The Other Black Friday: Online Poker’s Rise and Fall

This Thanksgiving, a relative informed me that they would like to make the majority of their income from poker. I bit my tongue and ventured to learn more. Though I’m still unconvinced that poker is a viable career for anyone who isn’t a math genius with an extraordinary capacity for emotional detachment, the conversation filled me in on a rarely-discussed product of the personal computing revolution: the golden years of online poker and their government-issued decline.

The Rise of Online Poker

Texas Hold’em slowly became the world’s most-popular poker derivative in the two decades following its introduction to Las Vegas casinos in 1967. The World Series of Poker (WSOP) played a major role in that rise to fame. The WSOP is a huge poker tournament, held in Vegas each year, that culminates in the “Main Event,” a $10,000 entry tournament that comes with a grand prize of over $9 million and total prizes of over $60 million. Big cash prizes brought publicity which brought more and more people hoping to cash in on the game.

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The venue for a former fringe game

This positive feedback loop tapped into the exponential growth of the digital world in 2003’s WSOP Main Event when Chris Moneymaker, who won his astronomical entry fee in an $86 online tournament, went on to take home the year’s $2.5 million grand prize. Coincidentally, this was the first year that the WSOP was broadcast on televisions in the US. PokerStars, the site that footed the buy-in for this historic win, explains the impact: “Poker exploded, and the entire world was barraged with the news that a novice player had beat the pros at their own game and turned $86 into millions.” Suddenly, online poker was no longer just a part-time hobby of card players who don’t live near casinos or a fringe haven for gambling addicts to privately indulge. Instead, the PC became a mainstream venue for people to learn the ropes of a challenging game that promised enormous upside and potentially realize some of that upside from the comfort of their homes.

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Chris Moneymaker with the money he made

The WSOP’s entries went from just over 800 in 2003 to over 2,500 in 2004, and that was just the tip of the iceberg. Players from around the world flocked to online poker sites, taking them from modest gaming sites to multibillion-dollar cash cows that posed a serious threat to the traditional gambling industry. In 2009, G4 ran a reality show called “2 Months. 2 Million” in which four online poker players tried to use their own funds to make $2 million in, well, two months. The show was pulled after the group had to settle for $676,600, but the show’s message was still heard loud and clear: you can make an extraordinary amount of money playing online poker.

The Dark Side of the Boom

The hockey stick growth of online poker and poker in general made many who otherwise may have never heard of the game phenomena overnight and brought great competition to the game’s old guard, but an inconvenient truth kept poker from being a proper Cinderella story: “the majority of players are long-term losers.” The millions of people whose TV’s were saturated with stories of average Joes winning life-changing wealth and college kids settling for 700 grand instead of $2 million, then, were being groomed for failure en masse.

Former professional poker player, Amit Varma, likens the average poker game to the clash of two universes. In one universe, there are the theory people. They know the probability of each hand’s success and engage in complex game theory-influenced competition with their opponents. These sorts of heady players are the ones who tend to end up becoming professionals or at least posting positive earnings on a lifetime of play. In the other universe, there are people who are gambling like they would in any other game of chance. Varma dubs these players “slaves to dopamine” whose addictions carry the potential to ruin their lives and those around them.

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Numbers that speak for themselves.

At most tables and in most individual players, these universes collide. Sometimes they play out in the gambler’s favor, producing the shot of dopamine that encourages their next risky bet, and, statistically, most of the time they don’t, leading to financial tumult and often ruin. No matter who wins, however, the house always gets part of the money that’s on the table. After winning $15.3 million, Dan Colman summarized the situation succinctly: “The losers lose way more money at this game than winners are winning. A lot of this is money they can’t afford to lose.”

The United States v. The House

As the online poker boom continued, the publicity caught the attention of regulators and lawmakers. In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA), which prohibited online gambling. However, gambling is not defined in the bill. This led to many poker sites assuming the definition of gambling put forth in an earlier law, the Wire Act, which limits gambling to sports betting. Thus, though a few sites discontinued US operations in fear of UIGEA, business went on as usual. Until Black Friday.

On Friday April 15, 2011 “Four websites of the largest companies: PokerStars, Full Tilt Poker, Absolute Poker and UB,” were “shut down and seized by the F.B.I on charges of bank fraud, money laundering and illegal gambling offenses.” Total charges added up to over $3 billion and potential jail time for several individuals involved. PokerStars was the only site that was able to pay back its US users in full, leading to players with accounts on other sites losing over $300 million of deposited funds. Since then, 3 states have legalized online poker, but the domestic online poker market is a fraction of what it used to be.

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The notice that poker players saw on familiar domains on Black Friday

Making Sense of it

As I learned about the poker boom, I was shocked to see the enormous amounts of money that players were making and the disproportional impact of online poker on the poker world as a whole. That said, insights from pros, like Varma and Colman, brought the boom back down to Earth for me, showing that there are many more losers than winners in this game. Their insights made me happy to see the government taking action against firms who were ultimately harming consumers, especially companies that were actually insolvent.

The more that I think about it, though, the more the government’s actions seem contradictory. The federal government is completely fine with gambling across the US unless a state makes it illegal, and casinos can legally advertise wherever they see fit. Online gambling is only different from in-person gambling in that the platform can be accessed by more people, and those profiting may not be as local as the operators of hometown casinos. However, government action seems to be sending a message that online gambling is uniquely bad without giving strong grounds for the distinction between in-person and online gambling. I think that the government must either legalize online gambling or criminalize in-person gambling, if it wants consistent policies. Further, it doesn’t seem realistic for the US to shut down its extensive gambling industry, so I find it hard to advocate anything other than decriminalization of online gambling.

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A comic to lighten the discussion

In the end, I’m compelled by Colman’s argument that “In a perfect world, markets are based on informed consumers making rational transactions. In reality, sadly, that’s not the case. Markets are based on advertising trying to play on peoples impulses and targeting their weaknesses in order for them to make irrational decisions. I get it if someone wants to go and play poker on their own free will, but I don’t agree with gambling being advertised just like I don’t agree with cigarettes and alcohol being advertised.” Thus, I advocate decriminalized gambling with regulations on advertising both online and in-person gambling, though I still have many doubts about whether this will do much to prevent people from becoming addicted to gambling.

What do you think?

4 comments

  1. Great post. It’s been interesting to trace the rise and fall of Online Poker over the years. Nice history here.!

  2. I enjoyed reading your post. I agree with your comment about how online and in-person gambling should be subject to the same laws since it is essentially the same thing. Most people playing poker are playing a game of chance. The professionals know what they are doing. In the long run they benefit at the expense of everyone else, and the sites don’t care who wins as long as people are playing. I don’t see this as an ethical issue so long as the people playing are aware of what they are going up against when they play. I think an obvious and forced disclaimer like the warnings on tobacco and alcohol would be fair. Beyond this, there will always be people willing to give it a try, and some people won’t know how when it is a good time to quit, but I don’t think the government should interfere by banning it all together.

  3. Austin Ellis · ·

    Great post! I found the history of the WSOP and online poker to be very enlightening, as I did not know much about it. I have, however, experienced the rise in popularity, as poker became a mainstay table card game among myself and my friends. I definitely believe that people can easily get sucked into thinking that luck and chance could bring them fortune, oblivious to the math and theory that professional players and other successful gamblers rely on. A recent example of this has been Dan Bilzerian, who presents himself as a poker player who wins big. In reality, a large portion of his money was inherited. Regualtions are crucial for this online industry, and for example in New Jersey, casinos can operate online games, which are probably better than some other sites.

  4. dabettervetter · ·

    Wow, cool post! I have never gambled, been to a casino, or played poker and this honestly scared me enough not to! It was very interesting learning about how the online poker world works and how it went through an incredible hockey stick boom. It is also crazy to me how much psychological manipulation goes on during betting games with no clocks in casinos or windows, and double or nothing deals where you think you have a chance to win big. Good luck to your relative! I hope they are lucky!

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