Will Internet Poker Make a Comeback by Going Brick-and-Mortar?

The Atlantic Club, which online gambling consortium Rational Group wants to acquire. Via Groupon

It's the most modern lament in retail: Brick-and-mortar shopping has gone the way of the dodo as everyone buys their junk online. But for the once-booming online gambling market, salvation may require a reversal of that trend. For one online gaming giant, buying a casino in Atlantic City is the first step to bring Internet poker back to the US.

It was the boom that made Rounders relevant: Sometime in the mid-aughts, following Internet impresario Chris Moneymaker's surprise win at the 2003 World Series of Poker, Internet poker exploded. The many games wrapped under the banner of poker, once relegated to a niche crowd and old-timers, were distilled into one thing: Texas hold-em, played online in untold numbers of rooms for untold mounds of real cash. Then the bottom fell out.

I'd imagine that everyone reading this has either played or knows someone who played poker online during the boom days. Fueled by ESPN's coverage of the World Series and the relentless advertising of sites like PokerStars and Full Tilt, whose free rooms served as brilliant funnels into cash games and tournaments, a whole lot of people got really heavily into the poker game. For many people-though not nearly as many as there were losers-it was a lucrative enterprise; a job, even.

But in 2006, the Unlawful Internet Gambling Enforcement Act prohibited "gambling businesses" from accepting revenue from wagering. While that didn't specifically ban people from playing poker online, it did force the major poker sites to funnel their revenue offshore. The industry chugged along semi-legitimately until the FBI and DoJ's crackdown on April 15, 2011 ground things to a halt. The big trio of online poker-PokerStars, Full Tilt, and Absolute Poker-were all shut down, domains seized, and executives arrested on charges related to fraud, money laundering, and illegal gambling.

While PokerStars and others continued operations in foreign, legal markets, the U.S. poker craze pretty much collapsed.

That doesn't mean the lucrative market has gone away. Now, the Rational Group, which owns both PokerStars and Full Tilt, may be hinting at a workaround: the company is looking to buy a struggling casino in Atlantic City. Rational faces a rather large mess of regulatory hurdles, but if it does end up acquiring the Atlantic Club Casino Hotel, it would have a huge foothold in New Jersey's young market for internet gambling.

To back up a bit: New Jersey has long debated internally whether it should try to expand its gambling market in order to increase state revenues, which most notably has sparked fights with all four commissioners of major sports leagues in the U.S. (along with the NCAA, which wants to protect its student-athlete fallacy), who'd rather keep legal sports betting limited to Vegas. Now Jersey, with the conditional support of Governor Christie, wants to open up more online gaming.

As that proposal looks more and more likely-Christie wants the current proposal limited to a 10 year trial, which supporters are amenable to-Rational is taking its own gamble (sorry) in trying to develop a US base within the Atlantic Club, which lost $13.6 million during the first three quarters of last year amid declining revenue. The problem for Rational, however, is that its crown jewels are still on shaky footing with US regulators. In July, PokerStars paid $547 million to the DoJ and $184 million to foreign players in a bid to settle charges.

The question now is whether or not the slate has been wiped clean.

"Both companies had issues with U.S. law when, in 2011, the Department of Justice closed down [PokerStars's and Full Tilt's] websites after they continued accepting U.S. bets," attorney Jason Gross told Press of Atlantic City. "Here you have these two companies, both owned by Rational Group, that went farther than most companies, and it may create further issues."

Basically, local regulators aren't going to prove Rational's bid unless it can show that it's once again in the good graces of the Justice Department. According to the DoJ, everything is clear for Rational to start operations in the US, pending the regulation allowing it. But New Jersey gambling authorities also need to approve Rational's bid. (For a deeper look at the regulatory minutiae of buying a casino, read the latter half of the Press's story.) But Rational certainly thinks it has a shot.

Plus, as these things go, if the slate isn't already clean, another multi-million dollar settlement or two with authorities will go a long way.

The broader issue goes back to one of the sticking points in the original poker crackdown: Gambling comes with a lot of problems-although you could argue the higher crime rates often associated with casinos are defrayed when business is done online-but the biggest issue authorities seem to have with online gambling is the loss of tax revenue.

In that sense, New Jersey seems ahead of the game: By legally forcing online gaming to have a home casino in the States, it could both reopen the online market while also capitalizing on that sweet tax revenue. Rational and its all-powerful brands might not bring online poker back, but it does look increasingly likely that online gaming is coming back.

@derektmead