The 'Wild West' of Online Poker Goes Legit in US
Like brick-and-mortar retailers, casinos in Las Vegas—and pretty soon in Atlantic City—are finding themselves up against a familiar foe: the Internet.
It may seem counterintuitive that Nevada and New Jersey—homes to the two biggest gambling cities in the country—are leading the charge at the state level to legalize online betting. But states, like many Americans, are looking for new revenue streams as the economy continues to sputter to life. And some casinos are being proactive, looking for ways to develop or partner their way to a Web-based gaming presence.
In February, Nevada become the first state to approve legal online poker. It sparked an online gaming renaissance and a shift in operations from "Wild West" offshore locales to the United States, Ben Mezrich, author of "Straight Flush," told CNBC Tuesday, the day the book was released. He's also the author of "The Accidental Billionaires: The Founding of Facebook" on which the movie, "The Social Network," was based.
But revisiting the world of gambling that fueled his earlier book—"Bringing Down the House," about card-counting M.I.T. students—"Straight Flush" is another inspired-by-a-true-story tale of American college buddies who, this time, build an online poker empire in Costa Rica, only to see it all fall apart.
When Congress banned online gaming in the U.S. in 2006, "it became like prohibition—these guys were kind of like Al Capone," Mezrich said in a "Squawk Box" interview. "They were operating in this grey area."
Their company, AbsolutePoker.com, was shut down in 2011, when the Justice Department seized their site. Founders, Scott Tom and Brent Beckley, were indicted. Beckley surrendered and received a 14-month prison sentence. Tom is still on the run.
"These guys were the first people and these guys are paying the price for being too early," Mezrich observed. "They were days away from being like Mark Zuckerberg."
Fast forward to 2013, UltimatePoker.com went live in April, becoming the first legal, real-money poker site in the U.S. "You can register and deposit from anywhere, but you can only play [online] from within the state of Nevada," Tom Breitling, chairman and co-founder of Ultimate Poker told CNBC.
"It's pretty exciting that there's economic development happening with jobs and taxes," he added. "We have over a hundred employees. We're hiring new people every day, especially as this looks to expand beyond Nevada."
New Jersey, which has approved "full-blown casino gaming" legislation, is the next state on the company's list for expansion, he said. "Then you have Deleware that's also approved it. And there's about 10 other states that are looking at it and are very serious about the legislation."
Breitling is no stranger to gambling.
After selling online travel company Travelscape.com to Expedia for more than $100 million, Breitling and his business partner in 2004 bought The Golden Nugget for $215 million. They had become the youngest casino owners in Nevada. About a year later, they sold The Golden Nugget to Landry's Restaurants for around $340 million.
The most important decision Ultimate Poker made as a company was to own its technology, Breitling said, explaining the process for screening users to make sure "they are who they say they are," at least 21 years old, and in the state of Nevada.
"It's really complex technology that verifies your IP address. No [virtual private networks]," he added. "And you have to have a cellphone. So we ping you with a cellphone to make sure you're within the state. And we send you a text message, and you have to reply to that."
As Ultimate Poker carves out its online platform, Breitling stressed that he's cognizant of the potential for cannibalizing the business of physical casinos. "Our partners, Frank and Lorenzo Fertitta, own Station Casinos and they are also the owners of the Ultimate Fighting Championship."
"We're going to do nothing that jeopardizes that land-based operation [in Vegas]," Breitling pledged. "For us it's about this integrated online/offline relationship."
(Read More: Caesars Plans to Launch Online Poker This Summer in Nevada)
Gaming revenue from the Vegas strip totaled $6.2 billion last year, according to the Las Vegas Convention and Visitors Authority. In the years to come, legalized online gaming in the U.S., by many estimates, could approach $10 billion annually.
It only makes sense to regulate and tax online gaming in the U.S. because it's legal in many countries all over the world, the "Straight Flush" author Mezrich argued. "The countries make a lot of money on it."
He pointed out that "a few weeks ago, we were all lining up for Powerball tickets" when the jackpot was more than a half billion dollars. "That's fine, but online poker is not fine? Where is the logic there."