Monday, October 02, 2006

AMERICA's $6 billion (£3.2 billion) internet gambling industry is facing
meltdown after the US Senate pushed through a Bill at the weekend outlawing
the processing of bets by banks and credit companies. The surprise move,
which is expected to spark a massive share sell-off, will prompt
London-listed 888 Holdings to announce this morning that it is halting its
entire US-facing operation, accounting for half its business. PartyGaming,
the world's biggest internet gambling company, said last night that it was
"still evaluating the situation", although industry sources believe it will
also announce a cessation of its services to American punters. However
Sportingbet, which was celebrating on Friday after a New York court released
its former chairman, who had been facing gambling charges, will tell
investors that it is still digesting the implications of the Bill. Despite
the Bill's prescriptive nature, it excludes local online betting on
horseracing, fantasy leagues and lotteries. It also has no impact on the
hundreds of casinos and gambling emporia that dot America, ranging from the
neon palaces of Las Vegas and Atlantic City to the riverboat casinos that
ply their trade on the Mississippi. One senior internet gambling executive
said last night: "This is the worst form of protectionism I have ever seen.
This will drive internet gambling underground and consumer protection will
go out of the window. The religious groups that lobbied for this may live to
regret it." The Unlawful Internet Gambling Enforcement Bill needs only to be
signed by President Bush to become law. Legal sources predict that he will
do so in the next two weeks, possibly as early as Wednesday.

The passing of the Bill in the early hours of Saturday surprised the
industry. Although it had successfully negotiated Congress, its passage
through the Senate looked likely to be blocked through lack of parliamentary
time.

However, Bill Frist, the Republican leader in the Senate, got the measure
through by attaching it to an unrelated Bill that enhances port security.

"Gambling is a serious addiction that undermines the family, dashes dreams
and frays the fabric of society," Dr Frist said. "The bottom line is simple:
internet gambling is illegal. Although we can't monitor every online gambler
or regulate offshore gambling, we can police the financial institutions that
disregard our laws."

The ban may drive some small companies out of business, although big
operators such as 888 and PartyGaming will highlight the strong prospects of
their non-US business.

However, 888 is expected to warn its shareholders in a Stock Exchange
statement this morning that its withdrawal from America will force it to
pare back its cost base, resulting in a significant hit against this year's
profits.