figures for it to be worth pursuing. The system is set up so that you are discouraged from going after your money….Plus, look at what you’re exposing to get back what belongs to you. You have to wonder if it will turn into a tax case.”

In other words, as in other asset forfeiture cases, the government is grabbing up property and keeping as much as it can for its own coffers. Even if some of these sites were fraudulent, one wonders if the players would not have better off without government “protection.”

The full article also includes a good markets in everything item.

Hat tip: Ben Mathis-Lilley.

RZ0 December 4, 2012 at 6:02 am

Every gambler on the site was breaking US gambling laws – they’re lucky the government isn’t handing them a summons instead of a check.

Nathan Sumrall December 4, 2012 at 6:45 am

Which law was that? It was never illegal to *play* online poker. The relevant legislation pertained to financial institutions only. So, no.

As someone who has money in limbo that I have already pqid taxes on, I dont appreciate your insinuation that I somehow had it coming.

Andrew' December 4, 2012 at 8:13 am

How were they doing something wrong in a way that the government could just sell the business back and make a profit?

food barred December 4, 2012 at 8:39 am

You knew that the sites were illegal, and you *still* put a commentable amount of money in it? You knew that if things went south (e.g. a Ponzi scheme, or the government intervening) you wouldn’t have much protection/sympathy, right?

In any case, I have no sympathy for people who make money by exploiting stupider people. If you wanna gamble, play the stock market. At least that’s not zero-sum.

Andrew' December 4, 2012 at 9:01 am

Okay, your personal views are recognized. Now how is it the government gets to steal peoples’ money?

zac December 4, 2012 at 9:33 am

Knew they were illegal? From 2008-2010 I was between the ages of 18 and 21, and was drawn to online poker by the hundreds of tv ads full tilt and pokerstars would run weekly on Espn. The thought these sites were illegal never came across my mind until all of the money was locked up. No, I did not look up local or state statutes to reconcile the legality of these sites, simply because I was to naive to believe so much money could be spent advertising an illegal product on major networks.

Careless December 4, 2012 at 11:33 am

Did you ever notice the ads were for .nets and you were playing on .coms? There was a reason for that

Andrew' December 4, 2012 at 11:41 am

Yeah zac, didn’t you notice that?

You are lucky we don’t come to your house and take your stereo.

dirk December 4, 2012 at 12:04 pm

zac, ignorance is no excuse. There’s millions of laws on the books and it is your responsibility to know all of them, no matter how arcane or stupid.

Andrew' December 4, 2012 at 12:20 pm

But if you don’t it’s okay because the government will protect your money by…taking your money.

Careless December 4, 2012 at 1:55 pm

I’m not saying what the government did was good, just that you should be afraid when you’re funneled to companies that can’t advertise their real URLs

food barred December 4, 2012 at 2:50 pm

zac (+dirk +Andrew’),

Did you try, I don’t know, googling it? Talking to people? Ever wonder why you had to send your money overseas using checks, instead of just paying with a credit card like you do with every other online transaction? You didn’t not know, you chose not to know.

food barred December 4, 2012 at 3:08 pm

PS I was 18-21, too, saw the same ads, knew friends who were doing it, and shook my head…

I had one acquaintance drop out of college to play full time. He made more than decent money, but his lifestyle was crap, and I thought him a fool and a cynic to give up an Ivy degree to beat strangers at card games.

Perhaps that’s why I have such vitriol against it.

Finch December 4, 2012 at 10:30 am

> In any case, I have no sympathy for people who make money by exploiting stupider people. If you wanna
> gamble, play the stock market. At least that’s not zero-sum.

This is just abhorrent.

Golf is a close analogy to poker, with a similar skill component and somewhat similar economics.

I play golf. I pay to play golf. A few people make money playing golf, but not a large fraction of players. The money I lose is mostly lost to the entities providing golf services. I understand that some small fraction of the money I pay to play golf winds up in the hands of winning golfers. I don’t even aspire to make money at golf. Most people who do aspire to make money at golf lose money at golf.

But no one gripes that it’s zero-sum or immoral, or anything like that, even though all these things are exactly analogous to poker.

food barred December 4, 2012 at 3:03 pm

You’re absolutely right. Golf is analogous to poker. So is pool hustling, so is surfing, so are so many things.

And you may be right, it’s not zero-sum. We’re all trying to waste time until we die. But I reserve the right to call the people who do it pathetic and useless, because that’s my wont.

It’s not immoral, either (nor did I say it was, you’ll see). But if someone were to come crying to me telling me they lost all their money at the pool hall, you won’t see me exactly rushing to their defense. They chose to play a (generally speaking, as you point out) loser’s game, and they lost.

food barred December 4, 2012 at 3:12 pm

PS

It’s not exactly analogous to golf, is it…

There are many things preventing people from playing golf for a living, at all hours, in such a way that they can *just* play golf for money against amateurs who don’t realize the game is as deep as it is.

Brian Jones December 31, 2012 at 8:31 am

Hey food barred it would be nice if you knew actual facts, I never had to send a check overseas or work out a weird wire to deposit. I deposited once, using my visa and never had to again making thousands playing hundreds of thousands of hands in a game of skill where i progressed from micro to mid stakes.

ff December 4, 2012 at 5:25 pm

“In any case, I have no sympathy for people who make money by exploiting stupider people.”

You mean like, say, in case of state lotteries? Good!

Charlie December 5, 2012 at 10:54 am

“they can *just* play golf for money against amateurs who don’t realize the game is as deep as it is.”

It’s funny that the site in question’s motto was, “Come play where the pros play.” Most people play poker for recreation. They want to play good players and try to beat them. The majority of losing players playing $2/$4 would be winners at $.10/.20 (10 cents / 20 cents). You tell them to move down and play worse people, but they don’t care because that isn’t fun. They’d rather lose money in the fun/tough game. It’s recreation, and I don’t blame them. $2/$4 is way more fun!

Of course, allowing small games is another way online poker benefit so many people. Most people shouldn’t be walking into a casino and putting $200 down to play in the smallest game (with huge rake), but they can afford to put $25 down and play online (paying a lot less rake) and having a ton of fun.

Finch December 4, 2012 at 9:47 am

This is simply false. Players weren’t breaking any law. They aren’t breaking any law if they use the existing sites today. In fact there are draft bills circulating (unfortunately likely to fall victim to a cash grab by state lotteries) that would regulate a competitive market and make illegal the use of unlicensed sites. The fact that it’s seen as necessary to pass a new law to make using those sites illegal even when the DOJ is out there aggressively interpreting everything it can to get it’s hands on more cash should tell you something.

There was later a significant scandal involving serious mismanagement and/or fraud at Full Tilt. But it did not pertain to merely doing business with Americans.

Food barred’s comment below is also unfortunately typical in its ignorance. This whole thing is a massive case of government overreach on the part of social conservatives and cash-hungry liberals. Nobody talks about banning golf (another zero-sum skill game), but poker is for some reason the target of much ire.

Andrew' December 4, 2012 at 10:35 am

And if it were a law to be fined your money in a government seizure then why is the government promising to return the money? Presumably because that is not the law.

Treating the government like a rabid dog and saying “you get what you get for messing around with that dog boy!” is just weird.

Let’s just have the government follow it’s own stupid laws first. Then we’ll make them less stupid. Then we’ll make them smarter.

Finch December 4, 2012 at 10:44 am

> And if it were a law to be fined your money in a government seizure then why is the government promising to
> return the money? Presumably because that is not the law.

This is one of the things the government wants to change in the Reid/Kyl draft bill. Basically they want to assure that when they seize some future grey-market operator, they don’t have to give anything back to the customers. Most players are willing to make that trade for regulated sites that are easy to transact with.

Corporate Serf December 4, 2012 at 1:06 pm

Is golf played by young teens who don’t vote? Is poker played by older, more prosperous folks who do vote?

Gabe December 4, 2012 at 12:02 pm

All of our “property” is actually the property of the overlords. We do not have permission to exchange “our” money with other subjects. We are lucky our overlords let us keep what we have. Any negative talk about our overlords is actually terrorism as it is inciting violence and giving support to Al Qaeda. Therefore, all who dare speak in favor of gambling websites are fair game for kill lists that Obama or the next president will maintain.

Doug M December 4, 2012 at 4:06 pm

There was no law regarding Internet gambing until 2002. Sports betting became illegal, but poker was still leagal. Online poker exploded when an amateur with an entry from an internet tournament won the world series of poker in 2003.

In 2006 federal legislation said that internet gaming was illegal IF that bet would be illegal to place in the state from which the bet originated. With this law, many banks refused to process transactions with gaming sites.

Ray Lopez December 4, 2012 at 6:08 am

Good blog post. The stem case for all this nonsense was Kaye Scholer and the OTC back in 1992. The firm settled, say most unofficial accounts, because the government induced a cash flow crisis at the firm. Later the government tried the same tactics with law firms representing drug dealers, under the theory that there is a “ongoing fraud” (there is no attorney client privilege for an ‘ongoing fraud’ but what is ‘ongoing’ is debatable). The government tried this ‘ongoing fraud’ tactic to squeeze other law firms to settle and drop their clients, until they got their wrist slapped by at least one federal judge. Since then they’ve backed off, but use asset forfeiture to gain advantage in negotiations with anybody. Here are two relatively unsympathetic law journals articles on this practice (they mainly side with the government): http://tinyurl.com/cxnjmpo and http://tinyurl.com/bpusp5y

Rahul December 4, 2012 at 7:27 am

As an aside, does a gambling firm have to keep sufficient funds on hand to cover a run? Or can they operate with a fractional ratio and invest the rest as the banks do?

jeff December 4, 2012 at 8:45 am

It depends on the jurisdiction, but in most areas you are not allowed to invest any of it. Player deposits / funds are kept in an escrow type account, and sites are slowly allowed to withdraw from those accounts as funds are lost to the rake.

Kim Lee December 4, 2012 at 7:56 am

Poker sites with U.S. customers were operating outside the law. Full Tilt falsely claimed to have money segregated for protection.

Nevada sportsbooks have defaulted on customers before. Given the patchwork of state and Indian reservation oversight, casinos are regulated differently everywhere.

BrentR December 4, 2012 at 11:54 am

“Poker sites with U.S. customers were operating outside the law.”

This is not a given for the actual players or even the actual poker games. There is actually a pretty tough legal argument to make for this to be true. It is one point of view though.

Of course, an easy way around the problem is just to make it illegal for the intermediaries to move cash to a poker site, seize all of the money, and make the poker players fight through the courts to get the money back. That way you get what you want without ever having to make the case that the poker games were illegal. It avoids due process and places the burden of proof on the citizen. Neat tactic.

Gabe December 4, 2012 at 12:03 pm

yet, Corzine can steal a billion dollars from segregated accounts and run free because he is a Goldman Sachs insider.

MD December 4, 2012 at 3:45 pm

A big difference between online poker and Goldman Sachs is that you lose money by dealing with online poker and still have had a little fun.

MD December 4, 2012 at 3:52 pm

*can lose*

dirk December 4, 2012 at 12:14 pm

“Poker sites with U.S. customers were operating outside the law.”

Yeah, good thing the US protected all those consumers by making those sites illegal and encouraging them to move outside the US. Weird how they ended up as corrupt, shady operations after the legal prohibition of them.

Andrew' December 4, 2012 at 7:58 am

“better off without government “protection.””

Save time by letting us know when you find a counter-example.

This took me .2s December 4, 2012 at 8:40 am

Food supplies. Or have you not read The Jungle?

Rahul December 4, 2012 at 8:53 am

In so many minutes someone’s going to come by and remind you it was a work of fiction…..

this took me .3s December 4, 2012 at 3:17 pm

Ohhh and that’s why there wasn’t a huge reform in food standards brought about by it’s publication!

Nope, sorry Rahul. You’re well off the mark on this one.

Rahul December 4, 2012 at 4:46 pm

I loved Jungle and the reform Sinclair precipitated.

I just said somebody would bring that point up……….

doctorpat December 4, 2012 at 10:22 pm

I know this isn’t what you mean, but you’ve just said that a book isn’t fiction if people make a real response to it.
Congratulations, you’ve just proved the truth of the Bible. And the Koran. And Star Trek.

Andrew' December 4, 2012 at 9:03 am

Or that it was 100 years ago. And that the government is mainly a follower not a leader.
Case in point: what government agency wrote the book? What government agency marshaled the public reaction to the book? Start understanding what you are talking about. I’m running thin in patience.

Andrew' December 4, 2012 at 9:06 am

And virtually all the work of food safety is done by the private providers as incented by the market. The government does some half-assed inspections and does some posturing (and rent-seeking) after the incidents that it didn’t prevent. Some people and their dim platitudes never wonder why we still have incidents but they manage to blame the private enterprise while letting off the regulators for their supposed good intentions. But it is all their ideology, not facts.

Andrew' December 4, 2012 at 9:08 am

So, take a few more than 2 seconds and try again. And don’t go with airline safety.

matt December 4, 2012 at 10:13 am

FDIC *yawn*

Andrew' December 4, 2012 at 10:37 am

Begging the question. As always.

And still you can’t provide evidence that on-net we are better off.

Andrew' December 4, 2012 at 10:57 am

As Louis CK might say: “I’m not even using my memory.”

The relationship between FDIC insurance, large banks, and the concept of “Too Big To Fail” (TBTF) is one of the more troubling aspects of our financial system. What most people don’t understand is that FDIC insurance is one of the primary drivers behind this TBTF concept. FDIC undermines market forces in regards to risk management and subsidizes the large banks as a result.

… FDIC distorts the market is because the insurance rates don’t take into account the concept of systemic risk. We treat a small community bank and a giant mega-bank such as Citi or BofA as exactly the same under the current regulations. This is a competitive advantage for the mega-banks, because they create much higher risk, yet aren’t required to pay higher prices to reflect this risk. In essence, they are being subsidized by the Federal government via the FDIC program.”

http://caps.fool.com/Blogs/fdic-moral-hazard-and/718982

And if we use our memories, we don’t have to go back too far to see that the government did not prevent the crisis, and if the FDIC wasn’t ineffective or worse, it almost went bankrupt. So, what we have is an agency that does a few meaningless takeovers, spreading moral hazard, incentivizing consolidation until the moment of truth and then does not much of anything- because noone would listen to Sheila Bair.

Also keep in mind that FDIC is virtually necessitated by the mandated fiat money system the government created. So, not having before was an oversight more than having it was some kind of brilliant innovation. So, it’s just a band-aid and that’s if they do it properly.

Rahul December 4, 2012 at 11:08 am

SEC *yawn* *yawn*

Andrew' December 4, 2012 at 11:16 am

Now you are just joking with me.

These examples illustrate my theory that the government will continue to gravitate towards functions that I would call unfalsifiables.

Frequent Reader December 4, 2012 at 3:25 pm

If we want to be literal, have you thought about defense, policing, law?

If not, what about welfare, or consumer rights? Oh wait, you have a problem with those, I’m sure. Let me guess, people should die if they don’t bother to keep their job.

You’re tiresome, Andrew’. Your one note harping is getting to be a parody of itself.

Floccina December 4, 2012 at 11:28 am

FDIC *yawn*
I think that the FDIC is only needed because the current monetary system, with a government created monopoly currency, has severe feedback problems.

MD December 4, 2012 at 4:47 pm

“I’m running thin in patience.” I know that feel. http://tinyurl.com/82d9kyr

jeff December 4, 2012 at 8:47 am

“Even if some of these sites were fraudulent, one wonders if the players would not have better off without government “protection.””

In the case of Full Tilt, the site operated with minimal issues for many years. It wasn’t until the government began cracking down on payment processors (the companies set up to help withdraw funds from Full Tilt and provide to players, and to take funds from players when they deposited to Full Tilt) that there were any issues.

And admittedly, they responded very poorly to the DoJ cracking down on them. They began crediting players with money even though they had been unable to collect funds from the players. This went downhill after a month or two.

Andrew' December 4, 2012 at 9:36 am

So, the government did basically the same thing they might have done to the financial sector. You don’t hamstring financial intermediaries boneheads. I don’t take those narratives as gospel, but it remains to be disproven.

Similarly with the FBI entrapping drifters and malcontents so they can “foil” domestic terrorist plots when they can’t find any real terrorists.

Another example is Ruby Ridge. Their best idea stop a non-existent anti-government movement is to entrap someone into providing a sawed-off shotgun (yes, a shotgun with some barrel sawed off- i.e. please break our law that is stupid), then trying to flip them against non-existent enemy, then murder them. Way to go guys.

suntzuanime December 4, 2012 at 10:30 am

Sure, it sucks for the poker players to have their money stolen. But as a non-poker player, it means I have to pay less in taxes for the same government services. This ends up being like a weird, post-facto tax on internet poker. It might even be better than an ordinary tax because being weird and post-facto means it doesn’t distort incentives.

I wonder if maybe the government shouldn’t fund all its operations by arbitrary asset seizure. It would save me from having to fill out tax forms, at least.

Andrew' December 4, 2012 at 11:33 am

That’s exactly what John Roberts said! Corrupt government and out-of-control bureaucracy is just a tax.

“it means I have to pay less in taxes” Of course! Thank God that they create tax cuts that we never even find out about. And we all know how completely unpredictable nationalization of assets has no untoward effects on incentives.

Not to mention, this is just The Feds enforcing states’ rights.

BrentR December 4, 2012 at 11:48 am

Suntzuanmie, Hugo Chavez is looking for employees in his finance ministry.

Or, maybe you already have that work experience, and are trying to give some advice to the U.S. government on making third-world government funding activities work. Let me give you a hint, work on your subtlety.

gabe December 4, 2012 at 12:06 pm

This won’t reduce your taxes silly sunt. The annual deficit is over a trillion dollars and the government is constantly trying to maximize cash flows…it has nothing to do with how much they stole from some group last year.

Careless December 4, 2012 at 2:10 pm

Time to introduce a retroactive tax on people posting as “suntzuanime”

SillyNaziSunt December 4, 2012 at 12:08 pm

Sure is bad for the jews that hitler stole some of their jewlery, but as a non-jew Sillysunt would be happy, because surely hitler will reduce taxes on her the next year after getting such windfall profits.

everyone December 4, 2012 at 3:26 pm

well that didn’t take long, did it?

yenwoda December 4, 2012 at 12:14 pm

So: FullTilt, either through fraud or mismanagement, lacked a large portion of the funds needed to cover their obligations. They got shut down and their assets were seized for violating (a different) US law. Players in the US created a small market for FullTilt account balances, the price of which rapidly dropped as the state of FullTilt’s finances was made clear. The government set up a claims system for US players to recover what is left of their money, but the Feds want them to provide bank statements and tax returns to prove they had money in FullTilt accounts. Is that about right? The government let PokerStars simply pay back their American clients because they had the funds to do so! It really looks like what has prevented FullTilt clients from being made whole is… FullTilt not being able to do so.

You know, it sucks that FullTilt was run poorly/fraudulently. I think online gambling should be allowed and regulated. But I don’t have a lot of sympathy for people who made money on offsite platforms, didn’t report it as income, and are now complaining about how inconvenient it will be to get their money back from the Feds. And no, that’s not like the government stealing your stereo.

Steve-O December 4, 2012 at 1:08 pm

I’m guessing people lost their money regardless of whether they had net winnings (which may or may not have been reported as taxable income) or net losses.

Finch December 4, 2012 at 1:11 pm

Depending on how you count, the literature would suggest somewhere between four in five and 19 in 20 lost money net of rake.

Angry December 4, 2012 at 1:20 pm

And now we have to play for bitcoins, wtg government.

Max December 4, 2012 at 8:59 pm

There is no defense for the US gov’t here. Government apologists get over yourselves.

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