Over the past five years, the U.S. Justice Department has busted more than a dozen Internet poker sites that allowed Americans to play online for real money.
Websites were shut down, operators were arrested and millions of dollars were seized, even though all the websites were run from outside the U.S. and most of the operators were foreigners.
The message from the feds to the world is clear: If you run a website that allows U.S. citizens to play poker for cash, you're breaking U.S. law and we're coming after you.
However, there seems to be an exception — and it's right here in the heart of downtown San Francisco.
"What we're doing is legal," declared entrepreneur Jason B. Kellerman, owner and CEO of Pure Play, one of the largest online poker rooms in the world. "We're not a gambling site. We're a subscription-based poker site."
Kellerman insists his Financial District operation breaks no California or federal gambling laws because the online poker tournaments — which award huge cash prizes to winners — are free to enter.
"We operate under a different business model than other online poker sites," the 44-year-old said. "Ours is a subscription model, patented by me. People pay a $25 monthly fee to become a member of Pure Play. Then, once you're a member, you can play in all the online poker tournaments you want for free, and win cash prizes."
The sweepstakes model
Under the law, Pure Play is not considered gambling but a type of "sweepstakes," Kellerman said. That's because people can join for free by sending the company a sign-up postcard, he said.
"Legally, what we do is no different from what McDonald's does with its Monopoly contest, where you collect game pieces to win cash prizes," Kellerman said.
"When you buy a burger, you get a Monopoly game piece. What makes it a legal sweepstakes and not gambling is that you can get a game piece without buying anything if you write to McDonald's and request one. Pure Play operates under the same legal principle."
Customers are willing to pay the $25-a-month fee to join Pure Play even though there's a free option.
"It's a matter of convenience," Kellerman said. "People don't want to send in a postcard every month. Instead, most of our customers give us a credit card number and we bill them every month. Plus, our paid members don't have to look at ads on the site when they play. Our free members do."
Kellerman refused to disclose Pure Play's total current subscriptions, only saying it numbers "in the hundreds of thousands." He did, however, note that most of his customers are from the U.S. and more than 9 million people have registered since it debuted in 2005.
In addition to the tournaments, which hand out about $100,000 in winnings a month, Pure Play also offers other casino games, although they have no cash payouts.
Not afraid of the law
Despite other online poker companies being shut down, Kellerman said he has no fears about himself or any of his 20 employees being arrested.
"There's not a lot of concern about that," he said. "We have never ever had an issue or even an inquiry or concern on the part of any authority, federal or state."
Nevertheless, Kellerman concedes that what he is doing has questionable legality in at least parts of the U.S. Pure Play's website lists 14 states — mostly in the South and Midwest, not California — whose residents are banned from becoming members because of respective state gambling laws.
In addition, public records show that there have been numerous consumer complaints made against the company. From August 2010 to February 2013, according to the most recent information available from the Better Business Bureau's website, there were 33 complaints filed about Pure Play. Of those, 18 were about billing or collection issues, 13 were about product or service issues, and two were about advertising issues.
However, of the 33 total complaints, 30 were resolved to the customer's satisfaction.
What constitutes gambling?
Determining whether the multimillion-dollar business is a legal sweepstakes is not cut-and-dried. After all, the fact remains that his paid customers who don't win a tournament are still out their money.
I. Nelson Rose, a professor at Whittier Law School who's considered one of the foremost experts on gambling law and who consulted for Pure Play, said several factors make the San Francisco operation legit.
"Legally, for an activity to be considered gambling, it must contain three elements: consideration, chance and prize," Rose explained. "Consideration means you have to pay to participate. Chance means the activity involves luck, not skill. And prize means you can win something of value.
"If consideration is missing and something is free to participate in, that's a sweepstakes. If chance is missing and an activity is skill, that's a contest. And if prize is missing and you can't win anything of value, that's an amusement. Legally, Pure Play is a sweepstakes and not gambling because it's free and hence lacks the element of consideration."
The San Francisco Examiner contacted both the U.S. and California justice departments to see if the state and federal attorneys general agreed with Kellerman's assessment that Pure Play is not breaking any laws.
Neither department, however, would confirm that Pure Play is legal. In fact, both would not even discuss the matter.
"The department declines comment, thank you," said Michael Passman, a spokesman for the U.S. Justice Department.
And Michelle Gregory, a spokeswoman for the California Justice Department's Office of Gambling Control, said, "I cannot comment on the legality or illegality."
A brief history of online gambling
1998: The world's first online poker site, Planet Poker (www.planetpoker.com), opens. The site, operated from Costa Rica, makes it possible for people in the U.S. and around the world to play poker over the Internet for real money. In coming years, numerous other such Internet poker rooms will follow, run from locales the world over. The view of the U.S. Justice Department is that any online gambling site that caters to Americans is breaking U.S. law.
2003: Interest in poker explodes after an unknown accountant named Chris Moneymaker wins the World Series of Poker and earns $2.5 million. Instead of paying the $10,000 entry fee, he earned free entry by first winning an online qualifying poker tournament that cost $39 to enter. His story inspires the term "Moneymaker Effect" and is credited with igniting a worldwide poker boom.
2004: San Francisco entrepreneur Jason B. Kellerman, the former CEO of search engine LookSmart, gets a patent for a new type of online poker site. Bet Zip will allow customers to bet nothing and still play for real money.
2005: The Poker Players Alliance, based in San Francisco and funded by several large Internet poker rooms, is formed to lobby Congress to legalize online poker.
2005: Bet Zip debuts (www.betzip.com).
2006: Congress passes the Unlawful Internet Gambling Enforcement Act, which makes it illegal for banks and credit card companies to allow customers to use credit cards for online poker and other forms of Internet gambling.
2007: Kellerman changes the name of his Internet poker room from Bet Zip
to Pure Play.
2008: Party Poker (www.partypoker.com), one of the world's largest and most successful Internet poker rooms, becomes the first online poker site to be targeted by federal authorities for accepting American customers. The site's billionaire owner pleads guilty to violating U.S.
anti-gambling laws and is fined $300 million.
2011: Federal officials go after four more online poker sites, and this time it's the four biggest in the world that allow U.S. customers: Poker Stars
Eleven people who either owned or operated the sites are indicted and charged with violating U.S. anti-gambling laws, and the U.S. Justice
Department shuts down the sites and confiscates their bank accounts. A month later, federal officials bust 10 more sites.