Lessons From the Full Tilt Fiasco – Gambling Tips
Gambling needs regulation to survive and thrive
By Basil Nestor
There are lessons we can learn from Full Tilt’s monumental mistakes. Their spectacular crash and burn offers poignant teaching moments for the casino industry, examples for legislators and regulators, and profound strategic lessons for all players.
Over the past few months, we’ve learned that Full Tilt Poker’s financial situation is much worse than many observers previously suspected. Indeed, at press time, it appears that the iconic Internet poker site may never pay back money it owes players. The total amount is estimated to be about $390 million.
There are lessons we can learn from Full Tilt’s monumental mistakes. Their spectacular crash and burn offers poignant teaching moments for the casino industry, examples for legislators and regulators, and profound strategic lessons for all players.
Full Tilt’s Fall from Grace
The tale of woe (or some cynics would write it as “whoa”) began on “Black Friday,” April 15, when the U.S. Department of Justice seized Full Tilt’s main website, along with the websites for Poker Stars and Absolute Poker. The DOJ also froze bank accounts associated with the sites and indicted eleven people including Ray Bitar, co-founder and CEO of Full Tilt.
What was the reason for the action? The DOJ believes that Internet gambling and related money transactions are illegal in the United States. The merits of the law can be questioned, but the practical reality is that all three services immediately stopped taking U.S. customers.
The DOJ subsequently made agreements with the indicted sites. According to the agreements, even though the charges stand, the services are allowed to access U.S. banking systems so that former U.S. customers can get their bankrolls refunded.
This is when things got really bad for Full Tilt. We’ll cover what happened to Absolute Poker a little later.
Bankroll Bandits?
Poker Stars promptly paid U.S. customers, but Full Tilt didn’t. They didn’t have the money—because they’d spent it. So where did the money go? According to a DOJ lawsuit filed in late September, Full Tilt paid its owners $443 million over the last four years. Those owners include poker legend Howard Lederer, who received $41 million. Another poker luminary, Chris Ferguson, was paid $25 million. Ray Bitar got about $41 million.
The story gets worse, Full Tilt didn’t properly collect and credit player deposits. In some situations, the poker site couldn’t retrieve money from players’ bank accounts due to financial restrictions meant to block gambling transactions. Rather than notify customers that the money transfers were declined, it appears that Full Tilt credited players’ accounts with “phantom funds.”
The whole mess prompted U.S. Attorney Preet Bharara to label Full Tilt a “Ponzi scheme.” While the debacle is technically not a Ponzi scheme, the fact that such phrases can be bandied about and not immediately dismissed indicates how serious the situation has become for Full Tilt.
At press time, Full Tilt’s license to operate has been suspended by Alderney (which is an island off the coast of England and a British Crown Dependency), and it’s unclear if Full Tilt will be allowed to offer games again. If they do, who will trust them enough to deposit money?
In contrast, Poker Stars has sailed blithely into continued profitability. The DOJ’s actions have no legal effect on operations outside the U.S., so Poker Stars is still raking pots and earning millions. If Full Tilt had simply kept itself properly capitalized, then perhaps it, too, would still be earning millions.
Meanwhile, Absolute Poker seems to have magically kept its cake and also eaten it. It has avoided much of the bad press heaped on Full Tilt while not paying back U.S. customers. Absolute Poker is still in business, accepting players who are not in the U.S.
Lessons From the Crash
1. The whole fiasco, which includes players possibly losing millions of dollars, Full Tilt employees and vendors losing income, the U.S. government losing taxes and spending money on prohibition, banks losing money trying to enforce financial restrictions, adds up to billions of wasted dollars. And it all could have been avoided if online gambling was regulated and taxed in the United States. The U.S. needs this industry. Congress should get off its duff, legalize Internet gambling, and regulate it. No more political excuses. Just do it!
2. In spite of U.S. prohibitions, Internet gambling has come of age. Online casinos now rival businesses like MGM Resorts, Caesars Entertainment, and Wynn Resorts in profitability. But the U.S. is literally pushing this multi-billion-dollar industry to foreign competitors. It’s time for business leaders in the casino industry to refocus and get Internet gambling legal in the U.S.
Hey, casino entrepreneurs…we still love mega-resorts, but it’s a new world of smartphones, tablets and cloud computing out there. Tell people in places like Iowa and Louisiana how they can play blackjack on their iPhones and Android devices.
3. If you’re shopping for an online casino, keep in mind that regulators from places such as Aldernay and Costa Rica are well intentioned, but feckless. It’s a sad fact that even Poker Stars, the hero of our story, is not regulated to the standard of an average brick-and-mortar casino anywhere in the United States. Ergo, you may not be paid when you win. Absolute Poker is a prime example. Essentially, they’re telling some U.S. players to go bite air. If you want that situation to change, contact your representative and senators. Tell them to legalize and regulate Internet gambling.
4. Full Tilt’s main selling point—its ownership by poker celebrities—was nothing more than a clever marketing ploy. The company was never better than its competitors; it was simply sold very well. Before you place a bet anywhere, online or in a physical casino, remember to evaluate the actual game and forget about the chandeliers, the carpet, or the cool-looking celebrities on the splash screen. Instead, ask yourself, “Can I trust this game? Will I be paid?” If the answer is no, then walk away…or close your Internet browser.
Enjoy the game!
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Basil Nestor is the author of The Smarter Bet Guide to Blackjack, The Playboy Complete Guide to Casino Gambling, and other comprehensive gambling guides. Got a question? Visit SmarterBet.com and drop him a line.
