Monday, October 16, 2006

Online gambling companies based in Britain began folding the cards on their
U.S. operations Friday as President George W. Bush signed a bill banning
Internet gambling there. The closure of the most lucrative market in the
world is a severe blow to the nascent online gambling industry. At least one
company collapsed from the high costs of exiting the United States and
others were damaged. The North American market accounted for the vast
majority of earnings of Internet gambling companies based in London, which
were caught by surprise two weeks ago when the U.S. Congress passed the
Unlawful Internet Gambling Enforcement Act, making it illegal for banks and
credit card companies to settle payments to online gambling sites. Shares in
gambling companies sank rapidly after that announcement and Bush provided
the final blow Friday when he signed the measure into law as part of a bill
aimed at improving port security. Sportingbet and Leisure & Gaming both sold
their U.S. operations for a token $1 Friday. In selling its operations to
Jazette Enterprises of Antigua, Sportingbet offloaded $13.2 million of debt.

Meanwhile, World Gaming directors resigned, leaving the company in the hands
of administrators. PartyGaming, the world's largest gambling company, said
it had suspended all real-money gambling activities to customers in the
United States. Empire Online said it would focus on gambling outside the
United States, while 888 Holdings said it was considering its options.

The loss of U.S. business will be hard felt. U.S. residents account for half
a market that is estimated to be worth $15.5 billion this year in "spend"
value, according to the Betting Research Unit at Nottingham Business School.
The spend value is the amount gambling companies win from their customers -
or the amount gamblers lose - and is much less than revenue because most of
the revenue is recycled to gamblers in the form of winnings.

Analysts said the industry was now cleaving in two. On one side are the
London companies that are pulling out of U.S. operations. On the other are
private offshore companies located in the Caribbean, like Jazette,