How protectionism and puritanism put paid to online gaming industry

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Typically British take on the internet gambling legislation...



http://news.independent.co.uk/business/analysis_and_features/article1783813.ece


How protectionism and puritanism put paid to online gaming industry


'It undermines the family, dashes dreams and frays the fabric of society'

By Stephen Foley in New York

Published: 03 October 2006



In the end, it was a powerful midnight alliance between two Presbyterian politicians that achieved what a decade of posturing and pushing in the US Congress had previously failed to manage: a devastating legislative blow to the online gambling industry.

For months, the executives of giant internet companies such as Sportingbet and Party Gaming and the City bankers who have become rich off London's position as the financial centre of the industry have all been saying the same thing. There is no political will to prioritise a clampdown against the industry. The congressional effort to lock out the offshore gambling firms will run out of time.

Their complacency was misplaced. In the small hours of Saturday, tacked on to the last bill before senators on this last day of Congress, the Unlawful Internet Gambling Enforcement Act was approved. It was one of more than 150 measures passed in those last hours before senators hit the congressional election campaign trail, cannily designed by the Republican majority leader, Bill Frist, to shore up the party's core support and to progress the pet projects of specific lawmakers who face tight votes.

Both Senator Frist and the bill's author, Jon Kyl, are Presbyterians with a strong anti-gambling streak to their morality, in a country whose religious right has been given increasing voice through the current Republican leadership.

Senator Kyl has described online gambling as a unique threat, where "players can gamble 24 hours a day from the comfort of their home; children may play without sufficient age verification; betting with a credit card can undercut a player's perception of the value of cash, leading to possible addiction and, in turn, to bankruptcy, crime, and suicide; and there is no enforcement commission, such as those that exist in Las Vegas or Atlantic City, to protect consumers from excessive losses or fraud."

A triumphant Senator Frist said at the weekend that the new act would tackle a mushrooming scourge, "a serious addiction that undermines the family, dashes dreams, and frays the fabric of society".

The Senate has traditionally been less inclined to prohibitionism than the lower House of Representatives, where this and an even more belligerent piece of legislation passed with a two-thirds majority earlier this year, but online gambling has been nixed by a combination of political philosophies.

Frank Fahrenkopf, president of the American Gaming Association, which represents bricks-and-mortar gambling business in the US, said: "It is a strange meeting of the Republican party's religious right, which feels it has an obligation to stop people living with the Devil in Hell, and the far left of the Democrats, which think that some people are not smart enough to spend their own money and need to be protected."

There has been a prohibitionist streak in American society from the day the first Puritans came ashore, and there have been more bills across federal and state legislatures to ban gambling than there ever have been to legalise it. The temperance movement of the 19th century was at one point triumphant - in the narrow legal sense, although gambling continued underground and became the preserve of the Mob. Sports betting, racecourse casinos and state lotteries have only been spottily legalised since Nevada became the first state to break the Prohibition-era blanket ban on gambling, with a casino licence granted in 1931 to spur its Depression economy.

Even today, commercial casinos are only licensed by 11 states, and in some of those they are restricted to giant riverboats. On top of this, Native Americans have been granted the right to build casinos on reservations, as a means of economic empowerment and to provide revenue for self-government - some 260 tribes do so.

In these heavily regulated circumstances it should be no surprise that Congress has become exercised by the emergence of the World Wide Web as a tool for wannabe gamblers to access the ethereal casinos based not just outside their state but also outside the country, away from the oversight of US authorities.

From practically nothing when the issue first appeared on the political radar a decade ago, Americans now gamble more than $6bn a year over the internet. The figure has been increasing by a fifth every year. The 1961 Wire Act - which outlaws telephone bets over state lines, and which the Department of Justice believes makes online gambling illegal - is a joke that just keeps getting funnier.

Until now. By attempting to cut the chain of financial transfers from gamblers' bank accounts, through "electronic wallets", to the offshore internet site, the Unlawful Internet Gambling Enforcement Act gives federal authorities a powerful new tool for a crackdown that has so far been limited to sporadic arrests of online gambling industry executives.

The arrest of David Carruthers, then the chief executive of London-listed BetonSports, while he was changing planes in Dallas in July, was a reminder that the Department of Justice can and will use the Wire Act to go after some operators, but all it did - apart from sinking BetonSports - was change a few executive travel plans. The act passed on Saturday, and expected to be signed into law by President George Bush within the fortnight, will hit internet gambling companies hard in the e-wallet.

Proponents of the new crackdown have practical and financial, as well as moral, justifications.

The National Football League and college sports associations are among those who have backed a ban, citing research that 5 per cent of college athletes have accepted money for inside information on their games or for agreeing to play poorly. The worry that the integrity of sports games might be threatened harks back to the scandals of the past, most notoriously the 1919 World Series baseball tournament, when eight members of the favourites White Sox were charged with trying to throw the games.

And then there are the states who claim a significant portion of their revenues from betting duties, such as Louisiana, where Peter Dicks, the former chairman of Sportingbet, is wanted for running an illegal sports betting operation. Louisiana's attorney general, Charles Foti, may have gained his interest in online gambling because of the desperate crimes he saw addicts commit when he was a criminal sheriff, but his authority's attempt to shut down Sportingbet would eliminate one of the most potent growing threats to the state's 14 riverboat and four on-land casinos, which contribute half a billion dollars annual to state coffers.

With states, federal authorities, sports and God on the opposite side, London's online gambling groups face a daunting lobbying task to gain legitimacy in the world's biggest potential market.
 

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here's another...

http://news.independent.co.uk/business/comment/article1783803.ece

Internet gambling firms in freefall



By Susie Mesure in London and Stephen Foley in New York

Published: 03 October 2006



Online gambling companies are scrambling to find loopholes in new legislation aimed at outlawing bets by American internet users after more than £3bn was yesterday wiped off their valuation on the London stock market.

Some of the biggest names in global internet gaming are poised to abandon their lucrative business in the US as soon as President George Bush signs off shock legislation that will cripple the $6bn internet gambling industry. PartyGaming and 888 intend to stop accepting bets from US-based customers as soon as the bill is signed in the next two weeks.

PartyGaming was the biggest casualty of the gaming bloodbath on the London market, losing almost £2bn of its market capitalisation after its shares crashed 58 per cent to 45p. Sportingbet saw two-thirds, or £500m, wiped off its valuation, while 888 lost 26 per cent of its value, or £128m.

Mitch Garber, the chief executive of PartyGaming, said the new law, if signed, would make it "practically impossible" to provide US customers with access to its sites. Exiting the US meant its financial performance would fall "significantly" short of City expectations. 888, which makes half of its profits in the US, and Sportingbet issued similar warnings.

Under the proposed law, which was rushed through late on Friday before Congress went into recess ahead of the US mid-term elections next month, it will become illegal for gaming companies to take any money on bets made over the internet in the US.

The legislation, pushed through in the Senate by its Republican leader, Bill Frist, was tagged on to an unrelated bill on port security. "As the first piece of Federal legislation dealing explicitly with internet gaming, it does make clear that the US government intends to stop the flow of funds from Americans to online gaming operators through criminal sanction," PartyGaming, which makes three-quarters of its revenues from the US, said. This was in direct opposition to the line spun by the poker giant when it floated on the stock market two years ago, sparking an online gaming bubble that has now burst.

Lobby groups and City analysts expressed scepticism that the law would be enforceable. Frank Fahrenkopf, president of the American Gaming Association (AGA), which represents bricks and mortar gambling businesses in the US, said he did not believe the legislation would be enough to enforce a ban on online gaming. "Money always has a habit of finding its way to where it wants to go," he said.

John Anderson, 888's chief executive, said: "It's a shame for the American consumer. This will just drive it underground. Look what happened with Prohibition."

Sportingbet said it intends to lobby the World Trade Organisation to find out whether the legislation would "violate" US commitments under the general agreement of trade and services struck recently. The UK group said it was "unclear" how the US Treasury and Federal Reserve, which will have 270 days to decide how to crack down on internet gamblers, might enforce the bill against non-US corporates.

One senior executive said it was possible that groups representing US banking interests could lobby to get non-credit card payments, such as money transfers via Western Union, exempted on the grounds that it would not be practical to identify the use of the proceeds. Only credit card companies use a coding system that identifies internet gambling transactions. Another executive said it was possible cash bets could be exempted from the legislation.

UK companies linked to the internet gambling sector also suffered. NETeller, which processes payments, lost 61 per cent of its value, or around £260m, while Playtech, a software provider, was worth £220m less at the market close, valuing it at £310m.
 

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