Business as Usual

22 October 2007

Long before former Sen. Bill Frist, R-Tenn., strong-armed members of Congress into passing the Unlawful Internet Gambling Enforcement Act (UIGEA), two entrepreneurs in San Francisco, Calif., launched an online poker site that, from all angles, appears to comply with federal and state laws.

PurePlay launched in November 2005 under the name BetZip, but recently re-branded and re-launched under its new name.

The three basic common law elements of gambling are prize, chance and consideration. But by taking consideration out of the equation, PurePlay insists its business model is playing by the rules and CEO Jason Kellerman said his company has never heard a peep from the U.S. Department of Justice (DOJ).

PurePlay's business model is simple. It offers players the chance to play poker for cash prizes without spending any money. Kellerman said the reason he and partner Marc Marin started the site was to fill a consumer need.

"Back then there were really only two options for poker players--they could either play in play-for-fun rooms where nobody really plays competitively because there's nothing at stake, or they could play rake poker where they stood to lose money if they weren't careful," Kellerman said. "So, what we discovered is that there were tens of millions of people that were playing play-for-fun poker because many of them were afraid of the risk of rake poker. So, our model was really developed to go after those folks and give them an option where they could spend $20 a month--no more than that ever--and they could play for large cash prizes and play competitively with other players."

For the first year, the company primarily focused on subscription players and didn't concentrate too much on bringing in many free players, Kellerman explained. But then the passage of the UIGEA in October 2006 proved to be a boon to PurePlay as U.S.-based players locked out of poker rooms that were forced out of the U.S. market began looking for other places to play poker and found PurePlay. So, the company began tailoring their business to make the free-play product more attractive and began advertising.

For a mere $19.95 a month, members can have access to premium tournaments ($125,000 total payout each month), proprietary skill rating based on actual play, player stats, private tournament entrance based on skill level, a higher level of customer support and ad-free game play. PurePlay also offers a basic membership, or play-for-free membership, which affords players' admittance to the free poker rooms and tournaments with total monthly cash prizes of $25,000. But basic members must endure banner advertisements during play.

However, the banner ads are the basis of PurePlay's $150,000 in total monthly prizes, with subscription fees supplementing the cause. Kellerman admits, though, that over time the company hopes that perhaps corporate sponsors would fund some of the prize money as well.

"We are thinking mainstream, such as a hotel company to give away a free vacation," he said. "But that idea is not a high priority right now."

Further explaining the business model, Kellerman compared PurePlay's tournaments to sweepstakes run by companies such as Coca-Cola and McDonald's.

"The big difference is that instead of winning a raffle like you might for Coke or McDonald's, our members play poker for prizes," he said. "So, by offering this sweepstakes type model, we maintain compliance with federal and state regulations in the same way that Coke and McDonald's do."

But the difference between the sweepstakes model and the PurePlay model, some might argue, is that sweepstakes promote a product and PurePlay is not clearly promoting a tangible product.

"Generally, for gambling to exist, the three elements of prize, chance and consideration must be present," said gaming lawyer Larry Walters. "But some state laws alter those elements. The consideration element can be tricky, because just about any exchange of value can be considered 'consideration.' So if the players are being asked to do anything, or provide anything that can be considered valuable in exchange for the opportunity to win a prize, that could be considered gambling. Some of the court decisions have drawn the line at the player's 'time' or effort in filling out a form, however."

So, in that respect, the subscription fees could be considered consideration. But as Kellerman said, PurePlay has never heard from the DOJ.

"And I wouldn't expect to," Kellerman said.

"When we got into this particular business model we took great care to ensure that we were not running afoul of any laws," he continued. "Everything that we've done is based in the United States: Our main office is in the United States; our servers are in San Francisco. This is a business which has been very carefully vetted and thought through."

At the same time casual gaming sites such as Pogo offer cash prizes without risk, just as PurePlay does. Pogo, owned by computer games manufacturer Electronic Arts, has offered casual games, leveraging a very similar type of model from a legal standpoint for many years, Kellerman said.

PurePlay's future goes well beyond poker, Kellerman intimated. He feels there is an opportunity for online prize competitions for a wealth of other games.

"We really think we've struck a chord with consumers," Kellerman added. The fact that we have 700,000 players, growing at the rate that it's growing and the amount of time they spend on the site. So, we think we're on to something and we think this is going to be really big, not only with poker, but as we extend beyond poker."

Emily Swoboda is the senior staff writer at IGamingNews. She lives in St. Louis, Mo.