PhillyDeals: Online gambling could become legal, thanks to Barney Frank

Under the legislation working its way through Congress, offshore online gambling operators would have difficulty getting licensed.
Under the legislation working its way through Congress, offshore online gambling operators would have difficulty getting licensed.
Posted: July 30, 2010

Internet poker and other online gambling could soon go from being mostly banned in the United States to being legal, licensed, taxed - and casino-controlled.

Thank powerful Rep. Barney Frank (D., Mass.), who pushed H.R. 2267 through in a bipartisan 41-22 vote in his House banking committee Wednesday evening.

Frank's allies in the Democratic leadership are likely to slip the bill through Congress by tacking it onto some "must-pass" legislation as an amendment, rather than subject to straight Senate and House votes that some members might find embarrassing, according to FBR Capital Markets Corp. casino-stock analyst Edward Mills, who watched the vote.

Rep. Jim Gerlach (R., Pa.) is among the local lawmakers on the committee who also voted yes. "Poker is not a crime," bill supporters told Gerlach in a modest Twitter-based lobbying campaign, his spokesman Kori Walter told me.

How'd this happen? Casinos, among others, used to oppose online competition.

But gambling operators such as Harrah's Entertainment Inc., which runs an online poker operation with international customers, ended up lobbying for the bill. That's because it was altered to make it difficult for offshore online-gambling operators, who violated previous U.S. bans, from getting licenses.

Plus, the government gets a big cut: The bill gives 2 percent of your bet deposit to the U.S. Treasury, and up to 6 percent to state or American Indian tribal treasuries. States can opt out if they really want to, Mills says.

The feds will also collect a separate wager tax and levy income taxes on gambling profit.

In all, supporters say that online gambling will add $42 billion over 10 years to the U.S. Treasury, and $30 billion for the states and participating tribes, Mills said.

The bill blocks credit card bets, so you can't gamble with money you don't have, but allows debit card debts that would drain the family savings account.

With online-gambling pioneers effectively blocked from getting licenses, Mills expects casino operators will dominate the legal online-gambling business - and that they'll use it to expand gambling services in their existing buildings.

That could mean less need for massive casino hiring. Jobs have been a leading justification for allowing casinos in job-scarce areas such as Atlantic City and Philadelphia.

Isn't the logical conclusion of this process to shut the casinos and let people gamble from their home computers, handheld devices, and neighborhood bar or restaurant computers?

Mills says he thinks online gambling will "diversify" casino offerings, but not replace them: "There's still something to be said for having that physical gaming experience."

Ross vs. Hill

Wilbur Ross, whose consolidation and resale of the U.S. steel business made him a billionaire in the early 2000s, has gone into the U.S. banking business, buying a piece of Vineland's Sun National Bank, among others.

Ross was in London on Wednesday night, intending to join a grand-opening party thrown by former Commerce Bancorp Inc. chief executive officer Vernon W. Hill II's for his new Metro Bank.

Ross and Hill met earlier this month. Ross says he's not investing with Hill, or even taking pointers from the veteran retail banker. But Ross did offer his view on Hill's chances: "I think he has an interesting concept of U.K. banking, namely much more intense service than is provided by the existing banks.

"The question is whether [Hill's] promotional flair and service concept will produce enough customers to offset the extra operational cost" that comes with Hill's labor- and property-leasing expenses.

Hill and Ross are traveling with the same big-money, bank-backing crowd. Ross says three of his friends, New York-Los Angeles-London real estate investor Richard LeFrak and billionaire London metals-traders-turned-developers David and Simon Reuben, are investors in Metro. "And since I happen to be in London," Ross said, Hill invited him to join the branch-opening party.

But, instead of Hill's Metro Bank, Ross is supporting a rival start-up: music-airline-phone mogul Richard Branson's Virgin Money. "We are in the U.K. market by owning about 25 percent of Virgin Money, the most rapidly growing financial-services business in the U.K."

Ross has invested about $150 million - "In anticipation of putting in a lot more, [for example] if they acquire one of the bad banks that the government is reprivatizing."

Contact Joseph N. DiStefano at 215-854-5194 or