Who's Rolling Who Behind the UIGEA? Harrah's, The AGA, and Indian Gaming

One of the hidden topics of conjecture following the passage of the Unlawful Internet Gambling Enforcement Act [UIGEA] is the role of Harrah's --- if any --- amid the labyrinth of legislative machinations preceding the act's signing. In addition to the general threat that online gaming would seem to pose to land-based casinos, Harrah's itself has been a long-time prominent supporter of Sen. Bill Frist R-TN), the corrupt Senate Majority Leader whose illicit actions destroyed billions of dollars in equity for online-poker companies. In a not-unrelated matter, Harrah's stock price surged in the days following the announcement of the UIGEA's passage.

Let's look at a few of these things, starting with the donations made by Harrah's to the Frist war chests, cited by some as proof of evil. These two links, for 1998 and 2000, show that Harrah's was in the top twenty contributors --- 13th, coincidentally, in both campaign cycles --- to the Frist campaign, and Harrah's has a long history of sizeable record of contributions besides these two cycles, both before and after. However, Harrah's is an equal-opportunity soft-money contributor, as are a lot of corporations involved in the "sin" industries. Harrah's throws a ton of money at Republicans and Democrats alike, a fact overlooked by those who rail at this Harrah's/Frist link.

However, anything that puts a crimp into the allure and accessibility of online gambling has to be a plus for the brick-and-mortar counterparts, of which the Harrah's empire is the very largest. Perhaps the most curious thing was that a long-existing "poison pill" clause designed to prevent hostile takeovers expired shortly after the UIGEA was passed, and a takeover offer worth over $15 billion was made almost immediately. Curious enough? Well, then add this little tidbit: Only a week later, two Harrah's shareholders filed suit, alleging that the takeover was a scam --- or more correctly, an "apparent camouflaged management buyout" --- and that the real value of the Harrah's stock is significantly higher, with the offer designed to take advantage of a recent overall slump in the value of Harrah's stock. Note that the surge caused by the passage of the UIGEA marked a sharp reversal to that slump.

It's oh so curious. And most poker players would never be aware of it if it weren't for the timing of the UIGEA itself. Even curiouser, were that a word: Harrah's denies having any stance or opinion regarding online gambling. According to a recent contact: "Harrah's Entertainment does not have any official position regarding the passage of this bill. Our company is not involved in the business of online gaming, so this matter does not involve us."

I buy the first bit, but not the second. Harrah's did refer to me to the American Gaming Association for an official statement on the topic. The AGA, you might remember, issued a call for a one-year moratorium on the passage of any legislation regarding online gaming, a call which went unheeded.

While the AGA's call for the moratorium was widely reported in the poker press, an earlier open letter written from the AGA's president, Frank Fahrenkopf, to Sen. John Kyl (R-AZ), one of the backers of the original Congressional anti-Internet-gambling legislation, was not.... or at least it's faded from memory. Let's reprise a couple of paragraphs from that letter to Sen. Kyl:

"As you will recall from our meeting in your office on Monday, June 23, 2003 there are three tests that any Internet gambling legislation must meet to gain the support of the AGA. First, the right of states to regulate gaming must be protected. Secondly, any such legislation must not create competitive advantages or disadvantages between and among commercial casinos, Native American casinos, state lotteries and pari-mutuel wagering operations. Thirdly, no form of gaming that currently is legal will be made illegal."

And, a little bit later:

"The second objection of the AGA member companies is to the carve outs included in the substitute measure for Native American casinos and pari-mutuel wagering operations. It is the view of the AGA that if enacted the substitute language would allow Native American casinos and pari-mutuel wagering operations to engage in activities that currently are interpreted by the Department of Justice to be in violation of existing federal statutes, in effect having the unintended consequence of expanding gambling on the Internet."

Given that things may have changed in the three years between the writing of this letter and the passage of the UIGEA, the fact remains that the UIGEA as passed does not conform to the expressed preferences of the AGA. The Indian casinos are a big winner, post-UIGEA, as is every pork-barrel pari-mutuel operation in existence. And neither Harrah's nor the AGA has an official comment.

Now, let's go down from the macro to the not-quite-micro, where we can talk about something that's only worth tens of millions, as compared to those billions a few paragraphs back. The smaller figure --- tens of millions --- better represents the value of the WSOP brand name. And that WSOP equity took at least a short-term hit with the passage of the UIGEA, even if for Harrah's, on the whole, things were looking up.

One last curiosity --- a short missive, courtesy of the WSOP, that third-party (online site) registrations would no longer be allowed. Okay, that makes sense, except for that third-party registrations are already technicaly not allowed anyway. But in the same passage, Harrah's allows that many satellites to the WSOP will now occur at accredited Indian casinos, which was a relatively minor avenue prior to the passing of the UIGEA. Sounds like a deal was inked, somewhere.

In hindsight, it seems clear that the Indian casinos out-clouted the AGA, regarding the nature and definition of the UIGEA's carveouts. The AGA, as alluded to earlier, has made no statement concerning the bill's passage, and they were essentially neutral on the bill itself. What might have happened in the UIGEA's wake is that Harrah's reacted quickly, tossing in with the Indian casinos to put some broader backing behind that wounded brand, the WSOP. The fact that the UIGEA's passage and Harrah's reaffirmed third-party-registration stance might weed out the worst of the site-logo sea didn't hurt either. Call it a hunch, but I'm guessing that Harrah's wants the WSOP identified with Harrah's, not Poker Stars or Party Poker.

Did Harrah's step away from the in-common casino interests as represented by the AGA, and take advantage of a fortuitous combination of circumstances to boost its own stock? Now that's an open question, perhaps the open question of this musing. We're likely to never know that answer. Funnier still, it might not matter, except perhaps to those aggrieved shareholders. But that's part of a 'nuther tale.