Betting Against Online Gambling

[domafia]

BusinessWeek Online
Wednesday July 12, 8:08 am ET
By Catherine Holahan


Online gambling just got riskier. House of Representatives lawmakers on July 11 passed antigambling legislation that could make it difficult for U.S. gamblers to carry out transactions online.
If passed, the Internet Gambling Prohibition and Enforcement Act could deal a blow to the online betting industry. It explicitly bans Internet gambling, prohibits online poker sites and other betting companies from "knowingly accepting" money from U.S.-based customers, and encourages financial institutions to deny Internet gambling transactions. It does not affect horse racing.
Bill sponsors heralded the passage as a victory against gambling addiction and illegal activity. "Internet gambling is a serious problem that must be stopped, and I believe the Internet Gambling Prohibition and Enforcement Act will help eliminate this harmful activity before it spreads further," bill co-sponsor Bob Goodlatte, a Republican from Virginia, said in a statement.
Smoke And Mirrors.

Holders of stock in online gambling outfits didn't take the news well. Shares of Gibraltar-based PartyGaming (PRTY), which owns the popular Party Poker, Party Casino, and StarLuck sites, plummeted 24% on the London Stock Exchange. PartyGaming had gotten a lift in June on reports that it planned to expand its sports betting operation [see BusinessWeek.com, 6/29/06, "On the Move: Deutsche Boerse, Alitalia, Party Gaming"]. But concerns over the pending U.S. legislation sent the stock into decline soon after.
Just how much of a setback is the proposed legislation for the $12 billion industry? While online gambling companies generate half their sales from U.S. gamblers, the industry is operated almost completely by companies beyond the reach of U.S. regulators. "Lawmakers can put a dent in it, but they are not going to stop it," says Sebastian Sinclair, president of New York-based Christiansen Capital Advisors, which has followed the online betting industry since 1995. Adds Frank Catania, president of New Jersey-based Catania Consultancy, which specializes in gaming: "Legislation is not going to affect offshore Web sites. It's a lot of smoke and mirrors and misstatements."
In essence, the bill does little to change what Visa, Mastercard (NYSE:MA - News), and most merchant banks have done since November, 2001, when they first began refusing e-gambling transactions. "The industry went down about 20 percent then," Sinclair says of shares in e-gambling companies. "A year later, they were back to the same level, and then, a year after that, they probably saw 20% to 30% growth. I expect you will see something similar."
New Wire Act.

On July 11, PartyGaming spokesman John Shephard said the company was monitoring the U.S. government's actions and was hopeful that American lawmakers would eventually follow the "sensible and pragmatic approach" of the U.K., which has embraced online gambling and the billions of pounds in tax revenue to be reaped from it [see BusinessWeek.com, 5/15/06, "Britain Bets on Internet Casino Games"]. "Prohibition is not the right way to do things," Shephard said.
Bookmaking and other gambling activity has been legal in the U.K. since the 1960s. "The U.K. has always been very liberal on betting," says Leighton Vaughan Williams, director of the betting research unit at the Nottingham Business School.
Not so in the U.S. The bill, known as HR4411, was pitched by sponsors Goodlatte and James A. Leach, a Republican from Iowa, as merely clarification of the existing 1961 Wire Act, which prohibits gambling transactions over telephone lines. Until July 11, there was still some debate as to whether the Wire Act was applicable to the Internet.
When The Chips Are Down.

That debate is over, but bets are far from off. After the 2001 action by U.S. banks, the industry recovered, thanks to online vendors such as Neteller (NLR), FirePay, and CentralCoin, which allow transactions from gambling sites. Known as "e-wallets," these companies let customers put money into an account and transfer funds from online sites into those accounts. The sites also allow users and Web sites to transfer funds to each other, enabling gambling sites to deduct and add money to users' accounts. Shares of Neteller, one of the largest e-wallets, fell 7.3% on the London Stock Exchange on concern over the bill.
The Gambling Prohibition and Enforcement Act also allocates $10 million a year for three years for prevention of illegal online gambling. But even groups dedicated to ending gambling addiction surmise that Americans who want to play will find some way to get their chips into the hands of Internet dealers. "We believe this bill is rhetoric and it will only indirectly help problem gamblers," says Keith Whyte, executive director of the National Council on Problem Gambling in Washington, D.C. "We suspect that, much like with people buying illegal drugs, the money will find a way to flow. Certainly prohibiting sports gambling over the last 20 years has not done much to limit the flow of money to domestic sports gambling."
The bill may not even become law. To date, there is no pending companion legislation in the Senate. "The ball is now in the Senate's court," bill co-sponsor James A. Leach, a Republican from Iowa, said in a statement. The Senate would have to bring the house's legislation, or a similar bill, up for debate and pass it before the President can consider signing it into law. If the Senate fails to act, ultimately the legislation will die.
More Time In Vegas?

Still, there are worries that a Congress and President eager to focus debate on family values may get behind such legislation. And, if the bill does become law, some Internet gamblers say they'll steer clear of the new risks associated with online betting. "If they made it so that a company could refuse to pay me, it would be hard to justify that second gamblegambling that I'd be getting paid when I won," says "Mr. Dynamite," a New Yorker who regularly gambles online and hosts a popular blog about his experiences, Fridayinvegas.blogspot.com.
In that case, Mr. Dynamite, who asked that his real name not be used, says he'd find another way to get his gambling fix: more Friday nights in Vegas.


http://biz.yahoo.com/bizwk/060712/tc....v=2&printer=1

[Dr. Jack]

Good article Dom

[The Judge]

Originally Posted by domafia

Shares of Gibraltar-based PartyGaming (PRTY), which owns the popular Party Poker, Party Casino, and StarLuck sites, plummeted 24% on the London Stock Exchange.

Time to buy into this stock as the bill has no chance of getting to the President's desk.

[The Judge]

US House Passes Goodlatte/Leach Bill
by Bradley Vallerius

The House of Representatives debated HR 4411, the Internet Gambling Prohibition and Enforcement Act, for over three and a half hours today before approving it by a vote of 317-93. It will now be referred to the Senate for further consideration, where efforts to pass it are likely to be spearheaded by Sen. Jon Kyl, R-Ariz.

HR 4411 is a bill that merges the two separate online gambling prohibition bills championed by Reps. Bob Goodlatte, R Va., and James Leach, R-Iowa. As was the case when Goodlatte's bill appeared before a House committee and subcommittee in recent months, much debate continues to center around the issue of exemptions for certain types of gambling over the Internet.

Goodlatte argued during the hearing that all gambling has historically been illegal in the United States unless it is expressly regulated by state authorities. He insists that HR 4411 simply maintains that balance by updating the language of the Wire Act to clearly state that remote forms of gambling that have not been expressly regulated by the states are illegal.

Supporters of Goodlatte filled minutes of their allotted time with the typical arguments against online gambling, such as that it sucks billions of dollars away from the American economy, fosters addiction and family problems, serves as a vehicle for money laundering and is run by disreputable "offshore, fly-by-night operations."

Reps. John Conyers, D-Mich., and Robert Scott, D-Va., opposed the legislation as they have done in previous hearings. Scott stated that there is nothing in the bill to prohibit Internet gambling and demonstrated that rather than targeting the act of gambling, HR 4411 actually targets the operating of an online gambling business. He added that the sites that run online gambling businesses are already based outside the U.S. out of the reach of authorities.

Conyers several times referred to HR 4411 as "Abramoff's Revenge." A large part of the Republicans' argument for placing such high priority on Internet gambling prohibition has been the fact that corrupt lobbyist Jack Abramoff worked to defeat a prohibition bill in 2000. Conyers pointed out, however, that the only reason Abramoff fought against a prohibition bill in 2000 was because he represented a client that wished for states to have the ability to offer lotteries over the Internet. As HR 4411 now stands, individual states would preserve the right to regulate Internet gambling if they so choose, so by Conyers' reasoning, Abramoff would not have opposed such a bill.

Although the language of HR 4411 preserves states' rights to regulate online gambling, it is thought that a state would have to use appropriate technology to verify gamblers ages and identities and that such regulations would be for intrastate gambling only. Goodlatte noted, however, that he does not believe technology exists to verify a Web surfers' location, so he envisions his bill as an all-out prohibition.

Toward the end of the hearing, Rep. Shelley Berkley, D-Nev., introduced an amendment whose stated goal was to "eliminate the exceptions to the bill's general prohibition against online gambling, thereby establishing a complete ban on all Internet gambling-related activities." Berkley, who was assisted by Conyers and Rep. Wexler, D-Fl, in drafting the amendment, stated that the HR 4411 is hypocritical because it does not ban all forms of online gambling. She stated that Goodlatte has only exempted the horse racing industry because he knew it would vigorously oppose his bill if he did not. Her amendment would make remote horse race wagering illegal as well.

Goodlatte called Berkley's proposed attachment a "poison pill" amendment because his underlying bill will fail if Berkley's amendment succeeds. He pointed out that Berkley represents the state of Nevada, which has by far the most liberalized gambling laws of any U.S. state, and he alleged that it is not really Berkley's intent to make all forms of remote gambling illegal but rather to ensure that Goodlatte's bill fails.

Goodlatte continues to assert that there is a distinct federal law that deals with remote horse racing (Interstate Horseracing Act), which is why his bill makes no judgment on the issue.

Berkley's amendment failed by a vote of 111-297.

Today's discussion of HR 4411 focused mainly on the language Goodlatte brought to it. There was little debate over the plausibility or practicality of the financial policing aspects of the bill that have been proposed by Leach.

If the bill passes, it will be championed by Kyl in the Senate. Insiders predict a tougher battle in Senate, however, and there are not many days remaining in the legislative calendar. This being an election year constrains time even further.


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